<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1994
REGISTRATION STATEMENT NO. 33-52977
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LEHMAN BROTHERS HOLDINGS INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6211 13-3216325
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
THOMAS A. RUSSO, ESQ.
3 WORLD FINANCIAL CENTER 3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285 NEW YORK, NEW YORK 10285
(212) 298-2000 (212) 298-2000
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including telephone
area code, of Registrant's principal executive number, including area code, of agent for
offices) service)
</TABLE>
------------------------
Copy to:
MATTHEW J. MALLOW, ESQ.
GREGORY A. FERNICOLA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE AND DISTRIBUTION TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(A) OFFERING PRICE(A) REGISTRATION FEE
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Common Stock, $.10 par value per
share............................. 441,600 shares(b) $25.52649457 $11,272,500 $3,887.07
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Common Stock, $.10 par value per
share, to be distributed by
American Express Company to its
common shareholders............... 98,489,010 shares $ 0(c) $ 0(c) $ 0(c)
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Total............................... 98,930,610 shares $11,272,500 $315,555.92(d)(e)
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</TABLE>
(a) Estimated solely for the purpose of computing the amount of the
registration fee.
(b) Consists of shares of Common Stock to be purchased from American Express
Company by executive officers of the Registrant and its subsidiaries.
(c) No separate consideration will be received for shares of Common Stock to
be distributed to the common shareholders of American Express Company.
(d) Includes an additional fee of $311,668.85.
(e) The Registration Fee has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement covers the registration of (a) the sale (the
"Offering") by American Express Company ("American Express") of 441,600 shares
of Common Stock of Lehman Brothers Holdings Inc. ("Holdings") to executive
officers of Holdings and its subsidiaries; and (b) 98,489,010 shares of Common
Stock of Holdings, which is the maximum amount of such shares expected to be
distributed by American Express to the common shareholders of American Express
as a special dividend (the "Distribution") which is expected to occur following
the Offering. The Prospectus describes a Distribution of 98,254,243 shares of
Common Stock, which is based on the number of shares of American Express common
shares expected to be outstanding on the record date for the Distribution;
additional shares have been registered to cover a possible increase in the
number of American Express common shares outstanding on or prior to the record
date for the Distribution.
This Registration Statement contains two forms of prospectus: (i) a
prospectus to be used in connection with the Offering (the "Offering
Prospectus") and (ii) a prospectus to be used in connection with the
Distribution (the "Distribution Prospectus"). The Offering Prospectus and the
Distribution Prospectus will be identical, except for their respective front and
back cover pages. Following the front and back cover pages, respectively, of the
form of Offering Prospectus are alternate front and back cover pages of the form
of Distribution Prospectus, each of which is marked "ALTERNATE PAGE FOR
DISTRIBUTION PROSPECTUS."
<PAGE> 3
LEHMAN BROTHERS HOLDINGS INC.
------------------------
CROSS REFERENCE SHEET
Cross reference sheet pursuant to Item 501(b) of Regulation S-K between
Items in Part I of Registration Statement (Form S-1) and location in the
Prospectus.
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<CAPTION>
REGISTRATION ITEM LOCATION IN
AND HEADING PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover and Outside Back Cover
Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds............................ Not Applicable
5. Determination of Offering Price............ The Offering and the Distribution*
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Principal Stockholders*
8. Plan of Distribution....................... Outside Front Cover Page; Prospectus
Summary; The Offering and the Distribution
9. Description of Securities to be
Registered............................... Description of Capital Stock; Certain
Corporate Governance Matters
10. Interests of Named Experts and Counsel..... Not Applicable
11. Information with Respect to the
Registrant............................... Outside Front Cover Page; Prospectus
Summary; The Company; The Offering and the
Distribution; Recent Developments; Risk
Factors; Use of Proceeds; Dividend
Policy; Capitalization; Condensed Pro
Forma Consolidated Financial Statements;
Selected Historical Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions and
Agreements Between the Company and
American Express; Certain Transactions
and Agreements Among Holdings, American
Express and Nippon Life; Principal
Stockholders; Description of Capital
Stock; Certain Corporate Governance
Matters; Historical and Pro Forma
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
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* Applicable only to the Offering.
<PAGE> 4
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.
SUBJECT TO COMPLETION, DATED APRIL 28, 1994
PROSPECTUS
441,600 SHARES
LEHMAN BROTHERS HOLDINGS INC.
COMMON STOCK
---------------------------
The 441,600 shares of common stock, par value $.10 per share ("Common
Stock"), of Lehman Brothers Holdings Inc., a Delaware corporation ("Holdings"),
offered hereby will be sold by American Express Company, a New York corporation
("American Express"), to executive officers of Lehman Brothers for an aggregate
purchase price of approximately $11.3 million, or approximately $25.53 per share
(the "Offering"). Holdings will not receive any of the proceeds from the sale of
the shares of Common Stock by American Express in the Offering.
Prior to the Offering, American Express will own all of the issued and
outstanding shares of Common Stock. American Express has advised Lehman Brothers
that following the consummation of the Offering and the Equity Investment (as
defined herein), American Express will distribute all of the Common Stock then
held by it to its common shareholders as a special dividend (the
"Distribution").
Prior to the Distribution, the equity capital of Holdings will be increased
by approximately $1.25 billion through the issuance of common and/or preferred
stock of Holdings to American Express, Nippon Life Insurance Company ("Nippon
Life") and, pursuant to an employee ownership plan, employees of Lehman
Brothers. See "Prospectus Summary -- Concurrent Transactions."
Prior to the Offering, there has been no public market for the Common
Stock. Application is being made for listing of the Common Stock on the New York
Stock Exchange (the "NYSE") under the symbol "LEH." Although there is no current
trading market for the Common Stock, a "when issued" market is expected to
develop prior to the record date for the Distribution.
---------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS."
---------------------------
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.
---------------------------
It is expected that delivery of the certificates for the shares of Common
Stock will be made at the offices of Lehman Brothers Holdings Inc., New York,
New York, on or about May 27, 1994.
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April 29, 1994
<PAGE> 5
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.
ALTERNATE PAGE FOR DISTRIBUTION PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 28, 1994
PROSPECTUS
98,254,243 SHARES
LEHMAN BROTHERS HOLDINGS INC.
COMMON STOCK
---------------------------
This Prospectus is being furnished in connection with the distribution (the
"Distribution") to holders of common shares of American Express Company, a New
York corporation ("American Express"), of all outstanding shares of common
stock, par value $.10 per share ("Common Stock"), of Lehman Brothers Holdings
Inc., a Delaware corporation ("Holdings"), held by American Express. Prior to
the Distribution, American Express will sell to executive officers of Lehman
Brothers 441,600 shares of Common Stock for an aggregate purchase price of
approximately $11.3 million, or approximately $25.53 per share (the "Offering").
In addition, prior to the Distribution, the equity capital of Holdings will be
increased by approximately $1.25 billion through the issuance of common and/or
preferred stock of Holdings to American Express, Nippon Life Insurance Company
("Nippon Life") and, pursuant to an employee ownership plan, employees of Lehman
Brothers. See "Prospectus Summary -- Concurrent Transactions."
All of the shares of Common Stock held by American Express immediately
prior to the Distribution will be distributed to holders of record of American
Express common shares as of the close of business on May 20, 1994 (the "Record
Date"). Each such holder will receive one-fifth of one share of Common Stock for
every American Express common share held on the Record Date. The Distribution
will occur at 12:00 midnight on May 31, 1994. American Express common
shareholders will not be required to pay for the shares of Common Stock received
in the Distribution, or to surrender or exchange American Express shares in
order to receive Common Stock of Holdings in the Distribution.
Prior to the Distribution, there has been no public market for the Common
Stock. Application is being made for listing of the Common Stock on the New York
Stock Exchange (the "NYSE") under the symbol "LEH." Although there is no current
trading market for the Common Stock, a "when issued" market is expected to
develop prior to the Record Date.
---------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY RECIPIENTS
OF THE COMMON STOCK, SEE "RISK FACTORS."
---------------------------
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.
---------------------------
Shareholders of American Express with inquiries related to the Distribution
should contact Stephen P. Norman, Secretary, American Express Company, at
212-640-5583 or the Distribution Agent, Chemical Bank, J.A.F. Building, P.O. Box
3068, New York, New York 10116-3068, telephone 800-463-5911.
---------------------------
April 29, 1994
<PAGE> 6
As used in this Prospectus, "Holdings" means Lehman Brothers Holdings Inc.,
a Delaware corporation, the issuer of the Common Stock offered hereby. Holdings
and its subsidiaries are collectively referred to as "Lehman Brothers" or the
"Company." The principal subsidiary of Holdings, Lehman Brothers Inc., a
Delaware corporation, together with its subsidiaries, is referred to as "LBI."
------------------------
AVAILABLE INFORMATION
Holdings has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations thereunder for the registration of the Common
Stock being offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information about Holdings and the securities offered hereby, reference is made
to the Registration Statement, including any exhibits or amendments thereto. The
Registration Statement, together with any exhibits or amendments thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Commission: 7 World
Trade Center (13th Floor), New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all such materials or any part
thereof may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the fees
prescribed by the Commission.
Holdings is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports and other information with the Commission. Such
information filed by Holdings with the Commission can be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center (13th Floor),
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all such materials or any part thereof may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission.
In addition, information concerning Holdings can be inspected at the
offices of the NYSE and the American Stock Exchange.
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Capitalized terms used but not defined in this summary are defined elsewhere in
this Prospectus. Unless the context otherwise requires, the information
contained in this Prospectus, including numbers of shares, gives effect to a
0.3179723 for 1 reverse stock split (the "Reverse Stock Split") of the
outstanding Common Stock. The calculation of the reverse split ratio is based on
the number of American Express common shares expected to be outstanding as of
the record date for the Distribution; however, the final reverse split ratio
will be based on the number of American Express common shares actually
outstanding as of the record date for the Distribution.
THE COMPANY
Lehman Brothers is one of the leading global investment banks serving
institutional, corporate, government and high net worth individual clients and
customers. The Company's worldwide headquarters in New York and regional
headquarters in London and Tokyo are complemented by offices in 19 additional
locations in the United States, 11 in Europe and the Middle East, four in Latin
and South America and seven in the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; institutional
asset management; research; and the trading of foreign exchange, derivative
products and certain commodities. The Company acts as a market maker in all
major equity and fixed income products in both the domestic and international
markets. Lehman Brothers is a member of all principal securities and commodities
exchanges in the United States, as well as the National Association of
Securities Dealers, Inc. ("NASD"), and holds memberships or associate
memberships on several principal international securities and commodities
exchanges, including the London, Tokyo, Hong Kong, Frankfurt and Milan stock
exchanges.
Lehman Brothers is a leading underwriter of equity and equity-related
securities and taxable and tax-exempt fixed income securities and has an
institutional sales force of over 750 professionals and a sales force of over
500 professionals serving high net worth individuals and small and mid-sized
institutions. For 1993, according to Securities Data Company, Inc., Lehman
Brothers was the third ranked underwriter of equity and debt securities
worldwide and the fourth ranked advisor in global mergers and acquisitions.
Since 1990, the Company's equity and fixed income research departments have
ranked first or second in the annual research survey conducted by Institutional
Investor.
Since 1990, Lehman Brothers has followed a "client/customer-driven"
strategy. Under this strategy, Lehman Brothers concentrates on developing lead
relationships with major issuing and advisory clients and investing customers
worldwide. By identifying and addressing the financial needs and objectives of
these clients and customers, the Company seeks to build an increasing "flow" of
business. The Company believes that such relationships position Lehman Brothers
to receive a substantial portion of its clients' and customers' financial
business and lessen the volatility of revenues generally associated with the
securities industry.
During 1993, the Company sold the Shearson retail brokerage and asset
management businesses; The Boston Company private banking, trust and mutual fund
administration businesses; and Shearson's mortgage banking business. See "Recent
Developments." Excluding the results of these operations, for the year ended
December 31, 1993, Lehman Brothers' net revenues were $3.5 billion and income
from continuing operations was $355 million after deducting a $21 million
after-tax reserve for non-core businesses.
At December 31, 1993, the Company had approximately 9,300 employees and
total assets of $80.5 billion.
3
<PAGE> 8
CONCURRENT TRANSACTIONS
Prior to the Distribution, 441,600 shares of Common Stock will be offered
and sold by American Express in the Offering to executive officers of the
Company for an aggregate purchase price of approximately $11.3 million, or
approximately $25.53 per share.
Prior to the Distribution, Holdings also will (i) sell 35,407,931 shares of
Common Stock to American Express for an aggregate purchase price of
approximately $903.8 million, or approximately $25.53 per share (the "American
Express Common Stock Purchase"), (ii) sell to Nippon Life 3,492,858 shares of
Common Stock (the "NL Common Stock Purchase") and 72 shares of Redeemable Voting
Preferred Stock (the "Redeemable Preferred Stock") and assign its interest to
certain revenue and profit participation rights described hereunder for an
aggregate purchase price of approximately $89.2 million, (iii) sell to American
Express 8,000,000 shares of Cumulative Voting Preferred Stock (the "Cumulative
Preferred Stock") for an aggregate purchase price of $200 million and 928 shares
of Redeemable Preferred Stock for $1.00 per share (such purchase of Cumulative
Preferred Stock for $200 million, Redeemable Preferred Stock for $1.00 per share
and the purchase of Redeemable Preferred Stock by Nippon Life, collectively, the
"Preferred Stock Purchases" and, together with the American Express Common Stock
Purchase and the NL Common Stock Purchase, the "Equity Investment"), (iv) issue
up to 3,387,963 shares, having an aggregate purchase price of approximately $57
million, upon conversion of all outstanding phantom equity interests offered in
1993 pursuant to the Lehman Brothers Employee Ownership Plan (the "Phantom Share
Conversion") and (v) issue 9,793,754 shares of Common Stock to American Express
in exchange for $250 million of Money Market Preferred Stock of Holdings (the
"MMP Shares") held by American Express (the "MMP Exchange").
Following the Offering, the Equity Investment, the Phantom Share Conversion
and the MMP Exchange, American Express intends to distribute, subject to certain
conditions, all of the Common Stock then held by it (which will represent
approximately 92.9% of the outstanding Common Stock) pro rata to the common
shareholders of American Express. See "The Offering and the Distribution." The
Offering, the Equity Investment, the Phantom Share Conversion, the MMP Exchange
and the Distribution are collectively referred to herein as the "Concurrent
Transactions." Following the Distribution, American Express and Nippon Life will
be entitled to receive approximately 92.8% and 7.2%, respectively, of the
revenue and profit participation rights received in connection with the sale of
Shearson. See "Recent Developments -- The Primerica Transaction."
THE OFFERING
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<S> <C>
Common Stock to be sold in the Offering...... 441,600 shares
Common Stock to be distributed
in the Distribution........................ 98,254,243 shares(a)
Common Stock to be outstanding
after the Offering and the Distribution.... 105,776,664 shares(b)
Use of Proceeds.............................. Holdings will not receive any of the proceeds
from the sale of the shares of Common Stock
by American Express in the Offering. The
proceeds to Holdings from the Equity
Investment (approximately $1.2 billion) will
be used to repay commercial paper and
short-term debt and to pay costs in
connection with the Concurrent Transactions
and certain other related expenses estimated
to be $20 million. See "Use of Proceeds."
NYSE Symbol.................................. "LEH"
</TABLE>
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(a) Consists of 53,052,558 shares of Common Stock held by American Express after
the Offering, 35,407,931 shares of Common Stock to be acquired by American
Express in the American Express Common Stock Purchase and 9,793,754 shares
of Common Stock to be issued to American Express in the MMP Exchange.
(b) Includes approximately 200,000 shares of restricted Common Stock to be
issued upon replacement of American Express restricted stock awards in
connection with the Distribution. Does not include up to 28,700,000 shares
of Common Stock reserved for issuance pursuant to certain employee benefit
plans. See "Management."
4
<PAGE> 9
THE DISTRIBUTION
Distribution Ratio......... One-fifth of one share of Common Stock for each
common share of American Express held on the Record
Date (the "Distribution Ratio").
Securities to be
Distributed................ The shares to be distributed in the Distribution
will constitute approximately 92.9% of the
outstanding Common Stock of Holdings immediately
after the Distribution.
Fractional Share
Interests.................. Fractional shares will not be distributed.
Fractional shares will be aggregated and, after the
Distribution, sold in the public market by the
Distribution Agent and the aggregate net cash
proceeds will be distributed ratably to those
shareholders of record otherwise entitled to
fractional interests. See "The Offering and the
Distribution -- Manner of Effecting the
Distribution."
Record Date................ May 20, 1994 (close of business New York time) (the
"Record Date")
Distribution Date.......... May 31, 1994 (12:00 midnight New York time) (the
"Distribution Date")
Tax Consequences of the
Distribution............. It is a condition of the Distribution that American
Express receive an opinion from tax counsel to the
effect that, although the matter is not entirely
free from doubt, the distribution of Common Stock
to the common shareholders of American Express
should qualify as a tax-free distribution for
federal income tax purposes except to the extent
that cash is received for fractional share
interests. Accordingly, American Express
shareholders will be required to apportion their
tax basis in American Express common shares held
immediately before the Distribution between such
shares and the Common Stock received in the
Distribution, based on their respective relative
fair market values as of the Distribution Date. See
"The Offering and the Distribution -- Federal
Income Tax Consequences."
Trading Market and
Symbol..................... Application is being made for listing of the Common
Stock on the NYSE under the symbol "LEH."
Distribution Agent......... Chemical Bank
Transfer Agent and
Registrar for the Common
Stock.................... First National Bank of Boston
5
<PAGE> 10
DIVIDEND POLICY
Holdings anticipates that following the Distribution Date it will pay a
dividend for the third quarter of 1994 of $0.125 per share of Common Stock. No
such dividend, however, has been declared and the payment of dividends will be a
business decision to be made by Holdings' Board of Directors from time to time
based on considerations the Board of Directors deems relevant and will be
payable only out of funds legally available under Delaware law. Relevant
considerations are likely to include: (a) the Company's earnings, (b) general
market conditions, (c) the dividend policy of the Company's public competitors,
(d) the capitalization of the Company's competitors and (e) preferred stock
dividend requirements, including the dividend requirements applicable to the
Redeemable Preferred Stock.
RELATIONSHIPS WITH AMERICAN EXPRESS AND NIPPON LIFE
American Express currently owns all of the issued and outstanding Common
Stock. The Company and American Express are entering into several agreements for
the purpose of giving effect to the Distribution and defining their ongoing
relationship. See "Certain Transactions and Agreements Between the Company and
American Express."
Nippon Life currently owns approximately 12% of the outstanding voting
securities of Holdings on a fully diluted basis through its ownership of
convertible voting preferred stock of Holdings and a warrant to purchase Common
Stock. In connection with the Offering and the Distribution, certain contractual
relationships between Holdings and Nippon Life will be modified. See "Certain
Transactions and Agreements Among Holdings, American Express and Nippon Life."
Immediately prior to the Distribution, in addition to the Common Stock to
be purchased in the American Express Common Stock Purchase, American Express
will purchase from Holdings the Cumulative Preferred Stock and 928 shares of the
Redeemable Preferred Stock and, in addition to the Common Stock to be purchased
in the NL Common Stock Purchase, Nippon Life will purchase from Holdings 72
shares of the Redeemable Preferred Stock. Holders of the Redeemable Preferred
Stock will be entitled to receive, in the aggregate, an annual dividend equal to
50% of the Company's net income in excess of $400 million per year, with a
maximum dividend of $50 million per year, for each of the next eight years
commencing on or about the Distribution Date. If a Designated Event (as defined
herein) occurs, the holders of the Redeemable Preferred Stock will have the
right to require Holdings to redeem all of the Redeemable Preferred Stock for an
aggregate redemption price initially equal to $400 million if such Designated
Event takes place prior to the first anniversary of the Distribution Date,
declining by $50 million per year in each of the next seven years thereafter. In
certain circumstances Holdings would be required to pay the redemption price
through the issuance of equity securities. These redemption rights may have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might believe to be in his best interest, including
those attempts that might result in a premium over the market price for the
shares of Common Stock. See "Description of Capital Stock -- Preferred
Stock -- Redeemable Preferred Stock."
Immediately following the Distribution, American Express will own no Common
Stock. Through its ownership of the Cumulative Preferred Stock and the
Redeemable Preferred Stock, American Express will own approximately 2.2% of the
outstanding voting securities of Holdings. Immediately following the
Distribution, Nippon Life will own on a fully diluted basis approximately 11.4%
of the outstanding voting securities of Holdings through its ownership of Common
Stock, preferred stock and a warrant to purchase Common Stock. See "Principal
Stockholders."
6
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7
<PAGE> 12
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary pro forma financial data has been derived from and
should be read in conjunction with the pro forma consolidated financial
statements and the notes thereto included elsewhere in this Prospectus and has
been prepared by the Company based on certain adjustments to the audited
historical consolidated financial statements of the Company included elsewhere
in this Prospectus. The statement of operations data reflects adjustments for
the Concurrent Transactions and the sale during 1993 of The Boston Company,
Shearson and SLHMC (see "Recent Developments") as if such transactions had
occurred as of January 1, 1993. These adjustments include (i) the elimination of
the revenues and expenses of Shearson and SLHMC, (ii) the elimination of the
loss on the sale of Shearson and the reserves related to the sale of SLHMC and
(iii) a reduction in net interest expense to reflect the use of proceeds from
the Concurrent Transactions and the sales of The Boston Company, Shearson and
SLHMC to reduce commercial paper, short-term debt and senior notes. The balance
sheet data reflects adjustments for the Concurrent Transactions as if such
transactions had occurred as of December 31, 1993.
The pro forma financial data does not purport to present the financial
position and results of operations of the Company had the Concurrent
Transactions and the sales of The Boston Company, Shearson and SLHMC actually
occurred as of such dates, nor is it necessarily indicative of the results of
operations that may be achieved in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the historical
consolidated financial statements and the pro forma consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
-----------------------
(in millions, except
per share data)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Market making and principal transactions................................. $ 1,644
Investment banking....................................................... 802
Commissions.............................................................. 488
Interest and dividends................................................... 5,679
Other.................................................................... 79
-------
Total revenues................................................... 8,692
Interest expense......................................................... 5,203
-------
Net revenues..................................................... 3,489
-------
Non-interest expenses
Compensation and benefits(a)............................................. 1,825
Other expenses........................................................... 1,045
Reserves for non-core businesses(b)...................................... 32
-------
Total non-interest expenses...................................... 2,902
-------
Income (loss) from continuing operations before taxes...................... 587
Provision for (benefit from) income taxes.................................. 219
-------
Income (loss) from continuing operations................................... 368
Preferred stock dividends(c)............................................... 42
-------
Income (loss) from continuing operations applicable to Common Stock........ $ 326
-------
-------
Income (loss) from continuing operations per share of Common Stock(d)...... $ 3.08
-----------------------
-----------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1993
------------------
(in millions)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................ $ 80,474
Long-term indebtedness(e)................................................... 9,899
Total stockholders' equity.................................................. 3,302
</TABLE>
8
<PAGE> 13
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1993
------------------
(in millions)
<S> <C>
OTHER FINANCIAL DATA:
Total assets excluding matched book(f) (in millions)........................ $ 54,428
Book value per share(d)..................................................... $ 24.52
Ratio of total assets to total stockholders' equity......................... 24.4x
Ratio of total assets excluding matched book to total stockholders'
equity(f)................................................................. 16.5x
</TABLE>
- ---------------
(a) The Company will recognize compensation expense equal to (i) the increase
in book value attributable to the Phantom Shares and (ii) the excess, if
any, of the market value of the Common Stock issued pursuant to the Phantom
Share Conversion over the price paid by employees for the Phantom Shares.
(b) Represents reserves for certain non-core partnership syndication activities
in which the Company is no longer actively engaged.
(c) Represents dividends payable on the 5% Cumulative Convertible Voting
Preferred Stock, Series A, and on the Cumulative Preferred Stock. An 8 1/2%
dividend rate has been assumed on the Cumulative Preferred Stock. However,
this rate will be based on prevailing market rates at the time of issuance
and is therefore subject to adjustment. A 1/4% change in the dividend rate
would increase or decrease the Company's annual dividend payment by $0.5
million. Holders of the Redeemable Preferred Stock will be entitled to
receive, in the aggregate, an annual dividend equal to 50% of the Company's
net income in excess of $400 million per year, with a maximum dividend of
$50 million per year, for each of the next eight years commencing on or
about the Distribution Date. On a pro forma basis, no such dividends would
have been payable in 1993.
(d) Per share data is calculated based on 105,776,664 pro forma shares of
Common Stock outstanding immediately following the Concurrent Transactions.
(e) Long-term indebtedness includes senior notes and subordinated indebtedness.
(f) Matched book represents a short-term interest rate arbitrage collateralized
primarily by U.S. government and agency securities. Several nationally
recognized rating agencies consider "securities purchased under agreements
to resell" ("reverse repos") a proxy for matched book assets. These rating
agencies consider reverse repos to have a low risk profile, and when
evaluating the Company's capital strength and financial ratios, exclude
reverse repos in the calculation of total assets divided by total equity.
Although there are other assets with similar risk characteristics on the
Company's balance sheet, the exclusion of reverse repos from total assets
in this calculation reflects the fact that these assets are matched against
liabilities of a similar nature, and therefore require minimal amounts of
capital support. Accordingly, the Company believes the ratio of total
assets excluding matched book to total stockholders' equity to be a more
meaningful measure of the Company's leverage.
9
<PAGE> 14
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table summarizes certain consolidated financial data with
respect to the Company and is qualified in its entirety by reference to and
should be read in conjunction with the Company's audited historical consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus. During 1993, the Company completed the sales of three businesses:
The Boston Company on May 21; Shearson on July 31; and SLHMC on August 31. See
"Recent Developments." In the Company's audited historical consolidated
financial statements, the results of The Boston Company are accounted for as a
discontinued operation while the results of Shearson and SLHMC are included in
the Company's results from continuing operations through their respective sale
dates. As a result, the Company's results of operations for 1993 are not
directly comparable with the results for prior periods or with the pro forma
consolidated financial data. In addition, historical financial information may
not be indicative of the Company's future performance as an independent company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the pro forma consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (a)
Revenues
Market making and principal transactions.................................... $ 1,269 $ 1,199 $ 1,696 $ 1,697 $ 1,967
Investment banking.......................................................... 949 553 674 892 972
Commissions................................................................. 1,858 1,508 1,649 1,677 1,316
Interest and dividends...................................................... 6,022 4,927 5,239 5,661 5,840
Other....................................................................... 678 563 572 684 491
------- ------- ------- ------- -------
Total revenues.......................................................... 10,776 8,750 9,830 10,611 10,586
Interest expense............................................................ 5,884 4,734 4,925 5,185 5,368
------- ------- ------- ------- -------
Net revenues............................................................ 4,892 4,016 4,905 5,426 5,218
------- ------- ------- ------- -------
Non-interest expenses
Compensation and benefits................................................... 2,856 2,451 2,899 3,310 2,989
Other expenses(b)........................................................... 1,929 1,707 1,712 2,118 1,515
Loss on sale of Shearson.................................................... -- -- -- -- 535
Reserves for non-core businesses(c)......................................... -- -- -- -- 152
Other charges(d)............................................................ -- 607 144 245 --
------- ------- ------- ------- -------
Total non-interest expenses............................................. 4,785 4,765 4,755 5,673 5,191
Income (loss) from continuing operations before taxes
and cumulative effect of changes in accounting principles..................... 107 (749) 150 (247) 27
Income (loss) from continuing operations before
cumulative effect of changes in accounting principles......................... 68 (692) 197 (193) (291)
Net income (loss)............................................................... 110 (966) 207 (123) (102)
Preferred stock dividends....................................................... 25 48 48 48 48
Net income (loss) applicable to Common Stock.................................... $ 85 $(1,014) $ 159 $ (171) $ (150)
BALANCE SHEET DATA (at period end):
Total assets.................................................................... $52,372 $55,081 $59,742 $85,232 $80,474
Long-term indebtedness(e)....................................................... 6,766 5,472 5,731 7,680 9,899
Total stockholders' equity...................................................... 2,200 2,027 2,348 2,361 2,052
OTHER FINANCIAL DATA (at period end):
Total assets excluding matched book(f).......................................... $39,710 $41,892 $44,056 $58,866 $54,428
Ratio of total assets to total stockholders' equity............................. 23.8x 27.2x 25.4x 36.1x 39.2x
Ratio of total assets excluding matched book to total stockholders' equity(f)... 18.1x 20.7x 18.8x 24.9x 26.5x
</TABLE>
- ---------------
(a) Certain revenue and expense amounts for each of the years prior to 1993
have been reclassified to conform to the current period's presentation.
(b) Other expenses in 1992 includes $90 million in litigation reserves and a
$162 million write-down of the carrying value of certain real estate
investments.
(c) Includes $32 million of reserves for certain non-core partnership
syndication activities in which the Company is no longer actively engaged
and $120 million related to the sale of SLHMC.
(d) Amounts reflect charges associated with the restructuring of the Company in
1990, the write-off of the Company's investment in First Capital Holdings
Corporation in 1991 and a write-down of the carrying value of the Company's
holdings of Computervision Corporation in 1992.
(e) Long-term indebtedness includes senior notes and subordinated indebtedness.
(f) Matched book represents a short-term interest rate arbitrage collateralized
primarily by U.S. government and agency securities. Several nationally
recognized rating agencies consider "securities purchased under agreements
to resell" ("reverse repos") a proxy for matched book assets. These rating
agencies consider reverse repos to have a low risk profile, and when
evaluating the Company's capital strength and financial ratios, exclude
reverse repos in the calculation of total assets divided by total equity.
Although there are other assets with similar risk characteristics on the
Company's balance sheet, the exclusion of reverse repos from total assets
in this calculation reflects the fact that these assets are matched against
liabilities of a similar nature, and therefore require minimal amounts of
capital support. Accordingly, the Company believes the ratio of total
assets excluding matched book to total stockholders' equity to be a more
meaningful measure of the Company's leverage.
10
<PAGE> 15
THE COMPANY
Lehman Brothers is one of the leading global investment banks serving
institutional, corporate, government and high net worth individual clients and
customers. The Company's worldwide headquarters in New York and regional
headquarters in London and Tokyo are complemented by offices in 19 additional
locations in the United States, 11 in Europe and the Middle East, four in Latin
and South America and seven in the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; institutional
asset management; research; and the trading of foreign exchange, derivative
products and certain commodities. The Company acts as a market maker in all
major equity and fixed income products in both the domestic and international
markets. Lehman Brothers is a member of all principal securities and commodities
exchanges in the United States, as well as the NASD, and holds memberships or
associate memberships on several principal international securities and
commodities exchanges, including the London, Tokyo, Hong Kong, Frankfurt and
Milan stock exchanges.
Lehman Brothers is a leading underwriter of equity and equity-related
securities and taxable and tax-exempt fixed income securities and has an
institutional sales force of over 750 professionals and a sales force of over
500 professionals serving high net worth individuals and small and mid-sized
institutions. For 1993, according to Securities Data Company, Inc., Lehman
Brothers was the third ranked underwriter of equity and debt securities
worldwide and the fourth ranked advisor in global mergers and acquisitions.
Since 1990, the Company's equity and fixed income research departments have
ranked first or second in the annual research survey conducted by Institutional
Investor.
Since 1990, Lehman Brothers has followed a "client/customer-driven"
strategy. Under this strategy, Lehman Brothers concentrates on developing lead
relationships with major issuing and advisory clients and investing customers
worldwide. By identifying and addressing the financial needs and objectives of
these clients and customers, the Company seeks to build an increasing "flow" of
business. The Company believes that such relationships position Lehman Brothers
to receive a substantial portion of its clients' and customers' financial
business and lessen the volatility of revenues generally associated with the
securities industry.
During 1993, the Company sold the Shearson retail brokerage and asset
management businesses; The Boston Company private banking, trust and mutual fund
administration businesses; and Shearson's mortgage banking business. See "Recent
Developments." Excluding the results of these operations, for the year ended
December 31, 1993, Lehman Brothers' net revenues were $3.5 billion and income
from continuing operations was $355 million after deducting a $21 million
after-tax reserve for non-core businesses.
At December 31, 1993, the Company had approximately 9,300 employees and
total assets of $80.5 billion.
Holdings was incorporated in Delaware on December 29, 1983. Holdings'
principal executive offices are located at 3 World Financial Center, New York,
New York 10285, telephone 212-298-2000. Following the Distribution, the Company
will be an independent public company.
11
<PAGE> 16
THE OFFERING AND THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE CONCURRENT TRANSACTIONS
Over the past two years American Express has had a goal of bringing
Holdings to the point where it could sustain an "A" credit rating on a
stand-alone basis for its long-term senior debt. It was believed that upon
attaining such a rating, American Express would have greater flexibility in
evaluating the Company's long-term relationship with American Express. In
January 1994, American Express concluded that a $1.25 billion equity investment
would be required for Holdings to achieve the desired rating from nationally
recognized rating agencies. Subsequently, after consultation with its financial
and other advisors, the American Express board of directors adopted a plan
calling for a $1.25 billion equity investment in the Company prior to the
Distribution through the purchase of a combination of newly issued preferred
stock and Common Stock, followed by a tax-free spin-off of all of the Common
Stock held by American Express.
American Express believes that the Concurrent Transactions will benefit
both American Express and the Company because they will result in the separation
of businesses with different financial and operating characteristics and capital
requirements, thereby providing the management of each company greater
flexibility to adopt strategies and pursue objectives more appropriate to its
own needs. American Express management will have the opportunity to increase its
focus on its core businesses, which, unlike the Company's, carry the American
Express brand name, and Lehman Brothers management will have the ability to
operate its business more autonomously. It is also believed that the Company
will be able to capitalize more effectively on its entrepreneurial culture by
offering to its employees incentive compensation in the form of direct and
indirect equity ownership in the Company. In addition, the Company should be
positioned to broaden its access to the equity and debt markets.
CONDITIONS TO THE OFFERING AND THE DISTRIBUTION
The Distribution and the other Concurrent Transactions are subject to,
among others, the following conditions being satisfied prior to the consummation
of the Distribution and the other Concurrent Transactions: (i) declaration by
the American Express board of directors of the special dividend constituting the
Distribution; (ii) the receipt of a favorable tax opinion that the Distribution
is tax free to American Express and its shareholders; (iii) receipt of all
necessary regulatory approvals and material required consents of third parties;
(iv) no adverse change in the financial condition of American Express or
Holdings; (v) no adverse change in the current credit ratings of American
Express or the proposed credit ratings for Holdings or the amount of additional
capital required for Holdings to obtain such ratings; (vi) no adverse change in
market conditions; and (vii) an opinion from American Express' financial
advisors that the Distribution is fair from a financial point of view to the
shareholders of American Express.
OPINION OF FINANCIAL ADVISORS
It is a condition of the Distribution that American Express' financial
advisors, Lazard Freres & Co. ("Lazard") and James D. Wolfensohn Incorporated
("Wolfensohn"), have each delivered a written opinion, dated the declaration
date of the Distribution, addressed to the American Express Board of Directors,
to the effect that the Distribution is fair, from a financial point of view, to
holders of common shares of American Express. The summary of the opinions of
Lazard and Wolfensohn set forth below is qualified in its entirety by reference
to the proposed forms thereof, copies of which are attached hereto as Annexes A
and B, which set forth assumptions made, matters considered and limits on the
review undertaken in connection with such opinions, and should be read in their
entirety.
In connection with the delivery of their opinions, each of Lazard and
Wolfensohn reviewed, among other things, this Prospectus, dated April 29, 1994,
and the financial and other terms of the Distribution and related transactions
described therein; publicly available financial information relating to American
Express and Lehman Brothers, including pro forma financial statements; and
certain internal financial analyses for American Express and Lehman Brothers,
including budgets and geographic and line of business results, prepared by their
respective managements. Lazard and Wolfensohn held discussions with members of
12
<PAGE> 17
the senior managements of American Express and Lehman Brothers regarding their
past and current business operations and financial condition, and the future
prospects and financial and strategic business objectives of their respective
companies. In addition, Lazard and Wolfensohn reviewed the reported price and
trading activity for common shares of American Express; compared certain
financial and stock market information for American Express and Lehman Brothers
to similar information for other public companies which they deemed to be
generally similar to American Express and Lehman Brothers; reviewed the terms of
selected recent spin-off transactions similar to the Distribution, in terms of
the size of market capitalization of the parent entity and the market
capitalization of the entity being spun off relative to the parent entity, and
the price and trading activity of stocks in such transactions both prior and
subsequent to such transactions; and performed such other studies, analyses,
inquiries and investigations as they considered appropriate, including a
quantitative comparison from publicly available information of net income,
return on equity, pre-tax margins, capitalization and asset composition of
Lehman Brothers to other public companies referenced below which Lazard and
Wolfensohn deemed to be generally similar to Lehman Brothers. The public
companies deemed to be generally similar to Lehman Brothers by Lazard and
Wolfensohn were The Bear Stearns Companies, Inc., Merrill Lynch & Co., Inc.,
Morgan Stanley Group Inc. and Salomon Inc. Selected recent transactions similar
to the Distribution include Marriott Corp./Marriott International; Ethyl
Corp./First Colony; Sears/Dean Witter Discover; Pittway Corp./ AptarGroup;
Humana/Galen; Adolph Coors/ACX Technologies; Baxter/Caremark; Union
Carbide/Praxair; Quaker Oats/Fisher Price; Whitman/Pet Inc.; Santa Fe
Pacific/Catellus; Teledyne/Unitrin; Burlington Northern/Burlington Resources;
and Sun Co./Sun Exploration & Production. In rendering their respective
opinions, Lazard and Wolfensohn did not assign any special weight to any of the
foregoing analyses.
In conducting their analyses and in arriving at their respective opinions,
neither Lazard nor Wolfensohn conducted a physical inspection of any of the
properties or assets of American Express or Lehman Brothers, nor did they make
or obtain any independent evaluation or appraisals of any properties, assets or
liabilities of American Express or Lehman Brothers. Lazard and Wolfensohn each
assumed and relied upon the accuracy and completeness of all the financial and
other information provided to them or publicly available, and did not attempt
independently to verify any of such information. With respect to the financial
analyses discussed with, or furnished to them, Lazard and Wolfensohn each
assumed without independent verification that they reflected the best currently
available estimates and judgments of the managements of American Express and
Lehman Brothers as to the business operations, financial results and condition
and prospects of their respective companies. No limitations were imposed by
American Express upon Lazard or Wolfensohn with respect to the investigations
made or procedures followed by Lazard or Wolfensohn in rendering their
respective opinions; however, American Express has not asked or authorized
either Lazard or Wolfensohn to solicit or investigate the possible sale of
Lehman Brothers. The opinion of each of Lazard and Wolfensohn is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to each of them as of, the date of their respective
opinions. American Express has been informed that neither Lazard nor Wolfensohn
is aware of any material factors which are inconsistent with the conclusions
reached in their respective opinions.
The opinions of Lazard and Wolfensohn do not represent their opinions as to
the value of the Common Stock or the common shares of American Express following
the consummation of the Distribution, nor do they constitute a recommendation to
any current or prospective shareholder of either American Express or Lehman
Brothers as to any action or investment decision such person or party may take.
American Express has agreed to pay each of Lazard and Wolfensohn a fee of
$3 million in connection with the Distribution, which fees are in substantial
part contingent upon the consummation of the Distribution. Whether or not the
Distribution is completed, American Express has agreed to reimburse each of
Lazard and Wolfensohn for its reasonable fees and disbursements of counsel and
other reasonable out-of-pocket expenses, and to indemnify each of Lazard and
Wolfensohn against certain liabilities relating to or arising out of the
engagement, including liabilities under the federal securities laws. Each of
Lazard and Wolfensohn provides additional financial advisory services to
American Express and receives fees for the rendering of these services.
13
<PAGE> 18
DISTRIBUTION RATIO
The Distribution Ratio is determined by the ratio of the number of shares
of Common Stock to be distributed in the Distribution to the number of American
Express common shares outstanding on the Record Date. Prior to the Distribution,
Lehman Brothers plans to undertake a reverse split of its Common Stock so that
the number of shares of Common Stock distributed to American Express
shareholders will be one fifth of one share of Common Stock for every American
Express common share held on the Record Date. The Distribution Ratio was
determined by American Express and Lehman Brothers. The reverse split is
designed to reduce the number of shares of Common Stock outstanding following
the Distribution Date to approximately 105 million shares.
THE OFFERING
Prior to the Distribution, 441,600 shares of Common Stock will be offered
and sold by American Express in the Offering to executive officers of Lehman
Brothers for an aggregate purchase price of approximately $11.3 million or
approximately $25.53 per share. Holdings will not receive any of the proceeds
from the sale of the shares of Common Stock by American Express in the Offering.
Among the factors considered in determining the offering price, in addition
to prevailing market conditions, were the financial and operating condition and
history of the Company, the business and financial prospects of the Company, the
prospects for the industry in which the Company operates, recent market prices
of companies in businesses similar to that of the Company and other relevant
factors.
DISTRIBUTION AGENT
The distribution agent (the "Distribution Agent") is Chemical Bank, J.A.F.
Building, P.O. Box 3068, New York, New York 10116-3068, telephone 800-463-5911.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on the Distribution Date to common
shareholders of record of American Express at the close of business on the
Record Date. Prior to the Distribution Date, American Express will deliver all
outstanding shares of Common Stock held by it to the Distribution Agent for
distribution. The Distribution Agent will mail, beginning on or about the
Distribution Date, certificates representing such shares to American Express
common shareholders of record on the Record Date. Each American Express common
shareholder will receive one-fifth of one share of Common Stock for every common
share of American Express held on the Record Date. American Express common
shareholders will not be required to pay for the shares of Common Stock received
in the Distribution, or to surrender or exchange American Express shares in
order to receive Common Stock. No vote of American Express shareholders is
required or sought in connection with the Distribution, and American Express
shareholders have no appraisal rights in connection with the Distribution.
No certificates or scrip representing fractional shares will be issued to
American Express shareholders as part of the Distribution. In lieu of receiving
fractional shares of Common Stock, each record holder of common shares of
American Express who would otherwise be entitled to receive a fractional
interest in Common Stock will receive cash. The Distribution Agent will, as soon
as practicable after the Distribution Date, aggregate and sell all such
fractional interests on the NYSE at then-prevailing market prices and distribute
the aggregate proceeds (net of brokerage fees) ratably to American Express
shareholders of record otherwise entitled to fractional interests. See "Federal
Income Tax Consequences" below for a discussion of the federal income tax
treatment of fractional interests.
IN ORDER TO BE ENTITLED TO RECEIVE COMMON STOCK IN THE DISTRIBUTION,
AMERICAN EXPRESS SHAREHOLDERS MUST BE SHAREHOLDERS OF RECORD AT THE CLOSE OF
BUSINESS ON THE RECORD DATE, MAY 20, 1994.
14
<PAGE> 19
RESULTS OF THE DISTRIBUTION
After the Distribution, Holdings will be an independent public company.
Generally, the number and identity of common stockholders of Holdings
immediately after the Distribution will be the number and identity of common
shareholders of American Express on the Record Date and will also include the
Company's employees who acquired Common Stock pursuant to the Offering. See
"Management." Immediately after the Distribution, Holdings expects to have
approximately 55,000 holders of record of the Common Stock and approximately
105.8 million shares of Common Stock outstanding, based on the number of
shareholders of record and outstanding common shares of American Express on
February 28, 1994, and the Distribution Ratio of one-fifth of one share of
Common Stock for every common share of American Express. The actual number of
shares of Common Stock to be distributed will be determined as of the Record
Date. The Distribution will not affect the number of outstanding common shares
of American Express or any rights of American Express shareholders.
FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the Distribution that American Express receive an
opinion, based on certain representations of American Express and the Company,
from Skadden, Arps, Slate, Meagher & Flom ("Tax Counsel"), to the effect that,
although the matter is not entirely free from doubt, the Distribution should
qualify as a tax-free distribution for federal income tax purposes and that,
accordingly:
(i) no gain or loss will be recognized by a holder of American Express
common shares solely as result of the receipt of shares of Common Stock in
the Distribution except to the extent that cash is received in lieu of
fractional shares of Common Stock. A holder of American Express common
shares who receives cash in lieu of fractional shares will recognize gain
or loss to the extent of the difference between the holder's basis in the
fractional share and the amount received for the fractional share (if the
fractional shares are held as capital assets);
(ii) the holder's tax basis of American Express common shares at the
time of the Distribution will be allocated, based on relative fair market
values at the time of the Distribution, between such American Express
common shares and the Common Stock received in the Distribution;
(iii) assuming that a holder of American Express common shares holds
the American Express common shares as a capital asset, the holder's holding
period for the Common Stock received in the Distribution will include the
holding period during which the American Express common shares were held;
and
(iv) no gain or loss will be recognized by American Express on the
Distribution.
American Express currently anticipates that it will receive such an opinion
prior to the Distribution.
The opinion of Tax Counsel will not be binding on the Internal Revenue
Service (the "Service") or a court and there can be no assurance that the
Service will not challenge the validity of the Distribution as a tax-free
distribution for federal income tax purposes or that such challenge will not
ultimately prevail. In particular, among other things, in order for the
Distribution to qualify as a tax-free distribution for federal income tax
purposes, American Express must establish to the satisfaction of the Service
that the retention by American Express of the Cumulative Preferred Stock or the
Redeemable Preferred Stock was not in pursuance of a plan having as one of its
principal purposes the avoidance of federal income tax. There is no authority
directly applicable to the retention of the Cumulative Preferred Stock or the
Redeemable Preferred Stock by American Express. Nonetheless, American Express
anticipates that Tax Counsel will conclude that the Distribution should qualify
as a tax-free distribution for federal income tax purposes, although the matter
is not entirely free from doubt.
For the foregoing reasons and due to the inherently factual nature of
certain of the factors required for the Distribution to qualify as a tax-free
distribution, Tax Counsel cannot render an unqualified opinion on this issue.
Notwithstanding this, American Express believes, as Tax Counsel is currently
anticipated to opine, that the Distribution should qualify as a tax-free
distribution for federal income tax purposes.
15
<PAGE> 20
American Express also has requested an advance ruling from the Service that
the Distribution would qualify as a tax-free distribution for federal income tax
purposes. The Service has not yet issued such a ruling and no assurances can be
given that such ruling will be forthcoming. If the Service were ultimately to
decline to issue such a ruling, such decision, although representing the view of
the Service's National Office regarding such request, would not represent a
final determination as to whether the Distribution qualifies as a tax-free
distribution for federal income tax purposes.
If the Distribution fails to qualify as a tax-free distribution for federal
income tax purposes, a holder of American Express common shares will be
considered to have received a taxable dividend includible in income in an amount
equal to the fair market value on the Distribution Date of the Common Stock
received plus the amount of any cash received in lieu of fractional shares. In
general, if certain conditions are met, any amount received by a corporate
holder of American Express common shares that is treated as a dividend would be
eligible for the dividends-received deduction. If the Distribution is treated as
a taxable distribution for federal income tax purposes, the basis of a holder of
American Express common shares of the Common Stock received on the Distribution
will equal the fair market value of the Common Stock on the Distribution Date
and the holding period of the Common Stock will begin on the Distribution Date.
In such event, the holder's basis in its American Express common shares and its
holding period therefor would not be affected by the Distribution.
THE FOREGOING IS A SUMMARY OF THE ANTICIPATED PRINCIPAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW. IT DOES NOT PURPORT TO
ADDRESS ALL FEDERAL INCOME TAX CONSEQUENCES, OR TAX CONSEQUENCES THAT MAY ARISE
UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR
CATEGORIES OF SHAREHOLDERS. EACH SHAREHOLDER SHOULD CONSULT ITS TAX ADVISOR AS
TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER,
INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE
EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES
DESCRIBED ABOVE.
For a description of agreements pursuant to which American Express and the
Company have provided for certain tax sharing and other tax-related matters, see
"Certain Transactions and Agreements Between the Company and American
Express -- Tax Allocation Agreements."
LISTING AND TRADING OF SHARES OF THE COMMON STOCK
Application is being made for listing of the Common Stock on the NYSE under
the symbol "LEH."
There is not currently a public market for the Common Stock. Prices at
which the Common Stock may trade cannot be predicted. The prices at which the
shares of Common Stock will trade will be determined by the marketplace and may
be influenced by many factors, including, among others, the depth and liquidity
of the market for the Common Stock, investor perception of the Company and the
securities industry, the Company's dividend policy and general economic and
market conditions.
It is expected that the Common Stock will trade on a "when-issued" basis
prior to the Record Date and that "regular-way" trading will commence on the
Distribution Date.
The Common Stock distributed to American Express shareholders will be
freely transferable, except for shares of Common Stock received by persons who
may be deemed to be "affiliates" of Holdings under the Securities Act and shares
owned by those employees of the Company who acquired shares through certain
employee benefit plans and pursuant to the Phantom Share Conversion. See "The
Offering" above. Persons who may be deemed to be affiliates of Holdings after
the Distribution generally include individuals or entities that control, are
controlled by, or are under common control with Holdings and may include certain
officers and directors of the Company. Persons who are affiliates of Holdings
will be permitted to sell their shares only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(1) of the Securities Act and Rule 144 thereunder. It is believed
that all persons who may be deemed to be affiliates of the Company after the
Distribution will own less than 1% of the outstanding shares of Common Stock.
16
<PAGE> 21
RECENT DEVELOPMENTS
CHANGE OF FISCAL YEAR
On March 28, 1994, the Board of Directors of Holdings approved, subject to
the Distribution, a change in the Company's fiscal year end from December 31 to
November 30. Such a change to a non-calendar cycle will shift certain year-end
administrative activities to a time period that conflicts less with the business
needs of the Company's institutional customers.
REDUCTION IN PERSONNEL
During the first quarter of 1994, the Company completed a review of
personnel needs, which will result in the termination of certain personnel. The
Company anticipates that it will record a severance charge of approximately $30
million pre-tax in the first quarter of 1994 as a result of these terminations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
THE PRIMERICA TRANSACTION
On July 31, 1993, pursuant to an asset purchase agreement (the "Primerica
Agreement"), the Company completed the sale (the "Primerica Transaction") of
LBI's domestic retail brokerage business (except for such business conducted
under the Lehman Brothers name) and substantially all of its asset management
business (collectively, "Shearson") to Primerica Corporation (now known as
Travelers Corporation) ("Travelers") and its subsidiary Smith Barney, Harris
Upham & Co. Incorporated ("Smith Barney"). Also included in the Primerica
Transaction were the operations and data processing functions that support these
businesses, as well as certain of the assets and liabilities related to these
operations.
LBI received approximately $1.2 billion in cash and a $586 million interest
bearing note from Smith Barney which was repaid in January 1994 (the "Smith
Barney Note"). The Smith Barney Note was issued as partial payment for certain
Shearson assets in excess of $600 million which were sold to Smith Barney. The
proceeds received at July 31, 1993, were based on the estimated net assets of
Shearson, which exceeded the minimum net assets of $600 million prescribed in
the Primerica Agreement. As further consideration for the sale of Shearson,
Smith Barney agreed to pay future contingent amounts based upon the combined
performance of Smith Barney and Shearson, consisting of up to $50 million per
year for three years based on revenues, plus 10% of after-tax profits in excess
of $250 million per year over a five-year period (the "Participation Rights").
In contemplation of the Distribution, American Express received the first
Participation Right payment in the first quarter of 1994. All of the
Participation Rights will be assigned to American Express and Nippon Life prior
to the Distribution. See "Certain Transactions and Agreements Among Holdings,
American Express and Nippon Life." As further consideration for the sale of
Shearson, the Company received 2,500,000 shares of 5.50% Convertible Preferred
Stock, Series B, of Travelers and a warrant to purchase 3,749,466 shares of
common stock of Travelers at an exercise price of $39.00 per share. In August
1993, American Express purchased such preferred stock and warrant from LBI for
aggregate consideration of $150 million. See "Business -- Relationship With
Smith Barney."
The Company recognized a 1993 first quarter loss related to the Primerica
Transaction of approximately $630 million after-tax ($535 million pre-tax),
which amount includes a reduction in goodwill of $750 million and
transaction-related costs such as relocation, systems and operations
modifications and severance.
THE MELLON TRANSACTION
On May 21, 1993, pursuant to a stock purchase agreement (the "Mellon
Agreement") between Lehman Brothers and Mellon Bank Corporation ("Mellon Bank"),
LBI sold to Mellon Bank (the "Mellon Transaction") The Boston Company, Inc.
("The Boston Company") which through subsidiaries is engaged in the private
banking, trust and custody, institutional investment management and mutual fund
administration businesses. Under the terms of the Mellon Agreement, LBI received
approximately $1.3 billion in cash, 2,500,000 shares of Mellon Bank common stock
and ten-year warrants to purchase an additional 3,000,000 shares of Mellon
Bank's common stock at an exercise price of $50.00 per share. In June 1993, such
shares and warrants were sold by LBI to American Express for an aggregate
purchase price of $169 million. After
17
<PAGE> 22
accounting for transaction costs and certain adjustments, the Company recognized
a 1993 first quarter after-tax gain related to the Mellon Transaction of $165
million.
SHEARSON LEHMAN HUTTON MORTGAGE CORPORATION TRANSACTION
LBI completed the sale of its wholly owned subsidiary, Shearson Lehman
Hutton Mortgage Corporation ("SLHMC"), to GE Capital Corporation on August 31,
1993. The sales price, net of proceeds used to retire indebtedness of SLHMC, was
approximately $70 million. During the first quarter of 1993, the Company
provided $120 million of pre-tax reserves in anticipation of the sale of SLHMC.
After accounting for these reserves, the sale did not have a material effect on
the Company's results of operations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994
The Company reported net income of $42 million for the first quarter of
1994 as compared to a net loss of $451 million for the first quarter of 1993.
The first quarter 1994 results included a $13 million charge for the cumulative
effect of a change in accounting for postemployment benefits as a result of the
adoption of Statement of Financial Accounting Standards No. 112. The 1993 net
loss of $451 million was comprised of net income from the Lehman Businesses of
$34 million, net income of $189 million from the discontinued operations of the
Boston Company, including a $165 million after-tax gain on the sale and
after-tax earnings of $24 million, and a net loss from Businesses Sold (as
defined herein) of $674 million, which included a loss on the sale of Shearson
of $630 million after-tax, a $79 million after-tax charge related to a reserve
for non-core businesses recognized in anticipation of the sale of SLHMC, and
operating earnings from Shearson of $35 million. The loss on the sale of
Shearson included a reduction in goodwill of $750 million and transaction-
related costs such as relocation, systems and operations modifications and
severance. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Net income from continuing operations before the cumulative effect of
changes in accounting principles for the Lehman Businesses increased 63% to $55
million for the first quarter of 1994 from $34 million in the first quarter of
1993. Net income for 1994 included an $18 million ($33 million pre-tax)
severance charge while net income for 1993 included a $21 million ($32 million
pre-tax) reserve for certain non-core partnership syndication activities in
which the Company is no longer actively engaged. Excluding these charges, net
income from continuing operations before the cumulative effect of changes in
accounting principles for the Lehman Businesses increased 33% to $73 million in
the first quarter of 1994 from $55 million in the first quarter of 1993. Net
revenues from the Lehman Businesses increased slightly to $841 million in the
first quarter of 1994 from $829 million in the prior year reflecting strong
customer flow partially offset by less favorable trading results. Total
non-interest expenses decreased slightly to $753 million in the first quarter of
1994 from $757 million in the first quarter of 1993. The Company's effective tax
rate was 38% for the first quarter of 1994 compared to 53% for the Lehman
Businesses in the first quarter of 1993.
18
<PAGE> 23
RISK FACTORS
Persons receiving this Prospectus should consider carefully the following
factors, in addition to those discussed elsewhere in this Prospectus.
NATURE OF THE SECURITIES BUSINESS
The Company's principal business activities, investment banking, securities
trading and sales are, by their nature, subject to volatility, primarily due to
changes in interest and foreign exchange rates, global economic and political
trends, industry competition and substantial fluctuations in the volume and
price level of securities held in trading and underwriting positions. As a
result, revenues and earnings may vary significantly from quarter to quarter and
from year to year. In periods of low volume, levels of profitability are
adversely affected because certain expenses remain relatively fixed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes in domestic and international markets directly with numerous other
brokers and dealers in securities and commodities, investment banking firms,
investment advisors and certain commercial banks and, indirectly for investment
funds, with insurance companies and others.
The financial services industry has become considerably more concentrated
as numerous securities firms have either ceased operations or have been acquired
by or merged into other firms. In addition, several small and specialized
securities firms have been successful in raising significant amounts of capital
for their merger and acquisition activities and merchant banking investment
vehicles and for their own accounts. These developments have increased
competition from these firms, many of whom have significantly greater equity
capital than the Company.
PRINCIPAL TRANSACTIONS
The Company's trading, market making, underwriting and arbitrage activities
involve the purchase, sale or short sale of securities (including foreign
exchange, derivative products and certain commodities) as principal. These
activities involve the risk of changes in the market prices of such securities
and a decrease in the liquidity of markets, which could limit the Company's
ability to resell securities purchased or to repurchase securities sold short.
See "Business."
REGULATION
The Company's business is, and the securities and commodities industries
generally are, subject to extensive regulation in the United States, at both the
federal and state level. As a matter of public policy, regulatory bodies are
charged with safeguarding the integrity of the securities and other financial
markets and with protecting the interests of customers participating in those
markets, not protecting the interests of Holdings' stockholders. In addition,
self-regulatory organizations and other regulatory bodies in the United States
such as the NYSE, the NASD, the Commodity Futures Trading Commission (the
"CFTC"), the National Futures Association (the "NFA") and the Municipal
Securities Rulemaking Board (the "MSRB") require strict compliance with their
rules and regulations. Abroad, the Company's business is subject to control by
various foreign governments and regulatory bodies. Any change in regulation by
such governments and bodies could restrict the participation of United States
securities firms, including the Company, in the relevant international capital
market. Failure to comply with any of these laws, rules or regulations could
result in fines, suspension or expulsion, which could have an adverse effect
upon the Company. See "Business -- Regulation."
19
<PAGE> 24
NET CAPITAL REQUIREMENTS
The SEC, the NYSE, the CFTC and various other securities and commodities
exchanges and other regulatory bodies in the United States and abroad have rules
with respect to net capital requirements which could affect the Company. A
change in such rules, or the imposition of new rules, affecting the scope,
coverage, calculation or amount of such net capital requirements, or a
significant operating loss or any unusually large charge against net capital,
could adversely affect the ability of Lehman Brothers to expand or maintain
present levels of business. See "Business -- Regulation -- Capital
Requirements."
MERCHANT BANKING PARTNERSHIPS
The Company's merchant banking activities consist principally of making
equity and equity-related investments in privately negotiated merger,
acquisition and leveraged transactions. These transactions can result in
investments with higher risks relating to illiquidity and leverage. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HIGH YIELD SECURITIES
The Company underwrites, trades, invests and makes markets in high yield
debt securities. The Company also syndicates, trades and invests in loans of
below investment grade companies. High yield debt securities are defined as
securities or loans to companies rated below BBB- by Standard & Poor's
Corporation ("S&P") and below Baa3 by Moody's Investor Services, Inc.
("Moody's"), as well as non-rated securities or loans which, in the opinion of
management, are non-investment grade.
High yield debt securities held for sale by the Company generally involve
greater risk and volatility than investment grade debt securities due to the
lower credit ratings of the issuers, which typically have relatively high levels
of indebtedness and are, therefore, more sensitive to adverse economic
conditions. Such debt securities typically rank subordinate to bank debt of the
issuer and may rank subordinate to other debt of the issuer. In addition, the
market for these securities has been, and may in the future continue to be,
characterized by periods of illiquidity. The liquidity of any particular issue
may be significantly better or worse than the overall liquidity of the high
yield debt market at any time, depending on the quality of the issuer, and
during certain periods market quotations may not represent firm bids of dealers
or prices of actual sales. In addition, the Company, through its market making
and trading activities, may be the sole or principal source of liquidity in
certain issues and, as a result, may substantially affect the prices at which
such issues trade.
High yield debt securities are carried at market value and unrealized gains
or losses for these securities are reflected in the Company's Consolidated
Statement of Operations. The Company's portfolio of such securities at December
31, 1993 and 1992 included long positions with an aggregate market value of
approximately $1 billion and $920 million, respectively, and short positions
with an aggregate market value of approximately $75 million and $50 million,
respectively. The Company's portfolio may from time to time contain concentrated
holdings of selected issues. The Company's two largest high yield positions were
$179 million and $82 million at December 31, 1993 and $180 million and $123
million at December 31, 1992.
NON-CORE ASSETS
The Company has made investments in and provided financial support to
certain partnerships (the assets of which are primarily real estate). At
December 31, 1993 and 1992, the Company had net exposure including commitments
and contingent liabilities of $252 million and $329 million, respectively, for
these activities. Although a decline in the real estate market or the economy in
general or a change in the Company's disposition strategy could result in
additional real estate reserves, the Company believes it is adequately reserved.
The Company discontinued the origination of partnership syndication and real
estate investments in March 1990.
20
<PAGE> 25
DEPENDENCE ON CREDIT RATINGS
The Company, like other companies in the securities industry, relies on
external sources to finance a significant portion of its day-to-day operations.
Access to the global capital markets for unsecured financing, such as commercial
paper and short-term debt, senior notes and subordinated indebtedness, is
dependent on the Company's short-term and long-term debt ratings. In addition,
the Company's existing and prospective customers and clients base their decision
to do business with the Company in part on the Company's debt ratings. A debt
rating downgrade would reduce the availability of unsecured funding and increase
the cost of that funding to the Company and could affect the Company's ability
to transact business with certain customers and clients. Holdings' current
long-term/short-term senior debt ratings are as follows: S&P A/A-1; Moody's
A3/P-2; IBCA A-/A1; and Thomson BankWatch -- /TBW-1. As of the Distribution
Date, the Company expects to receive long-term/short-term debt ratings from
Fitch Investor Services of A/F-1.
The Company maintains an ongoing dialogue with several of the nationally
recognized rating agencies to provide timely information on the Company's
financial results, operations and other credit related matters. The Company
expects that, as of the Distribution, all of its current debt ratings will be
affirmed. However, no assurances can be given that, following the Distribution,
the Company will continue to maintain its current debt ratings and level of
access to the global capital markets.
CERTAIN ANTI-TAKEOVER EFFECTS
The Certificate of Incorporation and By-laws of Holdings will include, as
of the Distribution Date, certain provisions that may be deemed to have
anti-takeover effects and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might believe to be in its best interest including
those attempts that might result in a premium over the market price for the
shares of Common Stock. These provisions include a classified board of
directors, the inability of the stockholders to take any action without a
meeting or to call special meetings of stockholders, certain advance notice
procedures for nominating candidates for election as directors and for
submitting proposals for consideration at stockholders' meetings, and
limitations on the ability to remove directors and the filling of vacancies on
the Board of Directors. In addition, the Board of Directors has the ability to
establish by resolution one or more series of preferred stock having such number
of shares, designation, relative voting rights, dividend rate, liquidation and
other rights, preferences and limitations as may be fixed by the Board of
Directors, without any further stockholder approval. Section 203 of the Delaware
General Corporation Law may have an anti-takeover effect as well. See
"Description of Capital Stock" and "Certain Corporate Governance Matters."
In addition, the terms of the Redeemable Preferred Stock provide that, in
the case of certain change of control situations, the holders of the Redeemable
Preferred Stock shall have the right to require the Company to redeem all of the
Redeemable Preferred Stock for an aggregate redemption price initially equal to
$400 million if such an event takes place prior to the first anniversary of the
Distribution Date, declining by $50 million per year in each of the next seven
years thereafter. Also, Nippon Life has certain rights pursuant to which it may
require, under certain circumstances, the Company to repurchase shares of Series
A Preferred Stock and/or Common Stock held by Nippon Life. These redemption and
repurchase rights may have an anti-takeover effect and may delay, defer or
prevent a tender offer or take-over attempt that a stockholder might believe to
be in his best interest, including those attempts that might result in a premium
over the market price for the shares held by stockholders. See "Certain
Transactions and Agreements Among Holdings, American Express and Nippon Life"
and "Description of Capital Stock -- Preferred Stock."
NO PRIOR MARKET
Prior to the Offering and the Distribution, there has been no public market
for the Common Stock. Although the Company is applying for the listing of the
Common Stock on the NYSE, no assurance can be given that an active trading
market for the Common Stock will develop. Prices at which the Common Stock may
trade cannot be predicted. The prices at which the shares of Common Stock will
trade will be determined by the marketplace and may be influenced by many
factors, including, among others, the depth and liquidity
21
<PAGE> 26
of the market for the Common Stock, investor perception of the Company and the
securities industry, the Company's dividend policy and general economic and
market conditions.
LITIGATION
Many aspects of the Company's business involve substantial risks of
liability. In recent years, there has been an increasing incidence of litigation
involving the securities and commodities industries, including class action
suits that generally seek substantial damages and often treble damages for
alleged violations of the Federal Racketeer Influenced and Corrupt Organizations
Act ("RICO"). Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to underwritten offerings of securities. The Company has been named
as defendant in class action and other suits. See "Business -- Legal
Proceedings."
PERSONNEL
Most aspects of the Company's business are dependent on highly skilled
individuals. The Company devotes considerable resources to recruiting, training
and compensating such individuals. Individuals employed by the Company may,
however, choose to leave the Company at any time to pursue other opportunities.
See "Business -- Employees" and "Management." The Company has attempted to
reduce this possibility by creating incentives for employees to remain with the
Company including certain deferred compensation programs. See "Recent
Developments" and "Management."
USE OF PROCEEDS
Holdings will not receive any of the proceeds from the sale of the shares
of Common Stock by American Express in the Offering. The proceeds to Holdings
from the Equity Investment (approximately $1.2 billion) will be used to repay
commercial paper and short-term debt and to pay costs in connection with the
Concurrent Transactions and certain other related expenses estimated to be $20
million.
DIVIDEND POLICY
Holdings anticipates that following the Distribution Date it will pay a
dividend for the third quarter of 1994 of $0.125 per share of Common Stock. No
such dividend, however, has been declared and the payment of dividends will be a
business decision to be made by Holdings' Board of Directors from time to time
based on considerations the Board of Directors deems relevant and will be
payable only out of funds legally available under Delaware law. Relevant
considerations are likely to include: (i) the Company's earnings, (ii) general
market conditions, (iii) the dividend policy of the Company's public
competitors, (iv) the capitalization of the Company's competitors and (v)
preferred stock dividend requirements, including the dividend requirements
applicable to the Redeemable Preferred Stock.
22
<PAGE> 27
CAPITALIZATION
The following table sets forth the actual and pro forma consolidated
capitalization and short-term indebtedness of the Company as of December 31,
1993. The pro forma capitalization gives effect to the Concurrent Transactions
and the use of proceeds therefrom as if such transactions had occurred on
December 31, 1993. See "Prospectus Summary -- Concurrent Transactions," "The
Offering and the Distribution" and "Use of Proceeds." This data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(in millions, except share data)
<S> <C> <C> <C>
Commercial paper and short-term debt............... $11,205 $(1,193)(a) $10,012
Long-term indebtedness:
Senior notes..................................... 7,779 7,779
Subordinated indebtedness........................ 2,120 2,120
------- ----------- ---------
Total commercial paper, short-term
and long-term indebtedness............. 21,104 (1,193) 19,911
------- ----------- ---------
Stockholders' equity:
Preferred stock, $1 par value; 38,000,000 shares
authorized:
5% Cumulative Convertible Voting, Series A,
13,000,000 shares authorized, issued and
outstanding; $39.10 liquidation preference
per share................................... 508 508
Money Market Cumulative, 3,300 shares
authorized; 250 shares issued and
outstanding; $1,000,000 liquidation
preference per share........................ 250 (250)(b)
Cumulative Voting, 8,000,000 shares issued and
outstanding pro forma; $25.00 liquidation
preference per share........................ 200(c) 200
Redeemable Voting, 1,000 shares issued and
outstanding pro forma; $1.00 liquidation
preference
per share................................... --(c) --
Common Stock, $.10 par value; 300,000,000 shares
authorized; 168,235,284 shares (53,494,158
shares as adjusted for the Reverse Stock
Split) issued and outstanding; 105,776,664
shares issued and outstanding
pro forma..................................... 17 (6)(d) 11
Additional paid-in capital....................... 1,871 1,306(b)(d)(e) 3,177
Foreign currency translation adjustment.......... (12) (f) (12)
Accumulated deficit.............................. (582) (582)
------- ----------- ---------
Total stockholders' equity............... 2,052 1,250 3,302
------- ----------- ---------
Total indebtedness and stockholders'
equity................................. $23,156 $ 57(f) $23,213
------- ----------- ---------
------- ----------- ---------
</TABLE>
- ---------------
(a) Reflects the repayment of commercial paper and short-term debt with the
proceeds from the Equity Investment. See "Use of Proceeds."
(b) Reflects the MMP Exchange.
(c) Reflects the Preferred Stock Purchases by American Express and Nippon Life.
(d) Reflects the decrease in the aggregate par value of Common Stock outstanding
and corresponding increase in additional paid-in-capital from the Reverse
Stock Split, partially offset by the increase in aggregate par value due to
the issuance of Common Stock.
(e) Reflects the American Express Common Stock Purchase of approximately $903.8
million and the NL Common Stock Purchase of approximately $89.2 million.
(f) Reflects the Phantom Share Conversion.
23
<PAGE> 28
CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma financial data has been derived from and should be
read in conjunction with the pro forma consolidated financial statements and the
notes thereto included elsewhere in this Prospectus and has been prepared by the
Company based on certain adjustments to the audited historical consolidated
financial statements of the Company included elsewhere in this Prospectus. The
pro forma statement of operations reflects adjustments for the Concurrent
Transactions and the sales during 1993 of The Boston Company, Shearson and SLHMC
(see "Recent Developments") as if such transactions had occurred as of January
1, 1993. These adjustments include (i) the elimination of revenues and expenses
of Shearson and SLHMC, (ii) the elimination of the loss on the sale of Shearson
and the reserves related to the sale of SLHMC, and (iii) a reduction in net
interest expense to reflect the use of proceeds from the Concurrent Transactions
and the sales of The Boston Company, Shearson and SLHMC to reduce commercial
paper, short-term debt and senior notes. The pro forma balance sheet reflects
adjustments for the Concurrent Transactions as if such transactions had occurred
as of December 31, 1993.
The pro forma financial data does not purport to present the financial
position and results of operations of the Company had the Concurrent
Transactions and the sale of The Boston Company, Shearson and SLHMC actually
occurred as of such dates, nor is it necessarily indicative of results of
operations that may be achieved in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the historical
consolidated financial statements and the pro forma consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
------------------------
HISTORICAL PRO FORMA
---------- ---------
(in millions, except per
share data)
<S> <C> <C>
STATEMENT OF OPERATIONS:
Revenues
Market making and principal transactions......................................................... $ 1,967 $ 1,644
Investment banking............................................................................... 972 802
Commissions...................................................................................... 1,316 488
Interest and dividends........................................................................... 5,840 5,679
Other............................................................................................ 491 79
---------- ---------
Total revenues............................................................................ 10,586 8,692
Interest expense................................................................................. 5,368 5,203
---------- ---------
Net revenues.............................................................................. 5,218 3,489
---------- ---------
Non-interest expenses
Compensation and benefits(a)..................................................................... 2,989 1,825
Other expenses................................................................................... 1,515 1,045
Loss on sale of Shearson......................................................................... 535 --
Reserves for non-core businesses(b).............................................................. 152 32
---------- ---------
Total non-interest expenses............................................................... 5,191 2,902
---------- ---------
Income (loss) from continuing operation before taxes and
cumulative effect of changes in accounting principles............................................ 27 587
Provision for (benefit from) income taxes.......................................................... 318 219
---------- ---------
Income (loss) from continuing operations before
cumulative effect of changes in accounting principles............................................ (291) 368
Preferred stock dividends(c)....................................................................... 48 42
---------- ---------
Income (loss) from continuing operations before cumulative effect of changes
in accounting principles applicable to Common Stock.............................................. $ (339) $ 326
---------- ---------
---------- ---------
Income (loss) from continuing operations per share of Common Stock(d).............................. $ (3.20) $ 3.08
---------- ---------
---------- ---------
</TABLE>
- ---------------
(a) The Company will recognize compensation expense equal to (i) the increase in
book value attributable to the Phantom Shares and (ii) the excess, if any,
of the market value of the Common Stock issued pursuant to the Phantom Share
Conversion over the price paid by employees for the Phantom Shares.
(b) The historical and pro forma amounts include $32 million of reserves related
to certain partnership syndication activities in which the Company is no
longer actively engaged. The historical amount also includes $120 million of
reserves related to the sale of SLHMC.
(c) Historical amounts represent dividends payable on the 5% Cumulative
Convertible Voting Preferred Stock, Series A, and the Money Market
Cumulative Preferred Stock. Pro forma amounts include dividends payable on
the 5% Cumulative Convertible Voting Preferred Stock, Series A, and the
Cumulative Preferred Stock. An 8 1/2% dividend rate has been assumed on the
Cumulative Preferred Stock. However, this rate will be based on prevailing
market rates at the time of issuance and is therefore subject to adjustment.
A 1/4% change in the dividend rate would increase or decrease the Company's
annual dividend payment by $0.5 million. Holders of the Redeemable Preferred
Stock will be entitled to receive, in the aggregate, an annual dividend
equal to 50% of the Company's net income in excess of $400 million per year,
with a maximum dividend of $50 million per year, for each of the next eight
years commencing on or about the Distribution Date. On a pro forma basis, no
such dividends would have been payable in 1993.
(d) Per share data is calculated based on 105,776,664 pro forma shares of Common
Stock outstanding immediately following the Concurrent Transactions.
24
<PAGE> 29
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -------
(in millions, except share data)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $ 1,333 $ 1,333
Cash and securities segregated and on deposit for regulatory and
other purposes................................................... 1,073 1,073
Securities and other financial instruments owned................... 35,699 35,699
Collateralized short-term agreements............................... 30,418 30,418
Receivables........................................................ 10,398 10,398
Other assets....................................................... 1,279 1,279
Excess of cost over fair value of net assets acquired (net of
accumulated amortization of $107)................................ 274 274
---------- -------
Total assets.............................................. $ 80,474 $80,474
---------- -------
---------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and short-term debt............................... $ 11,205 $(1,193)(a) $10,012
Securities and other financial instruments sold but not yet
purchased........................................................ 8,313 8,313
Securities sold under agreements to repurchase..................... 39,191 39,191
Securities loaned.................................................. 1,116 1,116
Payables........................................................... 5,515 5,515
Accrued liabilities and other payables............................. 3,183 (57)(b) 3,126
Senior notes....................................................... 7,779 7,779
Subordinated indebtedness.......................................... 2,120 2,120
---------- ----------- -------
Total liabilities......................................... 78,422 (1,250) 77,172
---------- ----------- -------
Stockholders' equity:
Preferred stock, $1 par value; 38,000,000 shares authorized:
5% Cumulative Convertible Voting, Series A, 13,000,000 shares
authorized, issued and outstanding; $39.10 liquidation
preference per share......................................... 508 508
Money Market Cumulative, 3,300 shares authorized; 250 shares
issued and outstanding; $1,000,000 liquidation preference per
share........................................................ 250 (250)(c)
Cumulative Voting, 8,000,000 shares issued and outstanding
pro forma; $25.00 liquidation preference per share........... 200(d) 200
Redeemable Voting, 1,000 shares issued and outstanding pro
forma; $1.00 liquidation preference per share................ --(d) --
Common Stock, $.10 par value; 300,000,000 shares authorized;
168,235,284 shares (53,494,158 shares as adjusted for the
Reverse Stock Split) issued and outstanding; 105,776,664 shares
issued and outstanding pro forma............................... 17 (6)(e) 11
Additional paid-in capital....................................... 1,871 904(f) 3,177
250(c)
89(g)
57(b)
6(e)
Foreign currency translation adjustment.......................... (12) (12)
Accumulated deficit.............................................. (582) (582)
---------- ----------- -------
Total stockholders' equity................................ 2,052 1,250 3,302
---------- ----------- -------
$ 80,474 $ $80,474
---------- ----------- -------
---------- ----------- -------
</TABLE>
- ---------------
(a) Reflects the repayment of commercial paper and short-term debt with the
proceeds from the Equity Investment. See "Use of Proceeds."
(b) Reflects the Phantom Share Conversion.
(c) Reflects the MMP Exchange.
(d) Reflects the Preferred Stock Purchases by American Express and Nippon Life.
(e) Reflects the decrease in the aggregate par value of Common Stock outstanding
and corresponding increase in additional paid-in-capital from the Reverse
Stock Split, partially offset by the increase in aggregate par value due to
the issuance of Common Stock.
(f) Reflects the American Express Common Stock Purchase of approximately $903.8
million.
(g) Reflects the NL Common Stock Purchase of approximately $89.2 million.
25
<PAGE> 30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table summarizes certain consolidated financial information
with respect to the Company and is derived from the audited historical financial
statements of the Company. During 1993, the Company completed the sales of three
businesses: The Boston Company on May 21; Shearson on July 31; and SLHMC on
August 31. See "Recent Developments." In the Company's historical financial
statements, the operating results of The Boston Company are accounted for as a
discontinued operation while the operating results of Shearson and SLHMC are
included in the Company's results from continuing operations through their
respective sale dates. As a result, the Company's results of operations for 1993
are not directly comparable with the results for prior periods or with the pro
forma consolidated financial data. In addition, historical financial information
may not be indicative of the Company's future performance as an independent
company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited historical consolidated financial statements and the
notes thereto and the pro forma consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1989 1990 1991 1992 1993
------- ------- ------ ------- -------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (a)
Revenues
Market making and principal transactions.......... $ 1,269 $ 1,199 $1,696 $ 1,697 $ 1,967
Investment banking................................ 949 553 674 892 972
Commissions....................................... 1,858 1,508 1,649 1,677 1,316
Interest and dividends............................ 6,022 4,927 5,239 5,661 5,840
Other............................................. 678 563 572 684 491
------- ------- ------ ------- -------
Total revenues............................. 10,776 8,750 9,830 10,611 10,586
Interest expense.................................. 5,884 4,734 4,925 5,185 5,368
------- ------- ------ ------- -------
Net revenues............................... 4,892 4,016 4,905 5,426 5,218
------- ------- ------ ------- -------
Non-interest expenses
Compensation and benefits......................... 2,856 2,451 2,899 3,310 2,989
Other expenses(b)................................. 1,929 1,707 1,712 2,118 1,515
Loss on sale of Shearson.......................... -- -- -- -- 535
Reserves for non-core businesses(c)............... -- -- -- -- 152
Other charges(d).................................. -- 607 144 245 --
------- ------- ------ ------- -------
Total non-interest expenses................ 4,785 4,765 4,755 5,673 5,191
------- ------- ------ ------- -------
Income (loss) from continuing operations before
taxes and cumulative effect of changes in
accounting principles............................. 107 (749) 150 (247) 27
Provision for (benefit from) income taxes........... 39 (57) (47) (54) 318
------- ------- ------ ------- -------
Income (loss) from continuing operations before
cumulative effect of changes in accounting
principles........................................ 68 (692) 197 (193) (291)
------- ------- ------ ------- -------
Income (loss) from discontinued operations, net of
taxes
Income (loss) from operations..................... 42 (117) 10 77 24
Gain on disposal.................................. -- -- -- -- 165
------- ------- ------ ------- -------
42 (117) 10 77 189
------- ------- ------ ------- -------
Income (loss) before cumulative effect of changes in
accounting principles............................. 110 (809) 207 (116) (102)
Cumulative effect of changes in accounting
principles(e)..................................... -- (157) -- (7) --
------- ------- ------ ------- -------
Net income (loss)................................... 110 (966) 207 (123) (102)
Preferred stock dividends........................... 25 48 48 48 48
------- ------- ------ ------- -------
Net income (loss) applicable to Common Stock........ $ 85 $(1,014) $ 159 $ (171) $ (150)
------- ------- ------ ------- -------
------- ------- ------ ------- -------
Income (loss) from continuing operations per share
of Common Stock(f)................................ $ (3.20)
-------
-------
Net income (loss) per share of Common Stock(f)...... $ (1.41)
-------
-------
</TABLE>
26
<PAGE> 31
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (in millions)
Total assets.................................................. $52,372 $55,081 $59,742 $85,232 $80,474
Long-term indebtedness(g)..................................... 6,766 5,472 5,731 7,680 9,899
Total stockholders' equity.................................... 2,200 2,027 2,348 2,361 2,052
OTHER FINANCIAL DATA:
Total assets excluding matched book(h) (in millions).......... $39,710 $41,892 $44,056 $58,866 $54,428
Ratio of total assets to total stockholders' equity........... 23.8x 27.2x 25.4x 36.1x 39.2x
Ratio of total assets excluding matched book to total
stockholders' equity(h)..................................... 18.1x 20.7x 18.8x 24.9x 26.5x
</TABLE>
- ---------------
(a) Certain revenue and expense amounts for each of the years prior to 1993 have
been reclassified to conform to the current period's presentation.
(b) Other expenses in 1991 includes $32 million write-down of the Company's
equity investment in DR Holdings Inc., the former parent company of
Computervision Corporation. 1992 amount includes $90 million in litigation
reserves and a $162 million write-down of the carrying value of certain real
estate investments.
(c) Includes $32 million of reserves for certain non-core partnership
syndication activities in which the Company is no longer actively engaged
and $120 million of reserves related to the sale of SLHMC.
(d) Amounts reflect charges associated with the restructuring of the Company in
1990, the write-off of the Company's investment in First Capital Holdings
Corporation in 1991 and a write-down of the carrying value of the Company's
holdings of Computervision Corporation in 1992.
(e) Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions," for the Company's retiree
health and other benefit plans. The cumulative effect of adopting SFAS No.
106 reduced 1992 net income by $76 million (net of taxes of $52 million). Of
this amount, $5 million (net of taxes of $3 million) related to discontinued
operations. The Company adopted SFAS No. 109 "Accounting for Income Taxes,"
as of January 1, 1992 and recorded a $69 million increase in consolidated
net income from the cumulative effect of a change in accounting principle,
$64 million of which related to discontinued operations. Effective as of
January 1, 1990, the Company adopted the policy of expensing the cost of all
internally developed software as incurred. The cumulative effect of the
change for periods prior to January 1, 1990 increased the 1990 net loss by
$157 million, $58 million of which related to discontinued operations.
(f) Per share data is calculated based on 105,776,664 pro forma shares of Common
Stock outstanding immediately following the Concurrent Transactions.
(g) Long-term indebtedness includes senior notes and subordinated indebtedness.
(h) Matched book represents a short-term interest rate arbitrage collateralized
primarily by U.S. government and agency securities. Several nationally
recognized rating agencies consider "securities purchased under agreements
to resell" ("reverse repos") a proxy for matched book assets. These rating
agencies consider reverse repos to have a low risk profile, and when
evaluating the Company's capital strength and financial ratios, exclude
reverse repos in the calculation of total assets divided by total equity.
Although there are other assets with similar risk characteristics on the
Company's balance sheet, the exclusion of reverse repos from total assets in
this calculation reflects the fact that these assets are matched against
liabilities of a similar nature, and therefore require minimal amounts of
capital support. Accordingly, the Company believes the ratio of total assets
excluding matched book to total stockholders' equity to be a more meaningful
measure of the Company's leverage.
27
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
The Company's principal business activities, investment banking and
securities trading and sales are, by their nature, subject to volatility,
primarily due to changes in interest and foreign exchange rates, global economic
and political trends and industry competition. As a result, revenues and
earnings may vary significantly from quarter to quarter and from year to year.
In 1993, the Company's operating results were achieved in an environment of
declining interest rates in the United States, mixed economic trends around the
world and continued globalization of the capital markets.
The general decline in interest rates in the United States, which began in
1990, continued in 1993 with interest rates declining to their lowest levels in
more than 10 years. Investors, seeking higher returns, reduced their holdings of
short-term fixed income securities in favor of longer term debt and equity
securities in U.S. and non-U.S. markets. Corporate issuers took advantage of
this environment and the pools of capital available for investment to
restructure their balance sheets through the issuance of equity, repayment of
debt and refinancing of debt at lower interest rates. These factors resulted in
record levels of debt and equity issuances in 1993.
In addition, though the U.S. economy grew slowly in 1993, and the economies
of Europe and Japan continued to stagnate, many emerging market economies,
particularly in Asia and Latin America, grew more rapidly. Increasing ease of
cross-border capital movement, due to lessening of currency and investment
restrictions, enhanced the ability of investors and issuers to participate in
the international capital markets.
RESULTS OF OPERATIONS
During 1993, the Company completed the sales of three businesses: The
Boston Company on May 21; Shearson on July 31; and SLHMC on August 31. See
"Recent Developments." In the Company's audited historical consolidated
financial statements, the operating results of The Boston Company are accounted
for as a discontinued operation while the operating results of Shearson and
SLHMC are included in the Company's results from continuing operations through
their respective sale dates.
Because of the significant sale transactions completed during 1993, the
Company's historical financial statements are not fully comparable for all years
presented. To facilitate an understanding of the Company's results, the
following discussion is segregated into three sections and provides financial
tables that serve as the basis for the review of results. These sections are as
follows:
- Historical Results: the results of the Company's ongoing businesses; the
results of Shearson and SLHMC through their respective sale dates; the
loss on the sale of Shearson; the reserves for non-core businesses; the
results of The Boston Company (accounted for as a discontinued
operation); and the cumulative effect of changes in accounting
principles.
- The Lehman Businesses: the results of the ongoing businesses of the
Company.
- The Businesses Sold: the results of Shearson and SLHMC; the loss on the
sale of Shearson; and the reserves for non-core businesses related to the
sale of SLHMC.
28
<PAGE> 33
HISTORICAL RESULTS (CONTINUING, SOLD AND DISCONTINUED BUSINESSES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1991 1992 1993
------ ------ ------
(in millions)
<S> <C> <C> <C>
Net revenues............................................. $4,905 $5,426 $5,218
Total non-interest expenses.............................. 4,755 5,673 5,191
------ ------ ------
Income (loss) from continuing operations before taxes.... 150 (247) 27
Provision for (benefit from) income taxes................ (47) (54) 318
------ ------ ------
Income (loss) from continuing operations................. 197 (193) (291)
Income from discontinued operations, net of taxes........ 10 77 189
------ ------ ------
Income (loss) before cumulative effect of changes in
accounting principles.................................. 207 (116) (102)
Cumulative effect of changes in accounting principles.... (7)
------ ------ ------
Net income (loss)........................................ $ 207 $ (123) $ (102)
------ ------ ------
------ ------ ------
</TABLE>
HISTORICAL RESULTS (CONTINUING, SOLD AND DISCONTINUED BUSINESSES)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Net revenues decreased 4% to $5,218 million in 1993 from $5,426 million in
1992 due to the sale of Shearson and SLHMC, offset in part by a 25% increase in
net revenues of the Lehman Businesses. Net revenues of $5,426 million in 1992
increased 11% over 1991 net revenues of $4,905 million with net revenues of the
Lehman Businesses and the Businesses Sold increasing by 11% and 10%,
respectively.
Non-interest expenses decreased 8% to $5,191 million in 1993 from $5,673
million in 1992 due to the sale of Shearson and SLHMC and to a decrease in
non-interest expenses of the Lehman Businesses. Non-interest expenses of $5,673
million in 1992 increased 19% over 1991 non-interest expenses of $4,755 million
due primarily to $497 million of write-downs and reserves taken in 1992 and a
15% increase in compensation and benefits expenses related to the Businesses
Sold.
The Company reported a net loss of $102 million for the year ended December
31, 1993 compared to a net loss of $123 million in 1992 and net income of $207
million in 1991. Included in the 1993 net loss of $102 million was an after-tax
loss on the sale of Shearson of $630 million ($535 million pre-tax) and an
after-tax charge of $100 million ($152 million pre-tax) related to certain
non-core businesses, including a $79 million ($120 million pre-tax) charge
related to the sale of SLHMC and a $21 million ($32 million pre-tax) charge
related to certain partnership syndication activities in which the Company is no
longer actively engaged. The 1993 net loss also included income from
discontinued operations of The Boston Company of $189 million, which included an
after-tax gain of $165 million on the sale and after-tax operating earnings of
$24 million. The 1992 net loss of $123 million included charges totaling $316
million ($497 million pre-tax) consisting of $59 million ($90 million pre-tax)
of additional litigation reserves, a $107 million ($162 million pre-tax) write-
down in the carrying value of certain real estate investments, and a $150
million ($245 million pre-tax) charge related to the Company's holdings of
Computervision Corporation ("Computervision"). Also included in the 1992 results
were income from discontinued operations of $77 million and a charge of $7
million related to the cumulative effect of the changes in accounting for
non-pension postretirement benefits and income taxes. Net income of $207 million
in 1991 included a $144 million (pre-tax and after-tax) write-off of the
Company's investment in First Capital Holdings Corporation ("FCH"), a $32
million (pre-tax and after-tax) write-down of the Company's equity-related
investment in DR Holdings Inc., the former parent company of Computervision,
income from discontinued operations of $10 million, and a $122 million tax
benefit on previously reported losses for which no financial statement benefit
had been permitted.
29
<PAGE> 34
Included in the table below are the specific revenue and expense categories
comprising the historical results as segregated between the Lehman Businesses
and the Businesses Sold. The historical amounts for the Lehman Businesses do not
include pro forma adjustments for the effects of the Concurrent Transactions
and, therefore, differ in some respects from the pro forma financial statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993
---------------------------------- ---------------------------------- ----------------------------------
LEHMAN BUSINESSES LEHMAN BUSINESSES LEHMAN BUSINESSES
(IN MILLIONS) BUSINESSES SOLD HISTORICAL BUSINESSES SOLD HISTORICAL BUSINESSES SOLD HISTORICAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Market making
and principal
transactions... $1,146 $ 550 $1,122 $ 575 $1,644 $ 323
Investment
banking....... 468 206 674 218 802 170
Commissions..... 495 1,154 446 1,231 488 828
Interest and
dividends..... 4,909 330 5,404 257 5,679 161
Other........... 50 522 65 619 79 412
---------- ---------- ---------- ---------- ---------- ----------
Total
revenues.... 7,068 2,762 7,711 2,900 8,692 1,894
Interest
expense....... 4,569 356 4,928 257 5,225 143
---------- ---------- ---------- ---------- ---------- ----------
Net
revenues.... 2,499 2,406 $4,905 2,783 2,643 $5,426 3,467 1,751 $5,218
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Non-interest
expenses:
Compensation and
benefits...... 1,370 1,529 1,551 1,759 1,825 1,164
Other
expenses...... 900 812 1,341 777 1,045 470
Loss on sale of
Shearson...... 535
Reserves and
other
charges....... 144 245 32 120
---------- ---------- ---------- ---------- ---------- ----------
Total
non-interest
expenses.... 2,414 2,341 4,755 3,137 2,536 5,673 2,902 2,289 5,191
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing
operations
before taxes and
cumulative
effect of
changes in
accounting
principles...... 85 65 150 (354) 107 (247) 565 (538) 27
Provision for
(benefit from)
income taxes.... (84) 37 (47) (109) 55 (54) 210 108 318
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing
operations
before
cumulative
effect of
changes in
accounting
principles...... $ 169 $ 28 $ 197 $ (245) $ 52 $ (193) $ 355 $ (646) $ (291)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
THE LEHMAN BUSINESSES
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
Summary. For the Lehman Businesses, income from continuing operations
before the cumulative effect of changes in accounting principles was $355
million in 1993 consisting of $376 million of income from the continuing
businesses and a $21 million reserve ($32 million pre-tax) for certain non-core
partnership syndication activities in which the Company is no longer actively
engaged. The loss of $245 million in 1992 from the Lehman Businesses includes
charges totaling $316 million ($497 million pre-tax), as described above in
"Historical Results."
Net Revenues. Net revenues increased 25% to $3,467 million in 1993 from
$2,783 million in 1992. Revenues related to market making and principal
transactions and investment banking were the primary sources of the increase.
Net revenues increased both domestically and internationally. Revenues
associated with international products and services increased 63% to $850
million in 1993 from $520 million in 1992. The Company estimates that
approximately $300 million in 1993 revenues that were associated with domestic
products and services resulted from relationships with international clients and
customers. These international results reflect the Company's strategy to
increase the global scope of its business activities.
30
<PAGE> 35
Market Making and Principal Transactions. Market making and principal
transactions include the results of the Company's market making and trading
related to customer activities, as well as proprietary trading for the Company's
own account. Revenues from these activities encompass net realized and mark-to-
market gains (losses) on securities and other financial instruments owned as
well as securities and other financial instruments sold but not yet purchased.
The Company utilizes various hedging strategies as it deems appropriate to
minimize its exposure to significant movements in interest and foreign exchange
rates and the equity markets. Market making and principal transactions revenues
increased 47% to $1,644 million in 1993 from $1,122 million in 1992, reflecting
greater activity and strong customer order flow across all business lines. The
following discussion provides an analysis of the Company's market making and
principal transactions revenues based upon the various product groups which
generated these revenues.
Market Making & Principal Transactions Revenues (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Fixed income................................... $ 643 $ 671 $ 759
Equity......................................... 338 243 338
Derivative products............................ 85 136 399
Foreign exchange and commodities............... 80 72 148
------ ------ ------
$1,146 $1,122 $1,644
------ ------ ------
------ ------ ------
</TABLE>
Fixed income revenues increased 13% to $759 million in 1993 from $671
million in 1992. This increase was due principally to increased revenues from
several products, particularly emerging markets, high yield and corporate debt
instruments.
Equity revenues include net gains on market making and trading in listed
and over-the-counter equity securities. Equity revenues increased 39% to $338
million in 1993 from $243 million in 1992, primarily as a result of higher
revenues from the Company's proprietary trading activities.
Derivative products revenues, which include revenues from fixed income
derivative products and equity derivative products, increased 193% to $399
million in 1993 from $136 million in 1992.
Fixed income derivative products revenues include net revenues from the
trading and market making activities of the Company's fixed income derivative
products business. These products include interest rate and currency swaps,
caps, collars, floors and similar instruments. Fixed income derivative products
revenues increased 197% to $318 million in 1993 from $107 million in 1992,
representing 40% of the total increase in market making and principal
transactions revenues. The increased revenues were primarily a result of
increased Company activity in these markets and increased usage of these
products by the Company's clients and customers. At December 31, 1993, the
notional value of the Company's fixed income derivatives contracts increased to
over $260 billion from approximately $105 billion at December 31, 1992. Notional
amounts do not represent a quantification of the market or credit risk of the
positions; rather, notional amounts represent the amounts used to calculate
contractual cash flows to be exchanged and are generally not actually paid or
received. During 1994, the Company will commence derivative trading and market
making activities through Lehman Brothers Financial Products Inc., a separately
capitalized triple-A rated derivatives subsidiary. This subsidiary is expected
to increase the Company's volume of activity in its fixed income derivatives
business and capture additional underwriting and trading business.
Equity derivative products revenues include net revenues from the trading
and market making activities of the Company's equity derivative products
business. Such revenues increased 179% to $81 million in 1993 from $29 million
in 1992. The Company's equity derivatives business expanded during 1993 due to
the Company's increased emphasis on equity derivative products and the Company's
activity in the equities business generally. At December 31, 1993, the notional
value of equity derivatives contracts was approximately $24 billion. Notional
amounts for 1992 and 1991 were not material.
Foreign exchange and commodities revenues include revenues derived from
market making and trading in spot and forward foreign currency contracts,
foreign currency futures contracts, and energy and other
31
<PAGE> 36
commodity futures contracts. Revenues from these sources increased 106% to $148
million in 1993 from $72 million in 1992. Included in these results were foreign
exchange revenues of $115 million and $62 million for 1993 and 1992,
respectively, reflecting an increase of 85%. This increase was due primarily to
increased customer-related and proprietary trading activities throughout 1993.
Revenues from commodity trading activities increased 230% to $33 million in 1993
from $10 million in 1992, due primarily to increased customer-related trading
activities throughout 1993. Foreign exchange contracts outstanding, including
forward commitments to purchase and forward commitments to sell, at December 31,
1993 and 1992 were $230 billion and $104 billion, respectively.
Investment Banking. Investment banking revenues increased 19% to $802
million in 1993 from $674 million in 1992. The 1993 results were driven
primarily by a 40% increase in underwriting revenues to $523 million in 1993
from $373 million in 1992. Underwriting revenues increased as a result of
significantly higher underwriting volumes in both domestic equity and fixed
income products, with the increase in equity underwriting the primary component.
Also included in these results were merchant banking revenues which decreased
10% to $105 million in 1993 from $117 million in 1992. Such revenues include net
realized gains, net unrealized changes in the value of merchant banking
investments and advisory fees.
Commissions. Commission revenues increased 9% to $488 million in 1993 from
$446 million in 1992, primarily as a result of higher volumes of customer
trading of securities and commodities on exchanges. Commission revenues are
generated from the Company's agency activities on behalf of corporations,
institutions and high net worth individuals.
Interest and Dividends. Interest and dividend revenues increased 5% to
$5,679 million in 1993 from $5,404 million in 1992. Net interest and dividend
income decreased 5% to $454 million in 1993 from $476 million in 1992. Net
interest and dividend revenue amounts are closely related to the Company's
trading activities. A significant portion of net interest revenue is due to
trading decisions and strategies, the results of which are reflected in market
making and principal transactions. The Company evaluates these strategies on a
total return basis. Therefore, changes in net interest revenue from period to
period should not be viewed in isolation but should be viewed in conjunction
with revenues from market making and principal transactions.
Other Revenues. Other revenues increased 22% to $79 million in 1993 from
$65 million in 1992. Asset management fees were the principal component of this
increase. Asset management and related advisory fees increased 25% to $35
million in 1993 from $28 million in 1992, as assets under management increased
substantially to over $12 billion in 1993 from $3 billion in 1992.
Non-interest Expense. Compensation and benefits expense increased 18% to
$1,825 million in 1993 from $1,551 million in 1992, reflecting higher
compensation due to increases in revenues and profitability. However,
compensation and benefits expense as a percentage of net revenues decreased to
52.6% in 1993 from 55.7% in 1992 due to improvements in productivity.
Excluding compensation and benefits expense, non-interest expenses
decreased 32% to $1,077 million in 1993 from $1,586 million in 1992. Included in
the 1993 amount was a charge of $32 million ($21 million after-tax) related to
certain non-core partnership syndication activities in which the Company is no
longer actively engaged. The 1992 results included a series of charges totaling
$497 million ($316 million after-tax) which consisted of a charge of $90 million
($59 million after-tax) for additional litigation reserves, a $162 million ($107
million after-tax) write-down of the carrying value of certain real estate
investments, and a $245 million ($150 million after-tax) charge related to the
Company's holdings of Computervision. Excluding these charges, as well as
compensation and benefits, non-interest expenses declined 4% to $1,045 million
in 1993 from $1,089 million in 1992. This decrease was due primarily to lower
levels of provisions for legal settlements and bad debts and reduced operating
expenses.
Cost Reduction Effort. In August 1993, the Company announced an expense
reduction program with the objective of reducing costs by $200 million on an
annualized basis by the end of the first quarter of 1994. The Company's expense
structure for the first half of 1993, adjusted for changes in the volume and mix
of
32
<PAGE> 37
revenues as well as for additional costs due to external factors such as
inflation or new legislation, is the basis against which these goals are being
measured. As of March 31, 1994 the Company had taken the following actions which
it believes will result in $200 million of cost reductions on an annualized
basis: (i) reduced certain purchased costs by lowering the volume of goods and
services purchased, renegotiating rates with vendors and strengthening internal
compliance with established policies and procedures; (ii) consolidated certain
administrative and support functions; (iii) strengthened compliance and control
functions; and (iv) completed its annual review of personnel, the objective of
which is to upgrade personnel and eliminate positions to improve the Company's
overall productivity. See "Recent Developments -- Reduction in Personnel."
In addition to these actions, the Company has identified a variety of
actions that are expected to reduce expenses further, such as (i) additional
reductions in certain purchased expenses and (ii) the relocation in the summer
of 1994 of certain administrative, operations and other support personnel to
newly leased facilities in New Jersey. See "Business -- Properties."
THE LEHMAN BUSINESSES
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
Summary. In 1992, the Company reported a loss from continuing operations
before the cumulative effect of changes in accounting principles of $245 million
compared to net income of $169 million in 1991. The 1992 results included
charges of $316 million ($497 million pre-tax) as described above. Income of
$169 million in 1991 included $313 million of income from the continuing core
businesses, reduced by a charge of $144 million (pre-and after-tax) related to
the write-off of the Company's investment in FCH. The 1991 income from the
continuing core businesses also included a tax benefit of $122 million from the
recognition of tax benefits under SFAS No. 96.
Net Revenues. Net revenues increased 11% to $2,783 million in 1992 from
$2,499 million in 1991. Investment banking revenues were the primary source of
the improvement, increasing 44% to $674 million in 1992 from $468 million in
1991. Net revenues from domestic products and services accounted for most of the
increase, rising 14% to $2,263 million in 1992. Net revenues from international
products and services increased 2% to $520 million in 1992. The Company
estimates that approximately $100 million of 1992 net revenues associated with
domestic products and services resulted from relationships with international
clients and customers.
Market Making and Principal Transactions. Market making and principal
transactions include the results of the Company's market making and trading
related to customer activities and proprietary trading for the Company's own
account. Revenues from these activities encompass net realized and
mark-to-market gains (losses) on securities and other financial instruments
owned as well as securities and other financial instruments sold but not yet
purchased. The Company uses various hedging strategies to minimize its exposure
to significant movements in interest and foreign exchange rates and the equity
markets as it deems appropriate. Market making and principal transactions
revenues decreased 2% in 1992 to $1,122 million from $1,146 million in 1991. The
following discussion provides an analysis of the Company's market making and
principal transactions revenues based upon the various product groups which
generated these revenues.
Revenues from fixed income products increased 4% to $671 million in 1992
from $643 million in 1991, with money market products and government securities
contributing most of the increase.
Equity revenues include net gains on market making and trading in listed
and over-the-counter equity securities. Equity revenues decreased 28% to $243
million in 1992 from $338 million in 1991, primarily as a result of lower
revenues from the Company's proprietary trading activities.
Derivative products revenues, which include revenues from fixed income
derivative products and equity derivative products increased 60% to $136 million
in 1992 from $85 million in 1991.
Fixed income derivative products revenues include net revenues from the
trading and market making activities of the Company's fixed income derivatives
business. These products include interest rate and
33
<PAGE> 38
currency swaps, caps, collars, floors and similar instruments. Fixed income
derivative products revenues increased 84% to $107 million in 1992 from $58
million in 1991, primarily as a result of increased Company activity in these
markets and increased usage of these products by the Company's clients and
customers. At December 31, 1992, the notional value of the Company's fixed
income derivatives contracts increased to approximately $105 billion from
approximately $45 billion at December 31, 1991.
Equity derivative products revenues increased 7% to $29 million in 1992
from $27 million for 1991. The notional value of the Company's equity
derivatives contracts was not material at December 31, 1992 and 1991.
Foreign exchange and commodities revenues include revenues derived from
market making and trading in spot and forward foreign currency contracts,
foreign currency futures contracts and energy and other commodity futures
contracts. Revenues from these sources decreased 10% to $72 million in 1992 from
$80 million in 1991. Foreign exchange revenues increased 27% to $62 million in
1992 from $49 million in 1991, primarily due to an expansion of the Company's
proprietary trading activities during 1992. Commodity trading revenues decreased
to $10 million in 1992 from approximately $31 million in 1991. Foreign exchange
contracts outstanding, including forward commitments to purchase and forward
commitments to sell, at December 31, 1992 and 1991 were $104 billion and $60
billion, respectively.
Investment Banking. Investment banking revenues increased 44% to $674
million in 1992 from $468 million in 1991. This increase was due to increased
underwriting revenues and improved merchant banking results. Underwriting
revenues increased 57% to $373 million in 1992 from $238 million in 1991, while
merchant banking revenues increased 92% to $117 million in 1992 from $61 million
in 1991. Merchant banking revenues include net realized gains, net unrealized
changes in the value of the Company's merchant banking investments and advisory
fees.
Commissions. Commission revenues decreased 10% to $446 million in 1992
from $495 million in 1991. This decrease was due primarily to the strategic
deemphasis of the Company's institutional futures sales activities in 1992.
Commission revenues are generated from the Company's agency activities on behalf
of corporations, institutions and high net worth individuals.
Interest and Dividends. Interest and dividend revenues increased 10% to
$5,404 million in 1992 from $4,909 million in 1991. Net interest and dividend
income increased 40% to $476 million in 1992 from $340 million in 1991. Net
interest and dividend revenue amounts are closely related to the Company's
trading activities. A significant portion of net interest revenue results from
trading decisions and strategies, the results of which are reflected in market
making and principal transactions. The Company evaluates these strategies on a
total return basis. Therefore, changes in net interest revenue from period to
period should not be viewed in isolation but should be viewed in conjunction
with revenues from market making and principal transactions.
Other Revenues. Other revenues increased 30% to $65 million in 1992 from
$50 million in 1991. The growth in asset management fees was the primary source
of this increase. Asset management and related advisory fees increased 33% to
$28 million in 1992 from $21 million in 1991 due to an increase in assets under
management.
Non-interest Expense. Compensation and benefits expense increased 13% to
$1,551 million in 1992 from $1,370 million in 1991. Compensation and benefits
expense as a percent of net revenues was 55.7% in 1992 versus 54.8% in 1991, as
a result of competitive pressures which caused compensation and benefits expense
to increase at a faster rate than revenues.
Excluding compensation and benefits, non-interest expenses increased 52% to
$1,586 million in 1992 from $1,044 million in 1991. As previously discussed,
1992 results included a series of charges totaling $497 million while 1991
results included a charge of $144 million related to the write-off of the
Company's investment in FCH. Excluding these charges, as well as compensation
and benefits expense, other non-interest expenses increased 21% to $1,089
million in 1992 from $900 million in 1991. The increase in expenses was due
primarily to higher provisions for legal settlements and bad debts as well as
increased operating expenses related to the Company's investments in the
expansion of its international, foreign exchange and derivatives businesses.
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<PAGE> 39
THE LEHMAN BUSINESSES
INCOME TAXES -- FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
In 1993, the Lehman Businesses had an income tax provision of $210 million
which consisted of a provision of $221 million for continuing businesses and a
tax benefit of $11 million related to non-core business reserves. The effective
tax rate for the continuing businesses was 37%, which is greater than the
statutory U.S. federal income tax rate principally due to state and local income
taxes partially offset by benefits attributable to income subject to
preferential tax treatment and increased foreign profits. During the third
quarter of 1993, the statutory U.S. federal income tax rate was increased to 35%
from 34%, effective January 1, 1993. The Company's 1993 tax provision includes a
one-time benefit of approximately $10 million from the impact of the federal
rate change on the Company's net deferred tax assets. The Company's effective
tax rate for continuing businesses is expected to increase slightly in 1994,
subject to changes in the level and geographic mix of the Company's profits. See
"Certain Transactions and Agreements Between the Company and American
Express -- Tax Allocation Agreements."
The Company's net deferred tax assets decreased in 1993 to $265 million
from $338 million in 1992. The decrease was primarily related to the utilization
of net operating loss carryforwards ("NOLs") which resulted in cash savings to
the Company. It is anticipated that the remaining deferred tax asset will be
realized through future earnings.
In addition, the Company had, as of December 31, 1993, approximately $175
million of tax NOLs available to offset future taxable income, the benefits of
which have not yet been reflected in the financial statements. Although the
benefit related to these NOLs does not currently meet the recognition criteria
of SFAS No. 109, strategies are being implemented to increase the likelihood of
realization. Approximately $35 million of these NOLs will be transferred to
American Express in connection with the Distribution.
In 1992, the Lehman Businesses had an income tax benefit of $109 million
which consisted of a provision of $72 million from continuing businesses and a
tax benefit of $181 million related to the special charges previously discussed.
Excluding the tax benefit, the effective tax rate for the continuing businesses
was 50%, which was higher than the statutory U.S. federal income tax rate
primarily due to state and local taxes and the impact of certain non-deductible
foreign losses. The effective rate on the benefit for special charges was 36%.
Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." Previously, the Company accounted for income taxes in
accordance with SFAS No. 96. As a result of the adoption, the Company recorded a
$69 million increase in consolidated net income from the cumulative effect of
this change in accounting principle, $64 million of which related to
discontinued operations. In addition, the Company reduced goodwill by $258
million related to the recognition of deferred tax benefits attributable to the
Company's 1988 acquisition of The E. F. Hutton Group Inc. The Company
established a deferred tax asset of $327 million in the first quarter of 1992
related to tax benefits previously unrecorded under SFAS No. 96.
The 1991 tax benefit of $84 million includes $122 million for the
recognition of benefits on previously reported losses for which no financial
statement benefit had been permitted. Excluding the recognition of these
benefits, the 1991 effective tax rate was 45%, which was higher than the
statutory U.S. federal income tax rate due primarily to state and local income
taxes and the non-deductibility of goodwill amortization.
THE BUSINESSES SOLD
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
This discussion is provided to analyze the operating results of the
Businesses Sold. For purposes of this discussion, the amounts described as the
Businesses Sold include the results of operations of Shearson and SLHMC, the
loss on sale of Shearson and the reserve for non-core businesses related to the
sale of SLHMC. All 1993 amounts for the Businesses Sold include results through
their dates of sale and therefore reported results for 1993 are not fully
comparable with prior years' results.
Net revenues related to the Businesses Sold were $1,751 million in 1993 and
$2,643 in 1992. Excluding the loss on the sale of Shearson and the reserve for
non-core businesses related to SLHMC, non-interest
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<PAGE> 40
expenses of the Businesses Sold were $1,634 million in 1993 and $2,536 million
in 1992. Compensation and benefits expense were $1,164 million in 1993 and
$1,759 million in 1992.
The Businesses Sold recorded a net loss of $646 million in 1993 compared to
net income of $52 million in 1992. The 1993 results include a loss on sale of
Shearson of $630 million and a $79 million charge recorded in the first quarter
as a reserve for non-core businesses in anticipation of the sale of SLHMC. The
loss on the sale of Shearson included a reduction in goodwill of $750 million
and transaction-related costs such as relocation, systems and operations
modifications and severance. Excluding the $630 million after-tax loss on sale,
Shearson's net income was $63 million in 1993 compared to $55 million in 1992.
Excluding the $79 million after-tax charge discussed above, SLHMC operations
were break-even in 1993 compared to a net loss of $3 million in 1992.
THE BUSINESSES SOLD
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
Net revenues related to the Businesses Sold increased 10% to $2,643 million
in 1992 from $2,406 million in 1991, due primarily to increases in other
revenues and commissions. The growth in other revenues was due to increases in
investment advisory and custodial fees, reflecting growth in the Company's
managed asset products. An increase in the volume of customer directed trading
activity was the primary source of the increased level of commission revenues.
Non-interest expenses of the Businesses Sold increased 8% to $2,536 million in
1992 from $2,341 million in 1991. Compensation and benefits increased 15% to
$1,759 million in 1992 from $1,529 million in 1991, reflecting higher
compensation due to increased revenues.
Net income for the Businesses Sold increased 86% to $52 million in 1992
from $28 million in 1991. Shearson net income was $55 million in 1992 and $29
million in 1991.
THE BUSINESSES SOLD
INCOME TAXES -- FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
The 1993 tax provision of $108 million for Businesses Sold included (i)
expenses of $54 million related to the operating results of Shearson; (ii) an
expense of $95 million from the sale of Shearson and (iii) a tax benefit of $41
million related to the $120 million reserve for non-core businesses recorded in
anticipation of the sale of SLHMC. The provision related to the sale of Shearson
primarily resulted from the write-off of $750 million of goodwill which was not
deductible for tax purposes. For 1992 and 1991 the tax expense related
principally to the Shearson operations. The effective tax rate for the
Businesses Sold was 51% in 1992 and 57% in 1991, with the excess over the
statutory U.S. federal income tax rate primarily resulting from state and local
taxes and the non-deductibility of goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, total assets were $80.5 billion, compared to $85.2
billion at December 31, 1992. The composition of the Company's assets changed
significantly during 1993 due to the sales of The Boston Company, Shearson and
SLHMC. The Company's asset base now consists primarily of cash and cash
equivalents, and assets which can be sold within one year, including securities
and other financial instruments owned, collateralized short-term agreements and
receivables. At December 31, 1993, these assets comprised approximately 95% of
the Company's balance sheet. Long-term assets consist primarily of other
receivables, which include a $945 million interest-bearing receivable from
American Express due in 1996, property, equipment and leasehold improvements,
deferred expenses and other assets, and excess of cost over fair value of net
assets acquired.
Daily Funding Activities. The Company finances its short-term assets
primarily on a secured basis through the use of securities sold under agreements
to repurchase, securities loaned, securities and other financial instruments
sold but not yet purchased and other collateralized liability structures.
Repurchase agreements and other types of collateralized borrowings historically
have been a more stable financing source under all market conditions. Because of
their secured nature, these collateralized financing sources are less credit
sensitive and also provide the Company access to lower cost funding.
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<PAGE> 41
The Company uses short-term unsecured borrowing sources to fund short-term
assets not financed on a secured basis. The Company's primary sources of
short-term, unsecured general purpose funding include commercial paper and
short-term debt, including master notes and bank borrowings under uncommitted
lines of credit. Commercial paper and short-term debt outstanding totalled $11.2
billion at December 31, 1993, compared to $13.4 billion at December 31, 1992. Of
these amounts, commercial paper outstanding totalled $2.6 billion at December
31, 1993, with an average maturity of 31 days, compared to $6.8 billion at
December 31, 1992, with an average maturity of 22 days. The 1993 year-end
balances reflected the repayment of commercial paper and short-term debt
obligations with the proceeds from the sales of The Boston Company, Shearson and
SLHMC. As of December 31, 1993, the Company had $1.6 billion of unused committed
bank credit lines, provided by 35 banks, to support its commercial paper
programs.
To reduce liquidity risk, the Company carefully manages its commercial
paper and master note maturities to avoid large refinancings on any given day.
In addition, the Company limits its exposure to any single commercial paper
investor to avoid concentration risk. The Company's and LBI's access to
short-term and long-term debt financing is highly dependent on their debt
ratings. Holdings' current long-term/short-term senior debt ratings are as
follows: S&P A/A-1; Moody's A3/P-2; IBCA A-/A1; and Thomson BankWatch --/ TBW-1.
As of the Distribution Date, the Company expects to receive long-term/short-term
debt ratings from Fitch Investor Services of A/F-1. LBI's long-term and
short-term debt ratings are generally comparable to or in certain instances
higher than those of Holdings.
The Company's uncommitted lines of credit provide an additional source of
short-term financing. As of December 31, 1993, the Company had in excess of
$10.8 billion in uncommitted lines of credit, provided by 158 banks and
institutional lenders, consisting of facilities that the Company has been
advised are available but for which no contractual lending obligation exists.
Long-term assets are financed with a combination of long-term debt and
equity. The Company's long-term funding sources are unsecured senior notes and
subordinated indebtedness. The Company maintains long-term debt in excess of its
long-term assets to provide additional liquidity, which the Company uses to meet
its short-term funding requirements and reduce its reliance on commercial paper
and short-term debt.
During 1993, the Company issued $4.2 billion in long-term debt, compared to
$3.5 billion in 1992. In addition to refinancing long-term debt, these issuances
strengthened the Company's capital base, which consists of long-term debt plus
equity. The Company staggers the maturities of its long-term debt to minimize
refunding risk. At December 31, 1993, the Company had long-term debt outstanding
of $9.9 billion with an average life of 3.1 years, compared to $7.7 billion
outstanding at December 31, 1992, with an average life of 3.8 years. For
long-term debt with a maturity of greater than one year, the Company had $7.4
billion outstanding with an average life of 4.0 years at December 31, 1993,
compared to $6.0 billion outstanding with an average life of 4.7 years at
December 31, 1992.
As of December 31, 1993, the Company had $3.2 billion available for
issuance of debt securities under various shelf registrations. In July 1993, the
Company initiated a $1 billion Euro medium-term note program, which is not
registered under the Securities Act. As of December 31, 1993, $560 million of
issuance availability remained under this program.
The Company anticipates that 1994 long-term debt issuances will be below
that of prior years due to the previously described changes in its asset
composition and the pre-funding in 1993 of a portion of the Company's long-term
debt maturing in 1994. The cash proceeds to the Company from the Equity
Investment, which will total approximately $1,193 million, will be used to
reduce commercial paper and short-term debt and to pay costs in connection with
the Concurrent Transactions and certain other related expenses estimated to be
$20 million that will be charged primarily to operating expenses in the second
quarter of 1994.
The Company enters into a variety of financial and derivative products
agreements as an end user to hedge and/or modify its exposure to foreign
exchange and interest rate risk of certain assets and liabilities. These
agreements are not part of the Company's trading portfolio of derivative
products. The Company primarily enters into interest rate swaps and caps to
modify the interest characteristics of its long-term debt
37
<PAGE> 42
obligations. The Company recognizes the net interest expense or income related
to these agreements on an accrual basis, including the amortization of premiums,
over the life of the contracts.
At December 31, 1993 and 1992, the Company had outstanding interest rate
swap and cap agreements for the above purposes of approximately $4.5 billion and
$3.8 billion, respectively. Included in these amounts were approximately $2.3
billion of interest rate swaps and caps, maturing in 1995 and 1997, which serve
to reduce the Company's overall fixed rate debt to a lower fixed rate. Of the
remaining interest rate swaps, the most significant serve to convert a portion
of the Company's debt to either a fixed rate or a floating rate. The Company has
matched substantially all of the maturities of its remaining interest rate swaps
to the terms of its underlying borrowings.
The $4.5 billion notional amount of interest rate swap and cap agreements
matures as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
1994..................................................... $ 845
1995..................................................... 1,540
1996..................................................... 345
1997..................................................... 910
1998..................................................... 320
1999 and thereafter...................................... 540
-------------
$ 4,500
-------------
-------------
</TABLE>
The effect of interest rate swap and cap agreements was to decrease
interest expense by approximately $56 million, $57 million and $15 million in
1993, 1992 and 1991, respectively. At December 31, 1993, the unrecorded net loss
on these agreements was approximately $5 million compared to a net unrecorded
gain of $64 million at December 31, 1992. The Company has no deferred gains or
losses related to terminated agreements.
The Company expects to continue using interest rate swap and cap agreements
to modify the effective interest cost associated with its long-term
indebtedness. The $2.3 billion of interest rate swaps and caps described above,
which reduce the Company's rate on its fixed rate debt to a lower fixed rate,
will lower 1994 and 1995 interest expense by approximately $25 million and $15
million, respectively. The effect of the remaining interest rate swaps is
dependent on the level of interest rates in the future.
Liquidity Management. The maintenance of the liability structure and
balance sheet liquidity as discussed above is achieved through the daily
execution of the following financing policies: (i) match funding the Company's
assets and liabilities; (ii) maximizing the use of collateralized borrowing
sources; and (iii) diversifying and expanding borrowing sources.
(i) The Company's first financing policy focuses on funding the
Company's assets with liabilities which have maturities similar to the
anticipated holding period of the assets to minimize refunding risk. The
anticipated holding period of assets financed on an unsecured basis is
determined by the expected time it would take to obtain financing for these
assets on a collateralized basis.
(ii) The Company's second financing policy is to maximize that portion
of its balance sheet that is funded through collateralized borrowing
sources, which include repurchase agreements, securities loaned, securities
sold but not yet purchased and other collateralized liability structures.
The Company currently funds over 60% of its assets on a collateralized
basis. As discussed above, repurchase agreements and other types of
collateralized borrowings historically have been a more reliable financing
source under all market conditions.
(iii) The Company's third financing policy is to diversify and expand
its borrowing sources in an effort to maximize liquidity and reduce
concentration risk. Through its institutional sales force, the Company
seeks financing from a global investor base with the goal of broadening the
availability of its funding sources. The Company accesses both the
unsecured and collateralized debt markets through its operations in New
York, London, Tokyo, Hong Kong, Frankfurt and Geneva. In addition to
maintaining
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<PAGE> 43
geographic diversification, the Company also utilizes a broad range of debt
instruments, which it issues in varying maturities. Where the Company deems
it to be appropriate, foreign currency denominated assets are financed with
corresponding foreign currency denominated liabilities.
The Company incorporates these policies in its liquidity contingency
planning process, which is designed to enhance the availability of alternative
sources of funding in a period of financial stress. Financial stress is defined
as any event which severely constrains the Company's access to unsecured funding
sources. The Company's liquidity contingency plan is based on an estimate of its
ability to meet its funding requirements with collateralized financing. To help
achieve this objective, the Company would rely on the additional liquidity
created by its policy of issuing long-term debt in excess of long-term assets
and its ability to pledge its unencumbered marketable securities as collateral
to obtain financing rather than on a sale of these securities.
The Company's liquidity contingency plan assumes no draw-down of committed
bank credit lines. The plan's assumptions are continually reviewed and updated
as the Company's asset/liability mix and liquidity requirements change. The
Company believes that these policies, combined with the maintenance of
sufficient capital levels, position the Company to meet its liquidity
requirements in periods of financial stress.
The Company does not assume any reliance on American Express to provide
additional liquidity in either the Company's daily funding activities or in the
Company's liquidity contingency planning process. Over the past three years, the
Company's ability to maintain its long-term debt ratings has reflected
continuing support from American Express. This support has directly affected the
Company's liquidity position in terms of the depth and breadth of its access to
the capital markets and lower financing costs. Following the Distribution, based
on the results of reviews by certain rating agencies, the Company expects its
current debt ratings to be affirmed. If these ratings are maintained, the
Company believes that it will have continued access to the capital markets at
comparable costs. American Express is not obligated to provide the Company with
any capital resources in the future See "Risk Factors -- Dependence on Ratings."
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AND DERIVATIVES
In addition to financial instruments recorded on the consolidated balance
sheet, the Company enters into off-balance sheet financial instruments primarily
consisting of derivative contracts and credit-related arrangements. Derivative
products include futures, forwards, swaps, options, caps, collars, floors, swap
options, forward rate agreements, foreign exchange contracts and similar
instruments.
Derivative products are generally based on notional amounts, while
credit-related arrangements are based upon contractual amounts. The notional
values of these instruments are generally not recorded on the balance sheet.
Off-balance sheet treatment is generally considered appropriate when the
exchange of the underlying asset or liability has not occurred or is not
assured, or where the notional amounts are utilized solely as a basis for
determining cash flows to be exchanged. Therefore, the notional amounts of these
instruments do not reflect the Company's market or credit risk amount.
The Company conducts its derivative activities through wholly owned
subsidiaries. In late 1993, the Company established a new subsidiary, Lehman
Brothers Financial Products Inc., a separately capitalized triple-A rated
derivatives subsidiary. This subsidiary, which is expected to commence
activities during the third quarter of 1994, was established to increase the
volume of the Company's derivatives business related to customer-driven
derivative activities and to capture additional underwriting and trading
business.
The Company records derivatives from dealer-related and proprietary trading
activities at market or fair value, with unrealized gains and losses recognized
in the consolidated statement of operations as market making and principal
transactions revenue. While the notional value of these instruments is not
reflected in the consolidated balance sheet, the mark to market value of
trading-related derivatives is reflected on a net basis in the December 31, 1993
and 1992 balance sheets as "securities and other financial instruments owned" or
"securities and other financial instruments sold but not yet purchased," as
applicable.
Derivative products, like all financial instruments, include various
elements of risk which must be actively managed. General types of risk from
derivative products include market risk, liquidity risk and credit risk.
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<PAGE> 44
Market risk from derivatives results from the potential for changes in
interest and foreign exchange rates and fluctuations in commodity or equity
prices. The market risk for derivatives is similar to that of cash instruments.
The Company may employ hedging strategies to reduce its exposure to fluctuations
in market prices of securities and volatility in interest or foreign exchange
rates.
Liquidity risk from derivatives represents the cost to the Company of
adjusting its positions in times of high volatility and financial stress. The
liquidity of derivative products is highly related to the liquidity of the
underlying cash instruments. As with on-balance sheet financial instruments, the
Company's valuation policies for derivatives include consideration of liquidity
factors.
Credit risk from derivatives relates to the potential for a counterparty
defaulting on its contractual agreement. The Company manages its counterparty
credit risk through a process similar to its other trading-related activities.
This process includes an evaluation of the counterparty's credit worthiness at
the inception of the transaction, periodic review of credit standing and various
credit enhancements in certain circumstances. In addition, the Company attempts
to execute master netting agreements which provide for net settlement of
contracts with the same counterparty in the event of cancellation or default
when appropriate or when allowable under relevant law.
For a discussion of the Company's policies and procedures regarding risk,
see "Business -- Risk Management."
Cash Flows. Cash and cash equivalents increased $692 million in 1993 to
$1,333 million, as the net cash provided by investing activities exceeded the
net cash used in operating and financing activities. In addition, cash and cash
equivalents for discontinued operations increased $42 million in 1993. Net cash
used in operating activities of $1,361 million included the loss from continuing
operations adjusted for non-cash items of approximately $677 million for the
year ended December 31, 1993. Net cash used in financing activities was $372
million in 1993. Net cash provided by investing activities of $2,467 million in
1993 included cash proceeds from the sales of The Boston Company, Shearson and
SLHMC of $2,570 million.
Cash and cash equivalents decreased $250 million in 1992 to $641 million,
as the net cash used in operating activities exceeded the net cash provided by
financing and investing activities. In addition, cash and cash equivalents for
discontinued operations decreased $1,082 million and the effect of exchange rate
changes on cash was an increase of $9 million. Net cash used in operating
activities of $6,277 million included the loss from continuing operations
adjusted for non-cash items of approximately $733 million for the year ended
December 31, 1992. Net cash provided by financing and investing activities was
$4,913 million and $23 million, respectively.
Cash and cash equivalents decreased $299 million in 1991 to $891 million.
In addition, cash and cash equivalents for discontinued operations increased
$706 million and the effect of exchange rate changes on cash was an increase of
$4 million. Net cash used in operating activities of $3,111 million included
income from continuing operations adjusted for non-cash items of approximately
$804 million for the year ended December 31, 1991. Net cash provided by
financing and investing activities was $157 million and $3,357 million,
respectively.
SPECIFIC BUSINESS ACTIVITIES AND TRANSACTIONS
The following sections include information on specific business activities
of the Company which affect overall liquidity and capital resources:
Merchant Banking Partnerships. At December 31, 1993, the Company's
investment in merchant banking partnerships was $381 million, which included
$168 million in one employee-related partnership in which the Company, as
general partner, is entitled to a priority return. At December 31, 1993, the
Company had commitments to make investments through merchant banking
partnerships of approximately $120 million of which approximately $66 million
expired in March 1994. The Company's policy is to carry its interests in
merchant banking partnerships at fair value based upon the Company's assessment
of the underlying investments. The Company's merchant banking investments, made
primarily through the 1989 Partnerships
40
<PAGE> 45
(as defined below under "Business"), are, consistent with the terms of the 1989
Partnerships, expected to be sold or otherwise monetized during the remaining
term of the partnerships.
Westinghouse. In May 1993, the Company and Westinghouse Electric
Corporation ("Westinghouse") entered into a partnership to facilitate the
disposition of Westinghouse's commercial real estate portfolio valued at
approximately $1.1 billion, which will be accomplished substantially by
securitizations and asset sales. The Company invested approximately $154 million
in the partnership, and also made collateralized loans to the partnership of
$752 million. During the third quarter of 1993, Lennar Inc. was appointed
portfolio servicer and purchased a 10% limited partnership interest from the
Company and Westinghouse.
At December 31, 1993, the carrying value of the Company's investment in the
partnership was $154 million and the outstanding balance of the collateralized
loan, including accrued interest, was $539 million. The remaining loan balance
is expected to be repaid in 1994 through a combination of mortgage remittances,
securitizations, asset sales and refinancings by third parties.
High Yield Securities. The Company underwrites, trades, invests and makes
markets in high yield corporate debt securities. The Company also syndicates,
trades and invests in loans to below investment grade companies. For purposes of
this discussion, high yield securities are defined as securities or loans to
companies rated below BBB- by S&P and below Baa3 by Moody's, as well as
non-rated securities or loans which, in the opinion of management, are below
investment grade. High yield debt securities are carried at market value and
unrealized gains or losses for these securities are reflected in the Company's
Consolidated Statement of Operations. The Company's portfolio of such securities
at December 31, 1993 and 1992 included long positions with an aggregate market
value of approximately $1.0 billion and $920 million, respectively, and short
positions with an aggregate market value of approximately $75 million and $50
million, respectively. The portfolio of high yield securities may from time to
time contain concentrated holdings of selected issues. The Company's two largest
high yield positions were $179 million and $82 million at December 31, 1993 and
$180 million and $123 million at December 31, 1992.
Change in Facilities. In 1993, the Company agreed to lease approximately
392,000 square feet of office space located at 101 Hudson Street in Jersey City,
New Jersey (the "Operations Center"). The lease term will commence in August
1994 and provides for minimum rental payments of approximately $87 million over
its 16-year term. Concurrently, the Company announced it would relocate certain
administrative employees to five additional floors at 3 World Financial Center
in New York, New York. These floors will be purchased from American Express for
approximately $44 million, with the Company financing the purchase through the
issuance of notes to American Express. In connection with the relocation to the
Operations Center and the additional space at the World Financial Center, the
Company anticipates incremental fixed asset additions of approximately $112
million which is expected to be funded from the issuance of long-term debt. The
relocation is expected to be completed in the summer of 1994.
Non-Core Activities and Investments. In March 1990, the Company
discontinued the origination of partnerships (whose assets are primarily real
estate) and investments in real estate. Currently, the Company acts as a general
partner for approximately $4.2 billion of partnership investment capital and
manages a real estate investment portfolio with an aggregate investment basis of
approximately $322 million. The Company provided additional reserves for these
activities of $32 million and $162 million in 1993 and 1992, respectively. At
December 31, 1993 and 1992, the Company had remaining net exposure to these
investments (defined as the remaining unreserved investment balance plus
outstanding commitments and contingent liabilities under guarantees and credit
enhancements) of $252 million and $329 million, respectively. In certain
circumstances, the Company provides financial and other support and assistance
to such investments to maintain investment values. There is no contractual
requirement that the Company continue to provide this support. Although a
decline in the real estate market or the economy in general or a change in the
Company's disposition strategy could result in additional real estate reserves,
the Company believes that it is adequately reserved.
The Company holds $98 million of long-term subordinated indebtedness and
equity securities of American Marketing Industries Holding Inc. ("AMI"). The
subordinated debt, as amended, matures in 1997, and includes certain provisions
which limit cash interest payments and provides for payment-in-kind securities
above such cash interest payments. The AMI loan is current in payment in
accordance with its terms.
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The Company has other equity, partnership and debt investments unrelated to
its ongoing businesses. At December 31, 1993, the total carrying value of the
AMI loan and these other investments was $229 million. Management's intention
with regard to non-core assets is the prudent liquidation of these investments
as and when possible. See "Business -- Non-Core Assets."
EFFECTS OF 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 communications charges, which 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, it may adversely affect the Company's financial position and results of
operations in certain businesses.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 39, "Offsetting of
Amounts related to Certain Contracts" ("FIN No. 39"), was issued in March 1992.
Effective for balance sheets after January 1, 1994, FIN No. 39 restricts the
current industry practice of offsetting certain receivables and payables.
Although the implementation of this standard is expected to substantially
increase gross assets and liabilities, the Company believes that its results of
operations and overall financial condition will not be affected. The Financial
Accounting Standards Board ("FASB") has instructed its staff to explore
modifying FIN No. 39 to create certain exceptions, which, if enacted, would
substantially mitigate the increase in the Company's gross assets and
liabilities expected to initially result from the implementation of FIN No. 39.
In November 1992, the FASB issued Statement of Financial Standards ("SFAS")
No. 112, "Employers Accounting for Postemployment Benefits." This statement
requires the accrual of obligations associated with services rendered to date
for employee benefits accumulated or vested for which payment is probable and
can be reasonably estimated. The Company will record a charge to reflect a
cumulative effect of a change in accounting principle of approximately $13
million after-tax in the first quarter of 1994.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company records substantially
all its securities at market value. No adjustment is anticipated to be recorded
as a result of this accounting pronouncement.
RISK MANAGEMENT
Risk management is an integral part of the Company's business. The Company
has established extensive policies and procedures to identify, monitor, assess
and manage risk effectively. For a discussion of these policies and procedures,
see "Business -- Risk Management."
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BUSINESS
Lehman Brothers is one of the leading global investment banks serving
institutional, corporate, government and high net worth individual clients and
customers. The Company's worldwide headquarters in New York and regional
headquarters in London and Tokyo are complemented by offices in 19 additional
locations in the United States, 11 in Europe and the Middle East, four in Latin
and South America and seven in the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; asset
management; research; and the trading of foreign exchange, derivative products
and certain commodities. The Company acts as a market maker in all major equity
and fixed income products in both the domestic and international markets. Lehman
Brothers is a member of all principal securities and commodities exchanges in
the United States, as well as the NASD, and holds memberships or associate
memberships on several principal international securities and commodities
exchanges, including the London, Tokyo, Hong Kong, Frankfurt and Milan stock
exchanges.
Since 1990, Lehman Brothers has followed a "client/customer-driven"
strategy. Under this strategy, Lehman Brothers concentrates on serving the needs
of major issuing and advisory clients and investing customers worldwide to build
an increasing "flow" of business that leverages the Company's capabilities and
generates a majority of the Company's revenues and profits. Developing lead
relationships with issuing clients and investing customers is a central premise
of the Company's client/customer-driven strategy. Based on management's belief
that each client and customer directs a majority of its financial transactions
to a limited number of investment banks, Lehman Brothers' investment banking and
sales professionals work together with global products and services
professionals to identify and develop lead relationships with priority clients
and customers worldwide. The Company believes that such relationships position
Lehman Brothers to receive a substantial portion of its clients' and customers'
financial business and lessen the volatility of revenues generally associated
with the securities industry.
Lehman Brothers' strategy consists of the following four key elements:
(1) Focused coverage of major issuing clients and institutional and high
net worth individual investing customers. The Company's Investment Banking and
Sales areas develop and maintain relationships with clients and customers to
understand and meet their financial needs. Business volume generated through
these relationships accounts for the majority of Lehman Brothers' business.
(2) Comprehensive product and service capabilities. Lehman Brothers has
built capabilities in major product and service categories to enable the Company
to develop lead relationships with its clients and customers, meet their diverse
needs and increase the Company's overall volume of business. Each of these
product and service capabilities is provided to clients and customers by
Investment Banking and Sales.
(3) Global scope of business activities. Lehman Brothers pursues a global
strategy in order to: (i) enhance the Company's product and service
capabilities; (ii) position the Company to increase its flow of business as the
international markets continue to expand; (iii) leverage the Company's
infrastructure to benefit from economies of scale; and (iv) geographically
diversify the Company's revenues.
(4) Organizational structure that enables and encourages the Company's
business units to act in a coordinated fashion as "One Firm." The Company is
organized to provide the delivery of products and services through teams
comprised of professionals with specialized expertise focused on meeting the
financial objectives of the Company's clients and customers.
Lehman Brothers also engages in activities such as arbitrage and
proprietary trading that leverage the Company's expertise and infrastructure and
provide attractive profit opportunities, but generally entail a higher degree of
risk as the Company makes investments for its own account.
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FOCUSED CLIENT AND CUSTOMER COVERAGE
INVESTMENT BANKING
Lehman Brothers is a leading underwriter of equity and equity-related
securities in the equity capital markets and of taxable and tax-exempt fixed
income securities denominated in U.S. dollars and other currencies in the fixed
income markets. The Company also engages in project and real estate financings
around the world. According to Securities Data Company, Inc., Lehman Brothers
was the third ranked underwriter of debt and equity securities worldwide in
1993, compared to a ranking of eighth in 1990. During 1993, Lehman Brothers lead
managed 784 offerings of debt and equity securities worldwide with a total
volume of $129.4 billion.
Investment Banking professionals are responsible for developing and
maintaining relationships with issuing clients, gaining a thorough understanding
of their specific needs and bringing together the full resources of Lehman
Brothers to accomplish their financial objectives. Investment Banking is
organized into industry and geographic coverage groups, enabling individual
bankers to develop specific expertise in particular industries and markets.
Industry coverage groups include consumer products, financial institutions,
health care, industrial, media, merchandising, natural resources, real estate,
technology, telecommunications, transportation and utilities. Where appropriate,
professionals with specialized expertise in Strategic Advisory, Equities, Fixed
Income, Foreign Exchange, Commodities, Derivatives and Project Finance are
integrated into the client coverage teams.
Lehman Brothers has a long history of providing strategic advisory services
to corporate, institutional and government clients around the world on a wide
range of financial matters, including mergers and acquisitions, divestitures,
leveraged transactions, takeover defenses, spin-offs, corporate reorganizations
and recapitalizations, tender and exchange offers, privatizations, opinion
letters and valuations. The Company's Strategic Advisory Group works closely
with industry and geographic coverage investment bankers and product specialists
around the world. As mergers and acquisitions activity has become increasingly
global, Lehman Brothers has maintained its position as a leader in cross-border
transactions. In 1993, Lehman Brothers was ranked fourth in terms of mergers and
acquisitions transactions worldwide according to Securities Data Company, Inc.,
the same ranking it held in 1990. In 1993, the Company advised clients worldwide
on transactions totaling $23.2 billion.
Lehman Brothers has increased its international presence during the past
few years in recognition of the current and anticipated growth in international
markets. Most recently, in 1993 the Company strengthened its presence in
Germany, initiated banking coverage of the People's Republic of China, and in
early 1994, opened an office in Beijing. During 1993, Lehman Brothers also
brought together resources from around the world to advise on a complete range
of financial and strategic issues in other emerging markets such as Mexico and
Turkey.
INSTITUTIONAL SALES
Institutional Sales serves the investing and liquidity needs of major
institutional investors worldwide and provides the distribution mechanism for
new issues and secondary market securities. Lehman Brothers maintains a network
of over 750 sales professionals in 19 locations around the world. Institutional
Sales focuses on the institutional investors that constitute the major share of
global buying power in the financial markets. By serving the needs of these
customers, the Company also gains insight into investor sentiment worldwide
regarding new issues and secondary products and markets, which in turn benefits
the Company's issuing clients.
Institutional Sales is organized into four distinct sales forces, operating
globally and specialized by the following product types: Equities, Fixed Income,
Foreign Exchange/Commodities and Asset Management. Institutional Sales
professionals work together to coordinate coverage of major institutional
investors through customer teams. Depending on the size and investment
objectives of the institutional investor, a customer team can be comprised of
from two to five sales professionals, each specializing in a specific product.
This approach positions Lehman Brothers to deliver the full resources of the
Company to its customer base.
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HIGH NET WORTH AND MIDDLE MARKET SALES
The Company's Financial Services Division serves the investment needs of
high net worth individual investors and small and mid-sized institutions. This
division has one of the largest sales forces of its kind among major investment
banks, with over 500 investment representatives located in seven offices in the
major financial centers of the United States and 19 offices in major financial
centers in Latin America, Europe, the Middle East and the Asia Pacific region.
The Company's investment representatives provide investing customers with ready
access to Lehman Brothers' equity and fixed income research, execution
capabilities and global product offerings. The Financial Services Division also
enables the Company's issuing clients to access a diverse investor base
throughout the world.
The global network of investment representatives is supported by the
Investor Services Group located in New York, London and Hong Kong. This group
provides an integrated, global approach to transaction execution, marketing
support, asset allocation strategies, and product development. The Investor
Services Group also works closely with Lehman Brothers Global Asset Management
to develop proprietary product offerings for investing customers.
Through Lehman Brothers Bank (Switzerland) S.A. (the "Bank"), the Financial
Services Division provides high net worth investors the traditional personalized
services of a Swiss bank, combined with the global resources of a leading
securities company. The Bank's services include deposit facilities,
international investment products, multi-currency secured lending and global
custodial services.
COMPREHENSIVE PRODUCT AND SERVICE CAPABILITIES
Lehman Brothers provides equity, fixed income, foreign exchange,
commodities, asset management and merchant banking products and services to
clients and customers worldwide. Each area is organized on a global basis and
professionals are integrated into teams, supported by a dedicated administrative
and operations staff, to provide high quality products and services.
EQUITIES
Lehman Brothers combines professionals from the sales, trading, financing,
derivatives and research areas of Equities, together with investment bankers,
into teams to serve the financial needs of the Company's equity clients and
customers. The integrated nature of the Company's global operations and the
equity expertise delivered through the Company's client and customer teams
enable Lehman Brothers to structure and execute global equity transactions for
clients worldwide. The Company is a leading underwriter of initial public and
secondary offerings of equity and equity-related securities. Lehman Brothers
also makes markets in these and other securities, and executes block trades on
behalf of clients and customers. The Company also actively participates in
assisting governments around the world in raising equity capital as part of
their privatization programs. According to Securities Data Company, Inc., Lehman
Brothers ranked fourth in lead managed equity and equity-related securities
offerings worldwide in 1993, compared to a ranking of sixth in 1990. During
1993, the Company lead managed 138 equity offerings worldwide totaling $10.6
billion.
The Equities product group is responsible for the Company's equity
operations and all dollar and non-dollar equity and equity-related products
worldwide. These products include listed and over-the-counter ("OTC")
securities, American Depository Receipts, convertibles, options, warrants and
derivatives. The Company participates in the global equity and equity-related
markets in all major currencies through its worldwide presence and membership in
major stock exchanges, including among others, those in New York, London, Tokyo,
Hong Kong, Frankfurt and Milan. During 1993, Lehman Brothers made markets in the
top 300 NASDAQ stocks as measured by volume. The Company also makes markets in
almost all major European large capitalization stocks. In addition, the
Company's convertible securities trading professionals make markets in nearly
300 convertible debenture issues and 100 convertible preferred stock issues
around the world.
Derivative Products. Lehman Brothers offers equity derivative capabilities
across a wide spectrum of products and currencies, including listed options and
futures, portfolio trading, OTC options, equity swaps,
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warrants and similar products. In 1993, Lehman Brothers developed and marketed
several innovative products designed to help investors establish or hedge
positions in global markets and currencies. These included products such as
certain call and put warrants that use major stock indices as a benchmark,
including the Hang Seng, the FT-SE Eurotrack 200, the Mexican Bolsa, and the
Nikkei Index. Warrants were also issued on baskets of stocks, including the
Company's Ten Uncommon Valuessm, which is based on the recommendations of Lehman
Brothers' equity research analysts. In addition, Lehman Brothers lead managed
the largest ever stand-alone U.S. corporate warrant issue in 1993.
Equities Research. The Equities research department is integrated with and
supports the Company's investment banking, sales and trading activities. An
important objective of Equities research is to have in place high quality
research analysts covering industry and geographic sectors that support the
activities of the Company's clients and customers. The Equities research
department is comprised of regional teams staffed by industry specialists,
covering more than 50 industry sectors and 1,000 companies worldwide from
locations in New York, London, Hong Kong and Tokyo. During 1993, the Company
expanded its global economics coverage and technical market analysis
capabilities.
Equity Finance. Lehman Brothers operates a comprehensive equity finance
business to support the funding, sales and trading activities of the Company and
its clients and customers. Margin lending for the purchase of equities and
equity derivatives, securities lending and short sale facilitation are among the
main functions of the equity finance group. This group also engages in a conduit
business, whereby the Company seeks to earn a positive net spread on matched
security borrowing and lending activities.
FIXED INCOME
Lehman Brothers actively participates in all major fixed income product
areas worldwide and maintains a 24-hour trading presence in global fixed income
securities. The Company combines professionals from the sales, trading,
financing, derivatives and research areas of Fixed Income, together with
investment bankers, into teams to serve the financial needs of the Company's
clients and customers. The Company is a leading underwriter of new issues, and
also makes markets in these and other fixed income securities. The Company's
global presence facilitates client and customer transactions and provides
liquidity in marketable fixed and floating rate debt securities. According to
Securities Data Company, Inc., Lehman Brothers ranked third in lead managed
fixed income securities offerings worldwide in 1993, compared to a ranking of
ninth in 1990. During 1993, the Company lead managed 646 offerings worldwide for
a total of $118.8 billion of fixed income securities.
Fixed Income products consist of dollar and non-dollar government,
sovereign and supranational agency obligations; money market products; corporate
debt securities; mortgage and asset-backed securities; emerging market
securities; municipal and tax-exempt securities; derivative products and
research. In addition, the Company's central funding operation provides global
access to cost efficient debt financing sources, including repurchase
agreements, for the Company and its clients and customers.
Government and Agency Obligations. Lehman Brothers is one of the leading
39 primary dealers in U.S. Government securities, as designated by the Federal
Reserve Bank of New York, and participates in the underwriting of, and maintains
positions in, U.S. Treasury bills, notes and bonds, and securities of federal
agencies. The Company is also a market maker in the government securities of all
G7 countries, and participates in other major European and Asian government bond
markets.
Money Market Products. Lehman Brothers is a global market leader in the
origination and distribution of short-term debt obligations, including
commercial paper, short-term notes, preferred stock and Money Market Preferred
Stock(R). The Company is an appointed dealer for approximately 600 commercial
paper programs on behalf of companies and government agencies worldwide.
Corporate Debt Securities. Lehman Brothers is a leader in the underwriting
and market making of fixed, floating dollar and non-dollar investment grade debt
worldwide and trades approximately $2.0 billion of these securities on a daily
basis. According to Securities Data Company, Inc., during 1993, Lehman Brothers
ranked third in new issue domestic investment grade debt. The Company also
underwrites and makes markets in non-
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investment grade debt securities and bank loans. Lehman Brothers trades in
excess of $2.0 billion of high yield securities on a monthly basis.
Mortgage and Asset-Backed Securities. The Company is a leading underwriter
of and market maker in mortgage and asset-backed securities. Lehman Brothers
makes markets and trades in the full range of U.S. agency-backed mortgage
products, as well as public and private collateralized mortgage obligations and
whole loan products. The Company's trading activity in the secondary mortgage
market exceeds $4.0 billion on a daily basis. According to Securities Data
Company, Inc., the Company ranked second with $39.9 billion of residential,
commercial and multi-family mortgage securities underwritten on a lead managed
basis in 1993.
Emerging Market Securities. The Company is a leader in the trading,
structuring and underwriting of Latin American, Eastern European, and Asian
dollar and local currency instruments. In 1993, the emerging markets group lead
managed over $1 billion of new issues and traded over $150 billion of loans and
Brady bonds.
Municipal and Tax-Exempt Securities. Lehman Brothers is a leading dealer
in municipal and tax-exempt securities, including general obligation and revenue
bonds, notes issued by states, counties, cities, and state and local
governmental agencies, municipal leases, tax-exempt commercial paper and put
bonds. Lehman Brothers is also a leader in the structuring, underwriting and
sale of tax-exempt and taxable securities and derivative products for city,
state, not-for-profit and other public sector clients. The Company's Public
Finance group advises state and local governments on the issuance of municipal
securities, and works closely with the municipal sales and trading area to
underwrite both negotiated and competitive short-and long-term offerings.
According to Securities Data Company, Inc., Lehman Brothers ranked third in lead
managed municipal securities offerings in 1993 with a total volume of $29.3
billion.
Derivative Products. The Company offers a broad range of derivative
product services in more than 15 currencies on a 24-hour basis in nine major
financial centers. Derivatives professionals are integrated into all of the
Company's major fixed income product areas. In 1993, Lehman Brothers assisted
over 1,000 clients and customers worldwide, in the execution of over 3,900
transactions aggregating over $265 billion (notional amount).
In 1993, the Company introduced several new derivative products to meet the
needs of both issuers and investors, including Step-Up Recovery Floating Rate
Notes and Range Floaters. These innovative products are designed to offer
issuers and investors the opportunity to diversify their investment and
liability portfolios. In late 1993, Lehman Brothers incorporated Lehman Brothers
Financial Products Inc. ("LBFP"), a separately capitalized triple-A rated
derivatives subsidiary. Lehman Brothers established LBFP to increase the volume
of its derivatives business and capture additional underwriting and trading
business. It is expected that LBFP will commence its derivatives activities in
the third quarter of 1994.
Central Funding. The central funding unit engages in two major activities,
matched book funding and secured financing. Matched book funding involves
lending cash on a short-term basis to institutional customers collateralized by
marketable securities, typically government or government agency securities.
These arrangements are classified on the Company's balance sheet as "securities
purchased under agreements to resell." The Company may also enter into
short-term contractual agreements, referred to as "securities sold under
agreements to repurchase," whereby securities are pledged as collateral in
exchange for cash. The Company enters into these agreements in various
currencies and seeks to generate profits from the difference between interest
earned and interest paid.
Central funding works with the Company's institutional sales force to
identify customers that have cash to invest and/or securities to pledge to meet
the financing and investment objectives of the Company and its customers.
Central funding also coordinates with the Company's treasury area to provide
collateralized financing for a large portion of the Company's securities and
other financial instruments owned.
Fixed Income Research. Fixed Income research at Lehman Brothers
encompasses a broad range of research disciplines: quantitative, economic,
strategic, credit, portfolio and market-specific analysis. Fixed Income research
is integrated with and supports the Company's investment banking, sales and
trading activities. An important objective of Fixed Income research is to have
in place high quality research analysts
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covering industry, geographic and economic sectors that support the activities
of the Company's clients and customers. Fixed Income research specialists are
based in New York, London, Tokyo and Hong Kong. Their expertise includes U.S.
government and agency securities, sovereign and supranational issues, corporate
securities, high yield, asset and mortgage-backed securities and emerging market
debt. Fixed Income research expanded its quantitative capabilities and its
coverage of the commercial real estate market during 1993.
FOREIGN EXCHANGE
According to a leading market research firm, Lehman Brothers is one of the
top two global investment banks that trade foreign exchange for clients and
customers. Through its foreign exchange operations, Lehman Brothers seeks to
provide its clients and customers with superior trading execution, price
protection and hedging strategies to manage volatility. The Company, through
operations in New York, London, and Hong Kong, engages in trading activities in
all major currencies and maintains a 24-hour foreign exchange market making
capability for clients and customers worldwide. In 1993, Lehman Brothers
enhanced its foreign exchange capabilities by becoming the first U.S. investment
bank to join the Electronic Broking Service in Europe. In addition to the
Company's traditional client/customer-driven foreign exchange activities, Lehman
Brothers also trades foreign exchange for its own account. See
"Business -- Business Strategy -- Proprietary Trading."
COMMODITIES AND FUTURES
Lehman Brothers engages in commodities and futures trading in three
business lines: market making in metals and energy, exchange futures execution
services, and managed futures. To service the needs of the Company's clients and
customers in the energy industry, Lehman Brothers is an active market maker in
energy-related refined products. The Company seeks to provide clients and
customers with innovative investment and hedging strategies to satisfy their
investing and risk management objectives. In 1993, professionals from
Commodities, Investment Banking and Equities worked together to structure and
issue gold-denominated preferred stock, which was the first commodity-linked
equity security to be listed on the New York Stock Exchange.
ASSET MANAGEMENT
Lehman Brothers Global Asset Management ("LBGAM") provides discretionary
and non-discretionary investment management services to institutional and high
net worth investors worldwide. LBGAM's asset management philosophy combines
fundamental research with quantitative techniques to identify investment
opportunities that span the global equity, fixed income and currency markets.
Established in late 1992, LBGAM's assets under management were over $12 billion
at December 31, 1993. During 1993, LBGAM launched the Lehman Brothers
Institutional Funds, a family of money market funds directed toward U.S.
institutional investors, and expanded its offshore mutual funds directed toward
non-U.S. investors and its managed futures funds for investors throughout the
world. LBGAM serves its customers from four principal locations in New York,
Boston, London and Tokyo.
MERCHANT BANKING FUND MANAGEMENT
Since 1989, the Company's principal method of making merchant banking
investments has been through a series of partnerships (the "1989 Partnerships"),
for which the Company acts as general partner, and in some cases as a limited
partner. Merchant banking activities have consisted principally of making equity
and certain other investments in merger, acquisition, restructuring and
leveraged capital transactions, including leveraged buyouts, either
independently or in partnership with the Company's clients. Current merchant
banking investments include both publicly traded and privately held companies
diversified on a geographic and industry basis.
The 1989 Partnerships have a ten-year life with capital available for
investment for only the first five years, which period ended in March 1994.
Accordingly, during the remaining life of the Partnerships, the Company's
merchant banking activities, with respect to investments made by the 1989
Partnerships, will be
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directed toward selling or otherwise monetizing such investments. The Company is
continuing to review its strategic opportunities in merchant banking and intends
to participate in selected merchant banking opportunities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- -- Specific Business Activities and Transactions -- Merchant Banking
Transactions."
OTHER BUSINESS ACTIVITIES
While Lehman Brothers concentrates on its client/customer-driven strategy,
the Company also participates in business opportunities such as arbitrage and
proprietary trading that leverage the Company's expertise, infrastructure and
resources. These businesses may generate substantial revenues but generally
entail a higher degree of risk as the Company trades for its own account.
Approximately 8%, 2% and 10% of the Company's net revenue was generated by
arbitrage and proprietary trading activities during 1991, 1992 and 1993,
respectively.
Arbitrage. Lehman Brothers engages in a variety of arbitrage activities.
In traditional or "riskless" arbitrage, the Company seeks to benefit from
temporary price discrepancies that occur when a security is traded in two or
more markets, or when a convertible or derivative security is trading at a price
disparate from its underlying security. The Company's "risk" arbitrage
activities involve the purchase of securities at discounts from the expected
values that would be realized if certain proposed or anticipated corporate
transactions (such as mergers, acquisitions, recapitalizations, exchange offers,
reorganizations, bankruptcies, liquidations or spin-offs) were to occur. To the
extent that these anticipated transactions do not materialize in a manner
consistent with the Company's expectations, the Company is subject to the risk
that the value of these investments will decline in value. Lehman Brothers'
arbitrage activities benefit from the Company's presence in the global capital
markets, access to advanced information technology, in-depth market research,
proprietary risk management tools and general experience in assessing rapidly
changing market conditions.
Proprietary Trading. Lehman Brothers engages in the trading of various
securities, derivatives, currencies and commodities for its own account. The
Company's proprietary trading activities bring together various research and
trading disciplines allowing it to take market positions, which at times may be
significant, consistent with the Company's expectations of future events (such
as movements in the level of interest rates, changes in the shape of yield
curves and changes in the value of currencies). The Company is subject to the
risk that actual market events will be different from the Company's
expectations, which may result in significant losses associated with such
proprietary positions. The Company's proprietary trading activities are
generally carried out in consultation with personnel from the relevant major
product area (e.g., mortgages, derivatives and foreign exchange).
ADMINISTRATION AND OPERATIONS
The Company's administration and operations staff supports its businesses
through the processing of certain securities and commodities transactions;
receipt, identification and delivery of funds and securities; internal financial
controls; safeguarding of customers' securities; and compliance with regulatory
and legal requirements. In addition, this staff is responsible for information
systems, communications, facilities, legal, internal audit, treasury, tax,
accounting and other support functions.
In response to the needs of certain of its domestic and international
businesses, the Company has acquired sophisticated data processing and
telecommunications equipment. The Company believes such acquisition will enable
it to provide the high level of technological and analytical support required to
process, settle and account for transactions in a worldwide marketplace.
Automated systems also provide sophisticated decision support which enhances
trading capability and the management of the Company's cash and collateral
resources. There is considerable fluctuation within each year and from year to
year in the volume of business that the Company must process, clear and settle.
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GLOBAL SCOPE OF BUSINESS ACTIVITIES
Through its network of offices in 44 cities around the world, Lehman
Brothers pursues a global strategy to meet more effectively the needs of clients
and customers and to generate increased business volume for the Company. The
Company's headquarters in New York and regional headquarters located in London
and Tokyo provide support for and are closely linked to the Company's other
regional offices. Because Lehman Brothers' global strategy is based on a unified
team approach to serving the financial needs of its clients and customers, the
Company's regional offices enable Investment Banking and Sales to more
effectively develop relationships and deliver products and services to clients
and customers whose businesses are located in a given area or who predominantly
transact business in that region. Based on the growth in international business
activities over the past several years and the continued development of a more
integrated global financial economy, Lehman Brothers expects international
business activities to continue to grow in the future. The Company believes that
its global presence and operating strategy position it to continue to increase
the Company's flow of business, and thereby continue to realize greater benefits
from economies of scale.
ORGANIZATION
The organization and culture of Lehman Brothers represent the fourth
element of the Company's overall strategy. This strategy requires close
integration of investment bankers and sales professionals and product and
service professionals to maximize the Company's effectiveness in developing
client and customer relationships. To effect this strategy, Lehman Brothers is
managed as an integrated global operation. Business planning and execution is
coordinated between regional locations and product heads. The Company's
18-member Operating Committee is the principal governing body of Lehman
Brothers, and is comprised of representatives from every major area of the
organization, including the senior managers from the Company's operations in the
European and Asia Pacific regions. This structure promotes communication and
cooperation, enabling Lehman Brothers to rapidly identify and address
opportunities and issues on a global, firm-wide level. The Operating Committee
facilitates management's ability to run the business as a whole, as opposed to
managing the business units separately.
This structure is reinforced with a culture and operating practices that
promote integration through the implementation and communication of
organizational values and principles consistent with the Company's "One Firm"
philosophy. An example of one of these operating practices is the Company's
approach to compensation, whereby employees are compensated to a significant
extent on the overall performance of the Company and to a lesser extent on the
performance of any individual business area.
RISK MANAGEMENT
Risk is an inherent part of all of Lehman Brothers' businesses and
activities. The extent to which Lehman Brothers properly and effectively
identifies, assesses, monitors and manages each of the various types of risks
involved in its trading, brokerage and investment banking activities is critical
to the success and profitability of the Company. The principal types of risk
involved in Lehman Brothers' activities are market risks, credit or counterparty
risks and transaction risks. Lehman Brothers has developed a control
infrastructure to monitor and manage each type of risk on a global basis
throughout the Company.
MARKET RISK
In its trading, market making and underwriting activities, Lehman Brothers
is subject to risks relating to fluctuations in market prices and liquidity of
specific securities, instruments and derivative products, as well as volatility
in market conditions in general. The markets for these securities and products
are affected by many factors, including the financial performance and prospects
of specific companies and industries, domestic and international economic
conditions (including inflation, interest and currency exchange rates and
volatility), the availability of capital and credit, political events (including
proposed and enacted legislation) and the perceptions of participants in these
markets.
Lehman Brothers has developed a multi-level approach for monitoring and
managing its market risk. The base level control is at the trading desks where
various risk management functions are performed, including daily mark to market
by traders and on-going monitoring of inventory aging and pricing by trading
desk
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managers, product area management and the independent risk managers for each
product area. The next level of management of market risk occurs in the Trade
Analysis department, which independently reviews the prices of the Company's
trading positions and regularly monitors the aging of inventory positions.
The final level of the risk management process is the Senior Risk
Management Committee, which is composed of senior management from the various
product areas and from credit, trade analysis and risk management. In addition,
when appropriate, Lehman Brothers employs hedging strategies to reduce its
exposure to fluctuations in market prices of securities and volatility in
interest or foreign exchange rates.
CREDIT OR COUNTERPARTY RISKS
Lehman Brothers is exposed to credit risks in its trading activities from
the possibility that a counterparty to a transaction could fail to perform under
its contractual commitment, resulting in Lehman Brothers incurring losses in
liquidating or covering its position in the open market. The responsibility for
managing these credit risks rests with the Corporate Credit department which has
operations in New York, London, Frankfurt, Tokyo and Hong Kong. The department,
which is organized along both industry and geographic lines, is independent from
any of Lehman Brothers' product areas. Corporate Credit manages the Company's
credit risks by establishing and monitoring counterparty limits, structuring and
approving specific transactions, actively managing credit exposures and
participating in the new product review process. In addition, Lehman Brothers,
when appropriate, may require collateral from the counterparty to secure its
obligations to the Company or seek some other form of credit enhancement (such
as financial covenants, guarantees or letters of credit) to support the
counterparty's contractual commitment.
TRANSACTION RISK
In connection with its investment banking and product origination
activities, Lehman Brothers is exposed to risks relating to the merits of
proposed transactions. These risks involve not only the market and credit risks
associated with underwriting securities and developing derivative products, but
also potential liabilities under applicable securities and other laws which may
result from Lehman Brothers' role in the transaction.
Each proposed transaction involving the underwriting or placement of
securities by Lehman Brothers is reviewed by the Company's Commitment Committee.
The Commitment Committee is staffed by senior members of the Company with
extensive experience in the securities industry. The principal function of the
Commitment Committee is to determine whether Lehman Brothers should participate
in a transaction in which the Company's capital and reputation will be at risk.
Fairness opinions and valuation letters to be delivered by Lehman Brothers
must be reviewed and approved by the Company's Fairness Opinion Committee, which
is composed of senior investment bankers who provide an independent evaluation
of the opinions and conclusions to be rendered to the Company's clients.
In connection with its investment banking or merchant banking activities,
the Company may from time to time make proprietary investments in securities
that are not readily marketable. These investments primarily result from the
Company's efforts to help clients achieve their financial and strategic
objectives. Any such proposed investment which falls within established criteria
with respect to the amount of capital invested, the anticipated holding period
and the degree of liquidity of the securities must be reviewed and approved by
the Company's Investment Committee, which is composed of senior investment
bankers. The Investment Committee reviews in detail the proposed investment and
applies relevant valuation methodologies to evaluate the risk of loss of capital
compared to the anticipated returns from the investment and determine whether to
proceed with the transaction.
Lehman Brothers recently established a New Products and Business Committee
(the "NPBC") for new products developed by Lehman Brothers or new businesses to
be entered into by the Company. The NPBC will work in cooperation with the
originators or sponsors of a new product or business to evaluate its
feasibility, assess its potential risks and liabilities and analyze its costs
and benefits.
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NON-CORE ASSETS
Prior to 1990, the Company participated in a number of activities that are
not central to its current business as an institutional investment banking firm.
As a result of these activities, the Company carries on its balance sheet a
number of relatively illiquid assets (the "Non-Core Assets"), including a number
of individual real estate assets, limited partnership interests, certain bridge
loans and a number of smaller investments. Subsequent to their purchase, the
values of certain of these Non-Core Assets declined below the recorded values on
the Company's balance sheet, which necessitated the write-down of the carrying
values of these assets and corresponding charges to the Company's income
statement. Certain of these activities have resulted in various legal
proceedings. See "Legal Proceedings."
Since 1990, management has devoted substantial resources to reducing the
Company's Non-Core Assets. Between December 31, 1990 and December 31, 1993, the
Company's Non-Core Assets decreased from $2.3 billion in 1990 to approximately
$481 million in 1993, with Non-Core Assets defined as carrying value plus
contingent exposures net of reserves. Management's intention with regard to
these Non-Core Assets is the prudent liquidation of these investments as and
when possible. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RELATIONSHIP WITH SMITH BARNEY
On July 31, 1993, the Company completed the sale of Shearson which
consisted of the Company's domestic retail brokerage business (except for such
business conducted under the Lehman Brothers name), substantially all of its
asset management business, the operations and data processing functions that
supported those business and certain related assets and liabilities. See "Recent
Developments."
SECURITIES CLEARING, DATA SERVICES AND GENERAL SERVICES AGREEMENTS
Pursuant to a clearing agreement (the "Clearing Agreement"), Smith Barney
carries and clears, on a fully disclosed basis, all accounts introduced to it by
Lehman Brothers, and performs all clearing and settlement functions for
equities, municipal securities and corporate debt which were previously
performed by Shearson. Lehman Brothers also conducts certain securities lending
activities as agent for Smith Barney under the Clearing Agreement. Pursuant to
Data Services and General Services Agreements, Smith Barney provides to the
Company all of the same data processing and related services that it previously
received from Shearson. Charges for services under these three agreements are
generally calculated using the intercompany transfer pricing methodology in
effect prior to the Primerica Transaction. These agreements expire on December
31, 1994, but may be extended for up to an additional six months upon payment by
the Company of up to $5 million. The Company has been reviewing alternative
clearing, data processing and other servicing arrangements to take effect after
the expiration of its arrangements with Smith Barney.
CERTAIN ARRANGEMENTS
Revolving Cash Subordination Agreement. The Company has agreed to lend to
Smith Barney up to $150 million to cover capital charges in excess of $50
million incurred by Smith Barney as a result of carrying LBI's customer and
proprietary positions (the "Lehman Capital Charges"). The Company will lend
additional amounts to Smith Barney in the event that the Lehman Capital Charges
increase above $200 million. As of March 28, 1994, $150 million was outstanding.
Under certain circumstances, Travelers is required to purchase all or part of
Smith Barney's indebtedness to the Company under the facility up to $250
million. The Company is only required to fund in excess of $250 million under
this facility if Travelers agrees to a corresponding increase in its purchase
obligation; provided that, without such agreement, the Company may not engage in
any activity which results in the Lehman Capital Charges exceeding $300 million.
Revolving Credit Agreements. Pursuant to a Revolving Credit Agreement,
Smith Barney may borrow funds from LBI secured by securities having a market
value equal to not less than 130% of the aggregate unpaid principal amount
borrowed for the purpose of funding customer margin debits carried by Smith
Barney. As of March 28, 1994, there were no amounts outstanding under this
facility. Pursuant to an Unsecured Revolving Credit Agreement, Holdings has
agreed to advance funds to Smith Barney in order to finance, in part, certain of
the cash demands of the securities lending activities conducted under the
Clearing
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Agreement. As of March 28, 1994, $756 million was outstanding under this
facility. These facilities will terminate upon the termination of the Clearing
Agreement.
Non-Solicitation. In connection with the Primerica Transaction, both LBI
and Smith Barney agreed that they would refrain from soliciting each other's
employees and certain customers for varying periods of time after July 31, 1993.
The majority of the customer-related non-solicitation provisions have expired.
Shearson Related Litigation. LBI and Smith Barney agreed to a division of
litigation relating to Shearson pursuant to which, subject to certain
exceptions, Smith Barney is liable for such litigations arising after April 11,
1993. With respect to matters arising on or before April 11, 1993, LBI
transferred to Smith Barney a $50 million reserve. If that reserve is exhausted,
the parties have agreed to share liability equally on the matters arising on or
before April 11, 1993. LBI retained liability for regulatory matters. LBI also
retained liability for certain litigation involving the origination of limited
partnerships and underwritings (the "Products"); however, Smith Barney and LBI
share responsibility for broker misconduct litigation with respect to the
Products.
COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes in domestic and international markets directly with numerous other
brokers and dealers in securities and commodities, investment banking firms,
investment advisors and certain commercial banks and, indirectly for investment
funds, with insurance companies and others.
The financial services industry has become considerably more concentrated
as numerous securities firms have either ceased operations or have been acquired
by or merged into other firms. In addition, several small and specialized
securities firms have been successful in raising significant amounts of capital
for their merger and acquisition activities and merchant banking investment
vehicles and for their own accounts. These developments have increased
competition from firms, many of whom have significantly greater equity capital
than the Company.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. LBI and certain other subsidiaries
of Holdings are registered as broker-dealers and investment advisers with the
Commission and as such are subject to regulation by the Commission and by
self-regulatory organizations, principally the NASD and national securities
exchanges such as the NYSE, which has been designated by the Commission as LBI's
primary regulator, and the Municipal Securities Rulemaking Board. Securities
firms are also subject to regulation by state securities administrators in those
states in which they conduct business. LBI is a registered broker-dealer in all
50 states, the District of Columbia and the Commonwealth of Puerto Rico. The
Commission, self-regulatory organizations and state securities commissions may
conduct administrative proceedings, which may result in censure, fine, the
issuance of cease-and-desist orders or suspension or expulsion of a
broker-dealer or an investment adviser, its officers or employees. The Company
believes that it is currently in material compliance with the regulations to
which it is subject.
LBI is registered with the CFTC as a futures commission merchant and is
subject to regulation as such by the CFTC and various domestic boards of trade
and other commodity exchanges. The Company's U.S. commodity futures and options
business is also regulated by the National Futures Association, a not-for-profit
membership corporation which has been designated as a registered futures
association by the CFTC.
The Company does business in the international fixed income, equity and
commodity markets and undertakes investment banking activities through its
London subsidiaries. The U.K. Financial Services Act of 1986 (the "Financial
Services Act") governs all aspects of the United Kingdom investment business,
including regulatory capital, sales and trading practices, use and safekeeping
of customer funds and securities, record keeping, margin practices and
procedures, registration standards for individuals, periodic reporting and
settlement procedures. Pursuant to the Financial Services Act, the Company is
subject to regulations administered by The Securities and Futures Authority
Limited, a self regulatory organization of financial
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services companies (which regulates the Company's equity, fixed income,
commodities and investment banking activities) and the Bank of England (which
regulates its wholesale money market, bullion and foreign exchange businesses).
Holdings' subsidiary, Lehman Brothers Japan Inc., is a licensed securities
company in Japan and a member of the Tokyo Stock Exchange, the Osaka Stock
Exchange and the Tokyo Financial Futures Exchange and, as such, is regulated by
the Japanese Ministry of Finance, the Japan Securities Dealers Association and
such exchanges.
Because the financial services businesses are subject to extensive
regulation on the federal and state level, and because of the possiblity of
changes resulting from numerous legislative and regulatory proposals that are
advanced each year and from judicial decisions, it is possible that changes will
be necessary to the way in which the Company and its affiliates conduct their
activities. Recently, proposals have been introduced into Congress proposing
increased regulation relating to investment advisors and in the area of public
finance. In addition, regulators, both domestically and internationally, are
studying the need for increased regulation relating to derivative products. The
Company does not believe that any such proposed regulation, or compliance
therewith, would have a material effect upon the Company. It is, however,
difficult to predict what new laws, regulations and judicial decisions will be
adopted, and accordingly, the Company cannot now predict the extent of the
impact of any such laws, regulations or judicial decisions. The Company
anticipates that regulation of the securities and commodities industries will
increase at all levels and for compliance therewith to become more difficult.
Monetary penalties and restrictions on business activities by regulators
resulting from compliance deficiencies are also expected to become more severe.
CAPITAL REQUIREMENTS
As registered broker-dealers LBI and Lehman Government Securities Inc.
("LGSI"), a wholly owned subsidiary of LBI, are subject to the Commission's net
capital rule (Rule 15c3-1, the "Net Capital Rule") promulgated under the
Exchange Act. The NYSE and the NASD monitor the application of the Net Capital
Rule by LBI and LGSI, respectively. LBI and LGSI compute net capital under the
alternative method of the Net Capital Rule which requires the maintenance of
minimum net capital, as defined. A broker-dealer may be required to reduce its
business if its net capital is less than 4% of aggregate debit balances and may
also be prohibited from expanding its business or paying cash dividends if
resulting net capital would be less than 5% of aggregate debit balances. In
addition, the Net Capital Rule does not allow withdrawal of subordinated capital
if net capital would be less than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule, equity capital cannot be withdrawn from a broker-dealer without
the prior approval of the Commission when net capital after the withdrawal would
be less than 25% of its securities position haircuts (which are deductions from
capital of certain specified percentages of the market value of securities to
reflect the possibility of a market decline prior to disposition). In addition,
the Net Capital Rule requires broker-dealers to notify the Commission and the
appropriate self-regulatory organization two business days before a withdrawal
of excess net capital if the withdrawal would exceed the greater of $500,000, or
30% of the broker-dealer's excess net capital, and two business days after a
withdrawal that exceeds the greater of $500,000, or 20% of excess net capital.
Finally, the Net Capital Rule authorizes the Commission to order a freeze on the
transfer of capital if a broker-dealer plans a withdrawal of more than 30% of
its excess net capital and the Commission believes that such a withdrawal would
be detrimental to the financial integrity of the Company or would jeopardize the
broker-dealer's ability to pay its customers. Certain of LBI's other
subsidiaries are also subject to the Net Capital Rule.
Compliance with the Net Capital Rule could limit those operations of LBI
that require the intensive use of capital, such as underwriting and trading
activities and the financing of customer account balances, and also could
restrict the ability of Holdings to withdraw capital from LBI, which in turn
could limit the ability of Holdings to pay dividends, repay debt and redeem or
purchase shares of its outstanding capital stock. See Footnote 18 of Notes to
Consolidated Financial Statements.
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PROPERTIES
The Company's headquarters occupy approximately 915,000 square feet of
space at 3 World Financial Center in New York, New York, which is owned by the
Company as tenants-in-common with American Express and various other American
Express subsidiaries. The Company expects to relocate in or about August 1994,
certain administrative personnel from 388 and 390 Greenwich Street to five
floors in the World Financial Center which are currently occupied by
subsidiaries of American Express. These five floors will be added to the
Company's interest in the World Financial Center, resulting in total occupancy
of approximately 1,147,000 square feet. See "Certain Transactions and Agreements
Between the Company and American Express -- World Financial Center."
The Company entered into a lease for approximately 392,000 square feet for
offices located at 101 Hudson Street in Jersey City, New Jersey (the "Operations
Center"). The Operations Center will be used by systems, operations, and certain
administrative personnel and contains certain back-up trading facilities. The
lease term is approximately 16 years and is expected to commence in August 1994.
The Company occupies 14 floors at 388 and 390 Greenwich Street which it
expects to vacate by July 31, 1994 and will relocate the personnel to the
Operations Center and the World Financial Center.
The Company leases approximately 344,000 square feet of office space in
London, England. The Company consolidated most of its London operations into
this space in 1987. Most of the Company's other offices are located in leased
premises, the leases for which expire at various dates through the year 2007.
Facilities owned or occupied by the Company and its subsidiaries are
believed to be adequate for the purposes for which they are currently used and
are well maintained.
EMPLOYEES
As of December 31, 1993 the Company employed approximately 9,300 persons,
including 6,900 in the U.S. and 2,400 internationally. The Company considers its
relationship with its employees to be good. See "Recent
Developments -- Reduction in Personnel."
LEGAL PROCEEDINGS
The Company is involved in a number of judicial, regulatory and arbitration
proceedings concerning matters arising in connection with the conduct of its
business. Such proceedings include actions brought against the Company and
others with respect to transactions in which the Company acted as an underwriter
or financial advisor, actions arising out of the Company's activities as a
broker or dealer in securities and commodities and actions brought on behalf of
various classes of claimants against many securities and commodities firms of
which the Company is one.
Although there can be no assurance as to the ultimate outcome, the Company
has denied, or believes it has a meritorious defense and will deny, liability in
all significant cases pending against it including the matters described below,
and intends to defend vigorously each such case. Although there can be no
assurance as to the ultimate outcome, based on information currently available
and established reserves, the Company believes that the eventual outcome of the
actions against it, including the matters described below, will not, in the
aggregate, have a material adverse effect on the business or consolidated
financial condition of the Company.
GENERAL ACQUISITION, INC. ET AL. V. GENCORP, INC. ET AL. V. WAGNER & BROWN, ET
AL. AND
SHEARSON LEHMAN BROTHERS INC. AND SHEARSON LEHMAN BROTHERS HOLDINGS INC.
This litigation in the United States District Court for the Southern
District of Ohio (the "Ohio Court") arose out of the Company's representation of
Wagner & Brown and AFG Industries, Inc. ("AFG") in connection with their effort
to acquire GenCorp, Inc. ("GenCorp") in March 1986. In response to the tender
offer and the litigation commenced by Wagner & Brown and AFG on March 17, 1986,
GenCorp amended its answer and counterclaims on April 2, 1986 to assert claims
against LBI and the Company. Only GenCorp's counterclaims against LBI remain
pending. GenCorp asserted common law claims for breach of fiduciary duty, fraud,
negligence and unjust enrichment against LBI. The claims are based on prior
contacts between
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LBI and GenCorp and LBI's subsequent role in advising and assisting Wagner &
Brown and AFG with respect to the tender offer. GenCorp seeks $258 million in
damages and the imposition of a constructive trust on the fees and profits the
Company earned in the transaction. On or about October 2, 1992, the Ohio Court
granted LBI's motion for summary judgment and dismissed GenCorp's claim for
compensatory damages. GenCorp has appealed this decision to the United States
Court of Appeals for the Sixth Circuit. No decision has been rendered. GenCorp's
claim for disgorgement of the fees that LBI received has been stayed pending the
appeal.
BAMAODAH V. E.F. HUTTON & COMPANY INC.
In April 1986, Ahmed and Saleh Bamaodah commenced an action against E.F.
Hutton & Company Inc. ("EFH"), a subsidiary of The E.F. Hutton Group Inc.
("Hutton"), to recover all losses the Bamaodahs had incurred since May 1981 in
the trading of commodity futures contracts in a nondiscretionary EFH trading
account. The Dubai Civil Court ruled that the trading of commodity futures
contracts constituted illegal gambling under Islamic law and that therefore the
brokerage contract was void. In January 1987, a judgment was rendered against
EFH in the amount of $48,656,000. On January 5, 1991, the Dubai Court of Appeals
affirmed the judgment. On March 22, 1992, the Court of Cassation, Dubai's
highest court, revoked and quashed the decision of the Court of Appeals and
ordered that the case be remanded to the Court of Appeals for a further review.
On April 26, 1994, the Dubai Court of Appeals again affirmed the judgment of the
lower court. EFH intends to appeal such judgment.
PAUL WILLIAMS AND BEVERLY KENNEDY, ET AL. V. BALCOR PENSION INVESTORS ET AL.
In February 1990, a purported class action complaint was filed in the
United States District Court for the Northern District of Illinois. The
complaint names eight separate limited partnerships originated by The Balcor
Company ("Balcor"), which was then a wholly owned subsidiary of LBI, known as
the Balcor Pension Investors series. Also named as defendants were the general
partner of each named limited partnership, including Balcor, and Balcor
Securities Co., LBI and American Express. The complaint which was amended on
October 10, 1990 alleges that the named entities violated certain federal
securities laws with regard to the adequacy and accuracy of disclosure of
information in connection with the offering of limited partnership interests.
The complaint also alleges breach of fiduciary duty, fraud, negligence and
violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO").
The complaint seeks compensatory damages and punitive damages. Defendants'
Amended Counterclaim filed on September 19, 1990, asserts common law claims of
fraud and breach of warranty against plaintiffs. Defendants seek to recover for
the alleged damage to their reputation and business as well as their costs and
attorneys fees in defending against the claims brought by plaintiffs. On
November 29, 1990, W.B. Copeland, Trustee, Ploof Truck Lines, Inc. Profit
Sharing Plan and Allan Hirschfield filed a class action counterclaim against
defendants which is identical to the Amended Complaint seeking, among other
things, leave to join this action as named plaintiffs.
On September 8, 1993, the plaintiffs filed a Third Amended Complaint adding
additional named plaintiffs and an amended motion for class certification which
motions had previously been denied. No plaintiff class has yet been certified
and no judicial determination has been made. No merits discovery has been
conducted.
RALPH MAJESKI, ET AL. V. BALCOR ENTERTAINMENT COMPANY, LTD. ET AL.;
ROBERT ECKSTEIN, ET AL. V. BALCOR FILM INVESTORS, ET AL.
These two actions were filed in United States District Court for the
Eastern District of Wisconsin (the "Wisconsin District Court"). LBI is a
defendant only in the Majeski case. Plaintiffs allege that the named defendants
in the lawsuits violated certain federal securities laws with regard to the
adequacy and accuracy of disclosure of information in respect of the offering of
limited partnership interests in Balcor Film Investors, a partnership of which a
Balcor subsidiary is the general partner. The Majeski complaint also alleges, in
general, breach of fiduciary duty, common law fraud, misrepresentation, breach
of contract and a cause of action in the nature of a derivative action. On
January 18, 1991, the Wisconsin District Court entered an order certifying a
plaintiffs class of all persons who purchased or currently own interests in the
Partnership which were purchased from January 8, 1985 through December 31, 1985.
The Wisconsin District Court also consolidated the Eckstein and Majeski actions
for the remainder of the pretrial proceedings and trial, but did not merge
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such actions. On March 11, 1992, the Wisconsin District Court granted
defendants' motions to dismiss on statute of limitations grounds in both
actions.
In August 1993, the U.S. Court of Appeals for the Seventh Circuit (the
"Court of Appeals") issued an opinion which reversed the order of the Wisconsin
District Court and remanded the cases to such court for further proceedings. The
defendants sought a writ of certiorari in the U.S. Supreme Court which was
denied in January 1994. Upon remand to the Wisconsin District Court, plaintiffs
filed a motion to amend the complaint to assert a RICO claim; defendants opposed
this amendment, and the motion is pending. In addition, defendants have renewed
their motions to dismiss. These motions are pending before the Wisconsin
District Court.
On or about March 8, 1993, the Majeski plaintiffs filed an action in the
Circuit Court for Milwaukee County, Wisconsin. The allegations, including
damages, in this complaint are essentially the same as in their federal court
action, described above. Plaintiff's counsel has represented that this state
court action will be dismissed.
Under the terms of an agreement between American Express and Holdings,
American Express has agreed to indemnify Lehman Brothers for liabilities which
it may incur in connection with this action.
GLYNWILL INVESTMENT, LTD. V. SHEARSON LEHMAN BROTHERS INC.
Glynwill Investment, Ltd. ("Glynwill"), a corporation chartered in Curacao,
N.A., commenced an action against LBI "as successor in interest to E.F. Hutton &
Co., Inc." in May of 1990 in the Supreme Court of the State of New York (the
"New York Court"), alleging fraud and breach of contract on the part of EFH in
overcharging Glynwill for foreign exchange transactions executed for Glynwill.
The New York Court, on LBI's motion to dismiss, held that the release signed by
Glynwill after Glynwill's repayment of approximately one half of the $10 million
unsecured debit created in Glynwill's account was not a general release
encompassing the claims raised by Glynwill in this action and denied LBI's
motion. Discovery is expected to be completed on or about April 30, 1994.
ACTIONS RELATING TO FIRST CAPITAL HOLDINGS INC.
FCH Derivative Actions. On or about March 29, 1991, two identical
purported shareholder derivative actions were filed, entitled Mentch v.
Weingarten, et al. and Isaacs v. Weingarten, et al. The complaints in these two
actions, pending in the Superior Court of the State of California, County of Los
Angeles, are filed allegedly on behalf of and naming as a nominal defendant FCH.
Other defendants include Holdings, two former officers and directors of FCH,
Robert Weingarten and Gerry Ginsberg, the four outside directors of FCH, Peter
Cohen, Richard DeScherer, William L. Mack and Jerome H. Miller (collectively,
the "Outside Directors"), and Michael Milken. The complaints allege generally
breaches of fiduciary duty, gross corporate mismanagement and waste of assets in
connection with FCH's purchase of non-rated bonds underwritten by Drexel Burnham
Lambert Inc. and seek damages for losses suffered by FCH, punitive damages and
attorneys' fees. The actions have been stayed pursuant to the bankruptcy of FCH.
Concurrent with the bankruptcy filing of FCH and the conservatorship and
receivership of its two life insurance subsidiaries, First Capital Life
Insurance Company ("First Capital Life") and Fidelity Bankers Life Insurance
Company ("Fidelity Bankers Life") (First Capital Life and Fidelity Bankers Life
collectively, the "Insurance Subsidiaries"), a number of additional actions were
instituted, naming one or more of Holdings, LBI and American Express as
defendants (individually or collectively, as the case may be, the "American
Express Defendants").
FCH Shareholder and Agent Actions. Three actions were commenced in the
United States District Courts for the Southern District of New York and the
Central District of California allegedly as class actions on behalf of the
purchasers of FCH securities during certain specified periods, commencing no
earlier than May 4, 1988 and ending no later than May 31, 1991 (the "Shareholder
Class"). The complaints are captioned Larkin, et al. v. First Capital Holdings
Corp., et al., amended on May 15, 1991 to add American Express as a defendant,
Zachary v. American Express Company, et al., filed on May 20, 1991, and Morse v.
Weingarten, et al., filed on June 13, 1991 (the "Shareholder Class Actions").
The complaints raise claims under the federal securities laws and allege that
the defendants concealed adverse material information regarding the finances,
financial condition and future prospects of FCH and made material misstatements
regarding these matters.
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On July 1, 1991 an action was filed in the United States District Court for
the Southern District of Ohio entitled Benndorf v. American Express Company, et
al. The action is brought purportedly on behalf of three classes. The first
class is similar to the Shareholder Class; the second consists of managing
general agents and general agents who marketed various First Capital Life
products from April 2, 1990 to the filing of the suit and to whom it is alleged
misrepresentations were made concerning FCH (the "Agent Class"); and the third
class consists of Agents who purchased common stock of FCH through the First
Capital Life Non Qualified Stock Purchase Plan ("FSPP") and who have an interest
in the Stock Purchase Account under the FSPP (the "FSPP Class"). The complaint
raises claims similar to those asserted in the other Shareholder Class Actions,
along with additional claims relating to the FSPP Class and the Agent Class
alleging damages in marketing the products. In addition, on August 15, 1991,
Kruthoffer v. American Express Company, et al. was filed in the United States
District Court for the Eastern District of Kentucky, whose complaint is nearly
identical to the Benndorf complaint (collectively the "Agent Class Actions").
On November 14, 1991, the Judicial Panel on Multidistrict Litigation issued
an order transferring and coordinating for all pretrial purposes all related
actions concerning the sale of FCH securities, including the Shareholder Class
Action and Agent Class Actions, and any future filed "tag-along" actions, to
Judge John G. Davies of the United States District Court for the Central
District of California (the "California District Court"). The cases are
captioned In Re: First Capital Holdings Corporation Financial Products
Securities Litigation, MDL Docket No.-901 (the "MDL Action").
On January 18, 1993, an amended consolidated complaint (the "Third Amended
Complaint") was filed on behalf of the Shareholder Class and the Agent Class.
The Third Amended Complaint names as defendants the American Express Defendants,
Weingarten and his wife, Palomba Weingarten, Ginsberg, Philip A. Fitzpatrick
(FCH's Chief Financial Officer), the Outside Directors and former FCH outside
directors Jeffrey B. Lane and Robert Druskin (the "Former Outside Directors"),
Fred Buck (President of First Capital Life) and Peat Marwick. The complaint
raises claims under the federal securities law and the common law of fraud and
negligence. On March 10, 1993, the American Express defendants answered the
Third Amended Complaint, denying its material allegations.
On March 11, 1993, the California District Court entered an order granting
class certification to the Shareholder Class. The class consists of all persons,
except defendants, who purchased FCH common stock, preferred stock and
debentures during the period May 4, 1988 to and including May 10, 1991. It also
issued an order denying class certification to the Agent Class. The FSPP Class
action had been previously dropped by the plaintiffs.
The American Express Shareholder Action. On or about May 20, 1991, a
purported class action was filed on behalf of all shareholders of American
Express who purchased American Express common shares during the period beginning
August 16, 1990 to and including May 10, 1991. The case is captioned Steiner v.
American Express Company, et al. and was commenced in the United States District
Court for the Eastern District of New York. The defendants are Holdings,
American Express, James D. Robinson, III, Howard L. Clark, Jr., Harvey Golub and
Aldo Papone. The complaint alleges generally that the defendants failed to
disclose material information in their possession with respect to FCH which
artificially inflated the price of the common shares of American Express from
August 16, 1990 to and including May 10, 1991 and that such nondisclosure
allegedly caused damages to the purported shareholder class. The action has been
transferred to California and is now part of the MDL Action. The defendants have
answered the complaint, denying its material allegations.
The Bankruptcy Court Action. In the FCH bankruptcy, pending in the United
States Bankruptcy Court for the Central District of California (the "Bankruptcy
Court"), on February 11, 1992, the Official Committee of Creditors Holding
Unsecured Claims (the "Creditors' Committee") obtained permission from the
Bankruptcy Court to file an action for and on behalf of FCH and the parent
corporations of the Insurance Subsidiaries. On March 3, 1992, the Creditors'
Committee initiated an adversary proceeding in the Bankruptcy Court, Case No. AD
92-01723, in which they assert claims for breach of fiduciary duty and waste of
corporate assets against Holdings; fraudulent transfer against both Holdings and
LBI; and breach of contract against LBI. Also named as defendants are the
Outside Directors, the Former Outside Directors, Weingarten and Ginsberg.
Holdings and LBI have answered this complaint, denying the material allegations.
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Fact discovery has been completed and the contract claim has been dropped by
plaintiffs. No trial date has been set.
The Virginia Commissioner of Insurance Action. On December 9, 1992, a
complaint was filed in federal court in the Eastern District of Virginia by
Steven Foster, the Virginia Commissioner of Insurance as Deputy Receiver of
Fidelity Bankers Life. The Complaint names Holdings and Weingarten, Ginsberg and
Leonard Gubar, a former director of FCH and Fidelity Bankers Life, as
defendants. The action was subsequently transferred to California to be part of
the MDL Action. The Complaint alleges that Holdings acquiesced in and approved
the continued mismanagement of Fidelity Bankers Life and that it participated in
directing the investment of Fidelity Bankers Life assets. The complaint asserts
claims under the federal securities laws and asserts common law claims including
fraud, negligence and breach of fiduciary duty and alleges violations of the
Virginia Securities laws by Holdings. It allegedly seeks no less than $220
million in damages to Fidelity Bankers Life and its present and former
policyholders and creditors and punitive damages. Holdings has answered the
complaint, denying its material allegations.
IN RE COMPUTERVISION CORPORATION SECURITIES LITIGATION
In connection with public offerings of notes and common stock of
Computervision, actions were commenced in federal district court in
Massachusetts against Computervision, certain of its executive officers, the
directors of Computervision, LBI, Donaldson, Lufkin & Jenrette Securities
Corporation, The First Boston Corporation and Hambrecht & Quist Incorporated,
the Company and J.H. Whitney & Co. in the United States District Court for the
District of Massachusetts (collectively the "Massachusetts Case"). These actions
have been consolidated in a consolidated amended class action complaint which
alleges in substance that the registration statement and prospectus used in
connection with the offerings contained materially false and misleading
statements and material omissions related to Computervision's anticipated
operating results for 1992 and 1993. The plaintiffs purport to represent a class
of individuals who purchased in the public offering or in the aftermarket. The
complaint seeks damages for negligent misrepresentation and under Sections 11,
12 and 15 of the Securities Act.
In addition, three suits were filed in the United States District Court for
the Southern District of New York. The suits raise claims similar to those in
the Massachusetts Case against the same defendants. The Judicial Panel on
Multidistrict Litigation has ordered these cases consolidated with the
Massachusetts Case.
CC&F MEDFORD III INVESTMENT COMPANY V. THE BOSTON COMPANY, INC. AND
WELLINGTON-MEDFORD III PROPERTIES, INC.
In September 1992, Wellington-Medford Properties, Inc. ("W-M III"), then a
subsidiary of The Boston Company and now a subsidiary of LBI, and The Boston
Company, then a subsidiary of LBI, were sued in Superior Court of the
Commonwealth of Massachusetts by a limited partner in a partnership (the
"Partnership") of which W-M III is the general partner. The Partnership's
principal asset is an office building which is leased to The Boston Company.
Financing in the amount of $74 million provided to the Partnership by The Sanwa
Bank, Ltd. ("Sanwa") is secured by the office building and the lease with The
Boston Company. The financing matured in December 1992 and Sanwa has initiated a
foreclosure process.
The complaint alleges that W-M III has breached its obligation to secure
successor financing in order to prevent The Boston Company from being required
to pay increased rental pursuant to a rental formula in its lease. The complaint
seeks damages in an unspecified amount and a declaration regarding The Boston
Company's lease obligations and W-M III's obligations to secure successor
financing. W-M III and The Boston Company have answered, denying the material
allegations of the complaint.
In April 1993, The Boston Company filed a third-party complaint against
Sanwa seeking a declaration as to The Boston Company's obligations pursuant to
its lease of the office building. Sanwa answered and asserted claims against The
Boston Company and W-M III, including claims for treble damages based on alleged
breaches of the construction loan agreement.
In December 1993, the parties entered into a stay of proceedings for
purposes of facilitating negotiations of a possible settlement. Those
negotiations are ongoing but have not resulted in agreement. The stay has been
extended and now expires on July 17, 1994, with trial scheduled to commence on
or after July 18, 1994.
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EASTON & CO. V. MUTUAL BENEFIT LIFE INSURANCE CO., ET AL.; EASTON & CO. V.
LEHMAN BROTHERS INC.
LBI has been named as a defendant in two consolidated class action
complaints pending in the United States District Court for the District of New
Jersey (the "N.J. District Court"). Easton & Co. v. Mutual Benefit Life
Insurance Co., et al. ("Easton I"), and Easton & Co. v. Lehman Brothers Inc.
("Easton II"). The plaintiff in both of these actions is Easton & Co., which is
a broker-dealer located in Fort Lee, New Jersey. Both of these actions allege
federal securities law claims and pendent common law claims in connection with
the sale of certain municipal bonds as to which Mutual Benefit Life Insurance
Company ("MBLI") has guaranteed the payment of principal and interest. MBLI is
an insurance company which was placed in rehabilitation proceedings under the
supervision of the New Jersey Insurance Department on or about July 16, 1991. In
the Matter of the Rehabilitation of Mutual Benefit Life Insurance Company, (Sup.
Ct. N.J. Mercer County.)
Easton I was commenced on or about September 17, 1991. In addition to LBI,
the defendants named in this complaint are MBLI, Henry E. Kates (MBLI's former
Chief Executive Officer) and Ernst & Young (MBLI's accountants). The litigation
is purportedly brought on behalf of a class consisting of all persons and
entities who purchased DeKalb, Georgia Housing Authority Multi-Family Housing
Revenue Refunding Bonds (North Hill Ltd. Project), Series 1991, due November 30,
1994 (the "DeKalb Bonds") during the period from May 3, 1991 (when the DeKalb
bonds were issued) through July 16, 1991. Lehman Brothers acted as underwriter
for this bond issue, which was in the aggregate principal amount of $18.7
million. The complaint alleges that LBI violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder, and seeks damages in an unspecified
amount or rescission. The complaint also alleges a common law negligent
misrepresentation claim against LBI and the other defendants.
Easton II was commenced on or about May 18, 1992, and names LBI as the only
defendant. Plaintiff purports to bring this second lawsuit on behalf of a class
composed of all persons who purchased "MBLI-backed Bonds" from LBI during the
period April 19, 1991 through July 16, 1991. The complaint alleges that LBI
violated Section 10(b) and Rule 10b-5, and seeks monetary damages in an
unspecified amount, or rescission pursuant to Section 29(b) of the Exchange Act.
The complaint also contains a common law claim of alleged breach of duty and
negligence.
On or about February 9, 1993, the New Jersey District Court granted
plaintiffs' motion for class certification in Easton I. The parties have agreed
to certification of a class in Easton II for purchases of certain fixed-rate
MBLI-backed bonds during the class period.
MAXWELL RELATED LITIGATION
Certain of Holdings' subsidiaries are defendants in several lawsuits
arising out of transactions entered into with the late Robert Maxwell or
entities controlled by Maxwell interests. These actions are described below.
Berlitz International Inc. v. Macmillan Inc. et al. This interpleader
action was commenced in Supreme Court, New York County (the "Court") on or about
January 2, 1992, by Berlitz International Inc. ("Berlitz") against Macmillan
Inc. ("Macmillan"), Lehman Brothers Holdings PLC ("PLC"), Lehman Brothers
International Limited (now known as Lehman Brothers International (Europe),
"LBIE") and seven other named defendants. The interpleader complaint seeks a
declaration of the rightful ownership of approximately 10.6 million shares of
Berlitz common stock, including 1.9 million shares then registered in PLC's
name, alleging that Macmillan claimed to be the beneficial owner of all 10.6
million shares, while the defendants did or might claim ownership to some or all
of the shares. As a result of its bankruptcy filing, Macmillan sought to remove
this case to the Bankruptcy Court for the Southern District of New York. LBIE
and PLC have moved to remand the case back to the Court.
Macmillan, Inc. v. Bishopsgate Investment Trust, Shearson Lehman Brothers
Holdings PLC et al. This action was commenced by issuance of a writ in the High
Court of Justice in London, England on or about December 9, 1991. In this
action, Macmillan sought a declaration that it is the legal and beneficial owner
of approximately 10.6 million shares of Berlitz common stock, including 1.9
million shares then registered in PLC's name. (The same shares that are at issue
in the Berlitz case in New York discussed above.) After a trial, on December 10,
1993, the High Court of Justice handed down a judgment finding for the Company
on
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all aspects of its defense and dismissing Macmillan's claims. On April 12, 1994,
Macmillan appealed this judgment.
Bishopsgate Investment Management Limited (in liquidation) v. Lehman
Brothers International (Europe) and Lehman Brothers Holdings PLC. In August
1993, Bishopsgate Investment Management Limited ("BIM") served a Writ and
Statement of Claim against LBIE and PLC. The Statement of Claim alleges that
LBIE and PLC knew or should have known that certain securities received by them,
either for sale or as collateral in connection with BIM's stock loan activities,
were in fact, beneficially owned by various pension funds associated with the
Maxwell Group entities. BIM seeks recovery of any securities still held by LBIE
and PLC or recovery of any proceeds from securities sold by them. The total
value of the securities is alleged to be L100 million. BIM also commenced
certain proceedings for summary disposition of its claims relating to certain of
the securities with a value of approximately L30 million. On January 11, 1994,
the parties agreed to a settlement of that portion of the claim relating to
BIM's request for summary disposition with respect to certain securities. Under
this agreement, two securities holdings were delivered to BIM. The Company
continues to defend the balance of BIM's claim for recovery of other assets
alleged to be worth approximately L70 million. The case is scheduled for trial
in April 1995.
WARREN D. CHISUM, ET AL. V. LEHMAN BROTHERS INC. ET AL.
On February 28, 1994 a purported class action was filed in the United
States District Court for the Northern District of Texas. The complaint names
Lehman Brothers and two former E. F. Hutton & Company Inc. employees as
defendants. The complaint alleges that defendants violated Section 10b of the
Exchange Act and RICO, breached their fiduciary duties and the limited partners'
contract and committed fraud in connection with the origination, sale and
operation of four Hutton net lease real estate limited partnerships. Plaintiffs
seek: (i) to certify a class of all persons who purchased limited partnership
interests in the four partnerships at issue, (ii) damages in excess of $140
million plus interest or rescission, (iii) treble and punitive damages and (iv)
accounting and attorneys' fees. The Company believes it has several meritorious
defenses and intends to defend vigorously this case.
OTHER MATTERS
In connection with the regulatory attention focused on the U.S. treasury
market, LGSI received from the Commission and the U.S. Department of Justice,
Antitrust Division, subpoenas and letters requesting information and testimony
in connection with a review of the activities of various participants in the
government securities market. LGSI has responded to the subpoenas and letters.
The Company continues to cooperate and supply documents and testimony requested.
As of the date hereof, the Company does not believe that the investigations will
have a material adverse effect on the Company.
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MANAGEMENT
DIRECTORS
The Board of Directors of Holdings consists of 12 Directors, two of whom
are officers of Holdings. The Board of Directors is divided into three classes,
designated Class I, Class II and Class III, serving staggered three-year terms.
As of the Distribution Date, the Board of Directors of Holdings will consist of
nine Directors, two of whom will be officers of Holdings and none of whom will
be an officer or director of American Express. The current By-Laws provide that
each class may consist of between two and eight Directors. As of the
Distribution Date, the By-Laws will provide that each class must be
substantially equal in size. The Restated Certificate of Incorporation of
Holdings provides that the Holdings Board of Directors must be comprised of
between six and 24 Directors. Prior to the end of 1994, as many as four
additional Directors, not more than two of whom will be employees of the
Company, may be added to the Holdings Board of Directors. In the event that
additional Directors are elected, the Holdings Board of Directors may decide to
increase the membership of one or more of the standing Board Committees.
CURRENT DIRECTORS
<TABLE>
<S> <C> <C>
CLASS I CLASS II CLASS III
Richard S. Fuld, Jr. Roger S. Berlind David M. Culver
Katsumi Funaki Sherman R. Lewis, Jr. Richard M. Furlaud
T. Christopher Pettit Dina Merrill Harvey Golub
Malcolm Wilson Masataka Shimasaki Roger S. Penske
</TABLE>
DIRECTORS AS OF THE DISTRIBUTION DATE
<TABLE>
<S> <C> <C>
CLASS I CLASS II CLASS III
Richard S. Fuld, Jr. Roger S. Berlind John J. Byrne
Katsumi Funaki Dina Merrill John D. Macomber
Malcolm Wilson Masataka Shimasaki T. Christopher Pettit
</TABLE>
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DIRECTORS FOR LEHMAN BROTHERS HOLDINGS INC.
CLASS I DIRECTORS -- TERM EXPIRES 1996
RICHARD S. FULD, JR.(A) SINCE 1990 AGE:
47
Chairman and Chief Executive Officer of Holdings and LBI. Mr. Fuld was
elected Chairman of the Board of Directors of Holdings and LBI in April 1994 and
has been Chief Executive Officer of Holdings and LBI since November 1993. Mr.
Fuld was President and Chief Operating Officer of Holdings and LBI from March
1993 to April 1994 and was Co-President and Co-Chief Operating Officer of both
corporations from January 1993 to March 1993. He was President and Co-Chief
Executive Officer of the Lehman Brothers Division from August 1990 to March
1993. Mr. Fuld was a Vice Chairman of LBI from August 1984 until 1990. He also
serves as a director and executive officer of several of Holdings' subsidiaries.
Mr. Fuld has been a director of LBI since 1984 and a Director of Holdings since
1990. Mr. Fuld is a trustee of Mount Sinai Medical Center, a member of the
Executive Committee of Mount Sinai Children's Center Foundation, a trustee of
Wilbraham & Monson Academy and a director of Ronald McDonald House.
KATSUMI FUNAKI(A) DIRECTOR SINCE 1991 AGE:
52
Senior General Manager for International Business of the Finance and
Investment Planning Office of Nippon Life. Mr. Funaki has been affiliated with
Nippon Life, Japan's largest insurance company, since 1964 and has been Senior
General Manager for International Business of the Finance and Investment
Planning Office since March 1994. Mr. Funaki was Chief General Manager for the
Americas from 1993 through March 1994, and Mr. Funaki was General Manager for
North America from March 1991 until 1993. He was Deputy Chief of International
Investment Headquarters of Nippon Life from 1990 to 1991. Mr. Funaki was General
Manager of the International Investment Department of Nippon Life from 1988 to
1990 and Deputy General Manager of the International Investment Department of
Nippon Life from 1986 to 1988.
MALCOLM WILSON(A) DIRECTOR SINCE 1984 AGE:
80
Counsel to Kent, Hazzard, Jaeger, Greer, Wilson & Fay. Mr. Wilson, former
Governor of the State of New York, has been counsel at the law firm of Kent,
Hazzard, Jaeger, Greer, Wilson & Fay since 1986. Governor Wilson is a trustee of
the New York State Historical Association, St. Agnes Hospital, the Clark
Foundation, St. Patrick's Cathedral and Trustee Emeritus of Fordham Preparatory
School and Fordham University. Governor Wilson is also a director of LBI, the
Thomas & Agnes Carvel Foundation and the Farmer's Museum.
CLASS II DIRECTORS -- TERM EXPIRES 1995
ROGER S. BERLIND(A) DIRECTOR SINCE 1985 AGE:
63
Private Investor. Roger S. Berlind has been a theatrical producer for
Berlind Productions since 1981. Mr. Berlind is a director of LBI, a Governor of
the League of American Theaters and Producers, and has served as a Trustee of
Princeton University, The Eugene O'Neill Theater Center and the American Academy
of Dramatic Arts.
DINA MERRILL(A) DIRECTOR SINCE 1988 AGE:
64
Actress and Private Investor. Dina Merrill, an actress and private
investor, is a director and Vice Chairman of RKO Pictures, Inc. Ms. Merrill was
a Presidential Appointee to the Kennedy Center Board of Trustees and is a Vice
President of the New York City Mission Society, a Trustee of The Eugene O'Neill
Theater Foundation and a member of the board of Project Orbis, the Juvenile
Diabetes Foundation and the Museum of Broadcasting.
MASATAKA SHIMASAKI(A) DIRECTOR SINCE 1994 AGE:
50
General Manager for the Americas of Nippon Life. Mr. Shimasaki has been
affiliated with Nippon Life, Japan's largest insurance company, since 1967 and
has been General Manager for the Americas since March
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1994. He was General Manager, International Planning Department of Nippon Life
from 1993 until March 1994. Mr. Shimasaki was General Manager of Nippon Life's
International Finance Department from 1990 until 1993, and Chief Representative
of Nippon Life's London Representative Office from 1988 through 1990.
SHERMAN R. LEWIS, JR.(C) DIRECTOR SINCE 1990 AGE:
57
Vice Chairman and Director of Holdings and LBI. Mr. Lewis has been a Vice
Chairman and Director of Holdings since September 1990. He has been Vice
Chairman of LBI since January 1983 and a Director of LBI since September 1979.
Mr. Lewis is a Trustee of Northwestern University, Chairman of the Visiting
Committee of the College of Arts and Sciences at Northwestern University and a
Regent of Northwestern University. Mr. Lewis is also a member of the Council to
the Graduate School of Business of the University of Chicago. Mr. Lewis is
currently and will continue to be a Vice Chairman and Director of LBI.
CLASS III DIRECTORS -- TERM EXPIRES 1994
JOHN J. BYRNE(B) AGE: 61
Chairman of Fund American Enterprises Holdings, Inc. Mr. Byrne has been
Chairman of Fund American Enterprises Holdings, Inc., an operating company
engaged in the mortgage business since 1985. He was Chairman of Fireman's Fund
Insurance Companies from 1989 to 1990. Mr. Byrne is a director of Martin
Marietta Corp., Potomac Electric Power Company, Zurich Reinsurance Centre
Holdings Inc., the Stanford Research Institute and New Dartmouth Bank. Mr.
Byrne's election as a Director of the Company is subject to certain bank
regulatory approvals.
JOHN D. MACOMBER(B) AGE: 66
Principal of JDM Investment Group Mr. Macomber has been a Principal of JDM
Investment Group, a private investment firm, since 1992. He was Chairman and
President of the Export-Import Bank of the United States from 1989 to 1992. Mr.
Macomber is a director of Bristol-Myers Squibb Company, the Brown Group, Inc.,
DNA Plant Technology Corporation, Pilkington Ltd., Textron Inc. and Xerox
Corporation. Mr. Macomber is Chairman of the Council for Excellence in
Government. He is a Trustee of the Carnegie Institution of Washington and The
Rockefeller University and a member of the Council on Foreign Relations.
T. CHRISTOPHER PETTIT(A) AGE: 49
President and Chief Operating Officer of Holdings and LBI. Mr. Pettit was
elected President and Chief Operating Officer of Holdings and LBI in April 1994.
Mr. Pettit is responsible for the day-to-day operations of the Company. He was
Managing Partner of Holdings and LBI from 1993 to April 1994 and Managing
Director of LBI from 1992 to April 1994. Mr. Pettit, who was a Senior Executive
Vice President of LBI from 1984 to 1992 was appointed the Managing Partner of
the Lehman Brothers Division in 1991. Mr. Pettit also serves as a director and
executive officer of several of Holdings' subsidiaries.
DAVID M. CULVER(C) DIRECTOR SINCE 1987 AGE:
69
Chairman of CAI Capital Corporation. Mr. Culver has been Chairman of CAI
Capital Corporation, a Canadian-based equity investment fund, since 1990 and
Chairman of D. Culver & Co. Investments Inc., a private investment firm, since
1989. He was Chairman and Chief Executive Officer of Alcan Aluminium Limited, a
Canadian based multinational company engaged in all aspects of the aluminum
business from 1987 to 1989. Mr. Culver is a director of American Cyanamid
Company, The Seagram Company Ltd. and American Express. He is Honorary Chairman
of the Business Council on National Issues, a member of the International
Council of J.P. Morgan & Co., the Advisory Council of the Institute of
International Studies of Stanford University, the Board of Governors of The
Joseph H. Lauder Institute of Management and International Studies (University
of Pennsylvania) and the Board of Trustees of the Lester B. Pearson College of
the Pacific.
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<PAGE> 69
RICHARD M. FURLAUD(C) DIRECTOR SINCE 1987 AGE:
70
Chairman of the Executive Committee of American Express. Mr. Furlaud has
been Chairman of the Executive Committee of the Board of Directors of American
Express, a diversified financial services corporation, since August 1993 and was
Chairman of the Board of American Express from February 1993 to August 1993. He
has been a private investor and corporate director since 1991. Mr. Furlaud was
President and a Director of Bristol-Myers Squibb Company, a pharmaceutical and
health care products company from 1989 to 1991 and he was Chairman and Chief
Executive Officer of Squibb Corporation from 1968 to 1989. Mr. Furlaud is also a
director of International Flavors & Fragrances, Inc. He is Chairman of the Board
of Trustees of The Rockefeller University, a trustee of the John M. Olin
Foundation, a member of the Council of Foreign Relations and Board of Overseers
of Memorial Sloan-Kettering Cancer Center.
HARVEY GOLUB(C) DIRECTOR SINCE 1991 AGE:
54
Chairman and Chief Executive Officer of American Express. Mr. Golub has
been Chairman and Chief Executive Officer of American Express, a diversified
financial services corporation, since August 1993. Prior to August 1993 Mr.
Golub held the following positions with American Express: President and Chief
Executive Officer from February 1993 to August 1993, President from 1991 to 1993
and Vice Chairman from 1990 to 1991. Mr. Golub has also been Chairman and Chief
Executive Officer of American Express Travel Related Services Company, Inc.
since 1991. Mr. Golub was Chairman of IDS Financial Corporation ("IDS") from
1990 to 1992, Chairman and Chief Executive Officer of IDS from 1990 to 1991, and
its President and Chief Executive Officer from 1984 to 1990. Mr. Golub is also a
director of American Express Bank Ltd.
ROGER S. PENSKE(C) DIRECTOR SINCE 1989 AGE:
57
President of Penske Corporation. Mr. Penske has been President of Penske
Corporation, a privately-held transportation service company since 1969. He is
also Chairman and Chief Executive Officer of Detroit Diesel Corporation, a
manufacturer of diesel engines, and President and Chief Executive Officer of
Penske Truck Leasing Corporation. Mr. Penske is a director of Philip Morris
Companies Inc., Conner Peripherals, Inc. and American Express and a trustee of
the Henry Ford Museum and Greenfield Village.
- ---------------
(a) Director who will continue after the Distribution.
(b) Individual who will become a Director as of the Distribution Date.
(c) Director who will resign prior to the Distribution.
CURRENT BOARD OF DIRECTORS COMMITTEES
The Board of Directors currently has four standing committees: the
Executive Committee, the Audit Committee, the Finance Committee and the
Compensation and Benefits Committee.
Executive Committee. The Executive Committee consists of Mr. Fuld and Mr.
Golub, who chairs the Executive Committee. The Executive Committee has the
authority, in the intervals between meetings of the Board of Directors, to
exercise all of the authority of the Board of Directors (including the power to
declare dividends and approve mergers and consolidations pursuant to Section 253
of the Delaware General Corporation Law ("DGCL")), except for those matters that
the DGCL or the Restated Certificate of Incorporation reserves to the full Board
of Directors. The Executive Committee held three meetings during the 1993 fiscal
year.
Audit Committee. The Audit Committee consists of Governor Wilson, who
chairs the Audit Committee, and Mr. Berlind, both of whom are non-employee
Directors. The Audit Committee held three meetings during the 1993 fiscal year.
The Audit Committee represents the Board in discharging its responsibilities
relating to the accounting, reporting and financial control practices of the
Company. The Audit Committee has general responsibility for surveillance of
financial controls, as well as for the Company's accounting and audit
activities. The Audit Committee annually reviews the qualifications of the
independent accountants,
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makes recommendations to the Board of Directors as to their selection, reviews
the plan, fees and results of their audit, and approves their non-audit services
and related fees.
Finance Committee. The Finance Committee consists of Mr. Culver, who
chairs the Finance Committee, and Messrs. Berlind, Funaki, Furlaud, Golub and
Penske. The Finance Committee held six meetings during the 1993 fiscal year. The
Finance Committee reviews and advises the Board of Directors concerning the
Company's financial policies and strategy, reviews the Company's results of
operations and major capital expenditure programs and other significant capital
transactions and the policies and procedures pursuant to which such commitments
are made. In addition, until March 1994, the Finance Committee was responsible
for compensation of employees whose salaries were above stated levels, made
recommendations to the Board and approved standards for setting compensation
levels for key employees. The Finance Committee is responsible for administering
all of the Company's employee benefit and compensation plans which were
established prior to March 1994. It is anticipated that as of the Distribution
Date, the Compensation and Benefits Committee will assume responsibility for the
administration of such plans. No member of the Finance Committee, with the
exception of Mr. Berlind, was an officer or employee of the Company during the
1993 fiscal year or at any other time. Mr. Berlind, who was an executive officer
of a predecessor firm, ceased his employment with such firm in 1975. No member
of this committee may receive an award under any plan identified herein other
than as described under "Compensation of Directors as of the Distribution Date."
Compensation and Benefits Committee. The Compensation and Benefits
Committee (the "Compensation Committee"), which was formed during the first
quarter of 1994, consists of Mr. Culver, who chairs the Compensation Committee,
Mr. Penske and Governor Wilson. None of the members of the Compensation
Committee was an officer or employee of the Company during the 1993 fiscal year
or at any other time. The Compensation Committee establishes corporate policy
and programs with respect to the compensation of officers and employees of the
Company, including establishing compensation programs, policies and practices,
such as salary, cash incentive, long-term incentive compensation, stock purchase
and other programs and making grants under such plans. No member of this
committee may receive an award under any plan identified herein other than as
described under "Compensation of Directors as of the Distribution Date."
COMPENSATION OF CURRENT DIRECTORS
Directors who are not employees of the Company or any affiliate which owns
40 percent or more of Holdings ("Outside Directors") receive an annual retainer
of $20,000 plus $750 for each Board of Directors meeting attended and are
reimbursed for reasonable travel and related expenses. Each Outside Director who
serves on a committee of the Board of Directors receives an additional annual
retainer of $2,500 (or $5,000 each in the case of a committee chairman) plus
$500 per committee meeting attended.
Holdings' Retirement Plan for Outside Directors. The Lehman Brothers
Holdings Inc. Retirement Plan for non-employee Directors is a non-qualified
retirement plan which provides a limited annual retirement benefit for Outside
Directors who have earned five or more years of service as defined in the Plan.
Retirement benefits are paid from the general assets of Holdings. The amount of
the annual retirement benefit is equal to the annual retainer payable to an
eligible Outside Director for the year in which retirement occurs. Annual
retirement benefit payments will be made over a period which is equal to the
number of full years of service credited to an Outside Director upon retirement,
unless such former Outside Director dies prior to the completion of such
retirement benefits, in which case payments will cease as of the date of death.
The Board of Directors, upon recommendation of the Finance Committee, may
provide retirement benefits to Outside Directors who do not otherwise qualify
for benefits under this Plan. Other than with respect to accrued benefits of
non-employee Directors, it is anticipated that this Plan will be terminated as
of the Distribution.
Holdings' Deferred Compensation Plan for Outside Directors. The Lehman
Brothers Holdings Inc. Deferred Compensation Plan for non-employee Directors is
a non-qualified deferred compensation plan which provides each Outside Director
an opportunity to elect to defer receipt of compensation to be earned for
services on the Board of Directors. Each Outside Director may elect to defer all
or a specified percentage of his or her future compensation (or such election
may be limited to such Outside Director's annual retainer fees) with respect to
one or more terms as director. Such an election can be revoked only by a showing
of
66
<PAGE> 71
financial hardship and with the consent of the Finance Committee. Amounts
deferred are credited quarterly with interest, based upon the average 30-day
U.S. Treasury Bill rate, and compounded annually. Deferred amounts will be paid
in either a lump sum or in annual installments over a period not to exceed ten
years as elected by the Outside Director. Payments will commence pursuant to an
election by the Outside Director at a specified date in the future or upon
termination of service as an Outside Director. The rights of an Outside Director
under this Plan are no greater than the rights of an unsecured creditor of the
Company.
Capital Partners I and II. Lehman Brothers Capital Partners I ("Capital
Partners I") and Lehman Brothers Capital Partners II, L.P. ("Capital Partners
II"), are limited partnerships established in 1985 and 1988, respectively, to
provide senior officers and other employees of the Company, as well as certain
senior officers of American Express and its subsidiaries, with the opportunity
to invest in a portfolio of high risk opportunities. Directors of Holdings were
given an opportunity to invest in Capital Partners II. During 1993 Messrs.
Berlind, Golub, Lewis and Wilson received $153,203, $161,454, $186,988 and
$20,427, respectively, which amounts reflect income distributions and
distributions related to the liquidation of assets.
BOARD OF DIRECTORS COMMITTEES AS OF THE DISTRIBUTION DATE
Composition. As of the Distribution Date, there will be five standing
committees of the Board of Directors: the Executive Committee, the Audit
Committee, the Compensation and Benefits Committee, the Finance Committee and
the Nominating Committee, although the Board of Directors may, from time to
time, establish other committees.
Executive Committee. As of the Distribution Date, the Executive Committee
will have substantially the same authority as it did prior to the Distribution
except that it will not, other than by specific delegation, have the authority
to declare dividends, or to authorize the issuance of stock. As of the
Distribution Date, the Executive Committee will be comprised of Messrs. Fuld,
Pettit and Byrne.
Audit Committee. The Audit Committee, which will consist entirely of
non-employee directors, will have substantially the same authority as the
current Audit Committee. As of the Distribution Date, the members of the Audit
Committee will be Governor Wilson, Messrs. Berlind, Macomber and Shimasaki.
Compensation and Benefits Committee. The Compensation Committee, which
will consist entirely of non-employee Directors, will have substantially the
same authority as the current Compensation Committee. In addition, commencing in
March 1994, the Compensation Committee will be responsible for compensation of
employees whose salaries are above stated levels, make recommendations to the
Board and approve standards for setting compensation levels for key employees
and establishing and administering all of the Company's employee benefit and
compensation plans, and will have the authority, where appropriate, to delegate
its duties. As of the Distribution Date, the members of the Compensation
Committee will be Messrs. Byrne, Macomber and Wilson. No member of this
committee may receive an award under any plan identified herein other than as
described under "Compensation of Directors as of the Distribution Date."
Finance Committee. The Finance Committee will have the responsibility for
reviewing and advising on financial policies and practices of the Company. Among
other matters the Finance Committee will periodically review, among other
things, major capital expenditure programs and significant capital transactions,
as well as recommend a dividend policy to the Board of Directors. As of the
Distribution Date, the members of the Finance Committee will be the members of
the Audit Committee and Mr. Fuld.
Nominating Committee. The Nominating Committee will consider and make
recommendations to Holdings' Board of Directors with respect to the size and
composition of the Board of Directors and Board Committees and with respect to
potential candidates for membership on the Board of Directors. At least three
members of the Nominating Committee must be non-employee Directors and one
member of such committee will be a non-voting employee Director. As of the
Distribution Date, the members of the Nominating Committee will be the members
of the Compensation Committee and Mr. Fuld as a non-voting member.
COMPENSATION OF DIRECTORS AS OF THE DISTRIBUTION DATE
Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates will be paid an annual retainer of $45,000 and
be reimbursed for reasonable travel and related expenses. No additional fees
will be paid for attendance at Board of Directors or committee meetings. Each
Director will be expected to attend all Board meetings. Compensation for
attending meetings is deemed to be included within
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<PAGE> 72
the annual retainers which shall be paid quarterly; however, the fourth quarter
payment will be withheld for failure to attend 75% of the required number of
meetings.
Under the terms of the 1994 Management Ownership Plan, a grant of
Restricted Stock Units representing $30,000 fair market value of Common Stock
will be made to each non-employee Director on the first business day following
the Company's annual meeting of stockholders for each year that such Plan is in
effect. Restricted Stock Units representing $30,000 of Common Stock will be
granted to each non-employee Director in calendar year 1994 on the date which is
the first day of regular way public trading of Common Stock or, if later, on the
first business day following commencement of a non-employee Director's service.
As of each date a dividend is paid on Common Stock, each non-employee Director
holding Restricted Stock Units shall be credited with a number of additional
Restricted Stock Units equal to the product of (A) the dividend paid on one
share of Common Stock, multiplied by (B) the number of Restricted Stock Units
held by the non-employee Director, divided by (C) the closing price of Common
Stock on the NYSE on such date. One-third of the Restricted Stock Units granted
to non-employee Directors will vest ratably on the first three anniversaries of
the date of grant, or, if earlier, immediately upon death, disability or
termination of service as a non-employee Director after serving ten years.
One-third of a non-employee Director's vested Restricted Stock Units is payable
in Common Stock on each of the first three anniversaries following death,
disability or termination of service. The number of Restricted Stock Units
granted will be based on the closing price of the Common Stock on the NYSE on
the day such units are awarded.
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<PAGE> 73
EXECUTIVE OFFICERS OF HOLDINGS
The current Executive Officers of Holdings are set forth below, excluding
Messrs. Fuld and Pettit, whose biographies are included above.
T. ANTHONY BROOKS AGE: 54
Managing Director of LBI. Mr. Brooks has been a Managing Director of LBI
and responsible for the Company's Equity New Issue group since 1991. Mr. Brooks
was a Managing Director at First Boston Corporation from 1987 to 1991 where he
was responsible for Equity Capital Markets and Equity Syndicate.
JEREMIAH M. CALLAGHAN AGE: 51
Managing Director of LBI. Mr. Callaghan has been a Managing Director of
LBI and head of the Company's Trading Services group since December 1993. After
the announcement of the Primerica Transaction, Mr. Callaghan became a consultant
to LBI until December 1993. He was a Senior Executive Vice President of Shearson
and head of its Securities Processing Group from 1991 to 1993. From 1987 to 1991
Mr. Callaghan was a Covenant House volunteer.
JAMES A. CARBONE AGE: 42
Managing Director of LBI. Mr. Carbone has been a Managing Director of LBI
since 1988 and is Managing Partner for the Company's Asia Pacific operations
since 1992. Mr. Carbone is a director and executive officer of several of
Holdings' subsidiaries. He was responsible for LBI's Capital Markets
Origination, Corporate Bond and Fixed Income Syndicate groups from 1990 to 1992
and was head of LBI's Money Market Origination area from 1986 to 1990.
JOHN L. CECIL AGE: 39
Chief Administrative Officer of Holdings and LBI. Mr. Cecil has been Chief
Administrative Officer of Holdings and LBI as well as a Managing Director of LBI
since January 1994. Mr. Cecil joined McKinsey & Company, Inc. in 1980 where he
was elected a partner in 1986 and was a director from 1991 through December
1993. Mr. Cecil is a member of the Board of Directors of Graham-Windham Agency
and is the Chairman of its Executive Committee.
RONALD L. GALLATIN AGE: 48
Senior Executive Vice President of Holdings and Managing Director of
LBI. Mr. Gallatin has been Senior Executive Vice President of Holdings since
January 1993 and a Managing Director of LBI since 1984 and is responsible for
Corporate Strategy, Product Development and Non-Core Assets. As a senior
investment banker for the Company, Mr. Gallatin has had general corporate
finance responsibilities which resulted in his developing a number of new
securities. Mr. Gallatin was in charge of several product areas including the
proprietary option, commodity and the corporate tax departments of a predecessor
of LBI.
ROBERT E. GENIRS AGE: 58
Managing Director of LBI. Mr. Genirs has been a Managing Director of LBI
since 1992 and is the Chairman of the Company's Cost Reduction Committee. Mr.
Genirs was a Senior Executive Vice President of LBI from May 1991 to March 1992
and an Executive Vice President of LBI from 1984 until May 1991. Mr. Genirs was
the Chief Administrative Officer for the Lehman Brothers Division from July 1991
until May 1993.
JOSEPH M. GREGORY AGE: 42
Managing Director of LBI. Mr. Gregory has been a Managing Director of LBI
since March 1992 and is responsible for the Company's Global Fixed Income
business. Mr. Gregory was a Senior Executive Vice President of LBI from May 1991
to March 1992 and an Executive Vice President of LBI from 1984 until May
69
<PAGE> 74
1991 during which time he was responsible for various aspects of the fixed
income business. Mr. Gregory is a director and executive officer of several of
Holdings' subsidiaries.
BRUCE R. LAKEFIELD AGE: 50
Managing Director of LBI. Mr. Lakefield has been a Managing Director of
LBI since March 1992 and is responsible for the Company's Foreign Exchange,
Commodities, Municipal and Public Finance businesses. Mr. Lakefield was a Senior
Executive Vice President of Lehman Brothers from May 1991 through March 1992 and
an Executive Vice President of Lehman Brothers from January 1985 to May 1991
during which time he held various positions in the Company's fixed income
department. Mr. Lakefield is a director and executive officer of several of
Holdings' subsidiaries. Mr. Lakefield is a member of the Board of Directors of
the Public Securities Association (the "PSA"), and a member of the PSA's
Treasury Borrowing Advisory Committee. He is also a member of the Board of
Directors of Liberty Brokers, Inc.
STEPHEN M. LESSING AGE: 39
Managing Director of LBI. Mr. Lessing has been a Managing Director of LBI
since March 1992 and is responsible for the Company's Global Fixed Income Sales.
Mr. Lessing was an Executive Vice President of LBI from July 1989 to March 1992.
Mr. Lessing is a member of the Trustee Advisory Committee for Fairfield
University and a member of the Board of Directors of Lessing's Inc.
ROBERT MATZA AGE: 37
Chief Financial Officer of Holdings and LBI. Mr. Matza has been Chief
Financial Officer of Holdings and LBI since January 1994 and a Managing Director
of LBI since 1992. He also has been a director of LBI since January 1994. Mr.
Matza was Chief Financial Officer of the LBI Division from November 1990 to July
1993. Mr. Matza was Controller of Holdings and LBI from 1987 through November
1990 and Executive Vice President of LBI from 1987 through 1992.
THOMAS A. RUSSO AGE: 50
Managing Director of LBI. Mr. Russo has been a Managing Director of LBI
since 1993. He is responsible for the Company's Legal, Compliance, Credit,
Corporate Communications, Internal Audit and Government Relations departments,
as well as the Company's Investment and Commitment Committees. From 1977 until
he joined LBI in 1993, Mr. Russo was a partner at the law firm of Cadwalader,
Wickersham & Taft where he had a financial markets and general corporate
practice. Mr. Russo is a member of the American Bar Association where he is a
member of its Executive Council for the Futures Regulation Committee, and the
Advisory Committee of the Committee on Federal Regulations of Securities.
MEL A. SHAFTEL AGE: 50
Managing Director of LBI. Mr. Shaftel has been a Managing Director of LBI
since 1984 and is the head of the Company's Investment Banking group. During his
tenure with the Company, Mr. Shaftel has held various positions in Investment
Banking, including heading the financial institutions group.
STEVEN SPIEGEL AGE: 49
Managing Director of LBI. Mr. Spiegel has been a Managing Director of LBI
since 1992 and is responsible for the Company's Financial Services and Global
Asset Management divisions. Mr. Spiegel served as Managing Director and country
head of the Company's United Kingdom operations from 1989 to 1992. Mr. Spiegel
was Senior Executive Vice President of LBI from 1991 to 1992 and an Executive
Vice President from 1984 through 1991. Mr. Spiegel is a director of the Oporto
Fund and a member of the International Committee of the Securities Industry
Association.
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<PAGE> 75
THOMAS H. TUCKER AGE: 49
Managing Director of LBI. Mr. Tucker has been a Managing Director of LBI
since 1992 and is responsible for the Company's Global Institutional Sales. Mr.
Tucker was a Senior Executive Vice President of LBI from 1991 to 1992, and an
Executive Vice President of LBI from 1985 through 1991 during which time he was
involved in the sales of various money market instruments and fixed income
products. Mr. Tucker is a director and executive officer of several of Holdings'
subsidiaries.
C. DANIEL TYREE AGE: 45
Managing Director of LBI. Mr. Tyree has been a Managing Director of LBI
and the Managing Partner of the Company's European and Middle Eastern businesses
since 1992. Mr. Tyree is also a director and executive officer of several of
Holdings' European subsidiaries. Prior to joining LBI in 1992, Mr. Tyree was a
Managing Director of Salomon Brothers where he was responsible for its high
yield business from 1989 through early 1992, and its international investment
banking division from 1987 through 1989. Mr. Tyree is a member of the Board of
Directors of the International Primary Market Association.
PAUL D. WILLIAMS AGE: 50
Managing Director of LBI. Mr. Williams has been a Managing Director of LBI
since 1992 and is responsible for the Company's equity business. Mr. Williams
was a Senior Executive Vice President of LBI from 1991 to 1992, and one of its
Executive Vice Presidents from 1985 to 1991. Mr. Williams was responsible for
the Company's retail trading activities from 1984 through 1992.
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<PAGE> 76
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth (i) the expected beneficial ownership of
Common Stock as of the Distribution Date and (ii) as of March 25, 1994,
beneficial ownership of common shares of American Express, by each current
Director, by all individuals who will be Directors as of the Distribution Date
and all current Directors and Executive Officers of Holdings as a group. Except
as described below, each of the persons listed below has sole voting and
investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF AMERICAN EXPRESS
COMMON STOCK NUMBER OF AMERICAN EXPRESS COMMON SHARES
TO BE OWNED AS OF THE COMMON SHARES WHICH MAY BE ACQUIRED
NAMES OF DIRECTORS(A) DISTRIBUTION DATE(B) OWNED(C)(D)(E) WITHIN 60 DAYS(C)(F)
- ------------------------------------ ----------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
CONTINUING DIRECTORS
Roger S. Berlind.................... 107,148 535,740 1,440
Richard S. Fuld, Jr................. 128,808 105,264 104,120
Katsumi Funaki...................... 0 0 0
Dina Merrill........................ 240 1,200 960
T. Christopher Pettit............... 89,432 9,734 14,694
Masataka Shimasaki.................. 0 0 0
Malcolm Wilson...................... 9,938 49,690 1,440
NEW DIRECTORS AS OF DISTRIBUTION
DATE
John J. Byrne....................... 4,000(g) 20,000(g) 0
John D. Macomber.................... 0 0 0
OTHER CURRENT DIRECTORS
David M. Culver..................... 249 1,248 8,106
Richard M. Furlaud.................. 5,000 25,000 8,106
Harvey Golub........................ 13,872 226,861 405,602
Sherman R. Lewis, Jr................ 31,872 79,131 68,986
Roger S. Penske..................... 2,000 10,000 5,146
All current Directors and Executive
Officers as a group (28
individuals)(h)................... 883,887 1,244,717 716,275
</TABLE>
- ---------------
(a) List includes all current Directors and all individuals who will be
Directors as of the Distribution Date.
(b) Includes the number of shares of Common Stock expected (i) to be acquired
in the Offering and Phantom Share Conversion and (ii) to be received in the
Distribution as a dividend on American Express common shares.
(c) As a result of the Distribution, adjustments will be made by American
Express to American Express restricted stock awards and options on American
Express common shares held by American Express directors and employees and
Lehman Brothers directors and employees. Subsequent to such adjustments,
the American Express restricted stock awards and options on American
Express common shares held by the Company's employees will be cancelled by
American Express as of the Distribution Date and restricted Common Stock
and options on Common Stock will be granted to such employees under
Holdings' 1994 Management Replacement Plan. The number of shares of
restricted Common Stock and options on Common Stock to be granted under
such plan can be determined only subsequent to the Distribution. See "1994
Management Replacement Plan" below.
(d) The number of American Express common shares owned by Mr. Fuld, Mr. Pettit
and all current Directors and Executive Officers as a group include 134,
134 and 12,110 shares held in their respective employee benefit plan
accounts as of dates ranging from September 30, 1993 to March 1, 1994.
In addition to the share amounts in this column, Mr. Furlaud has invested
all of his American Express director's fees in 24,612 American Express
Common Share Equivalent Units as of December 31, 1993, under the American
Express Directors' Deferred Compensation Plan.
The number of American Express common shares as to which beneficial
ownership is disclaimed is as follows: 200,000 shares owned by Mr.
Berlind's wife, 400 shares owned by Mr. Culver's wife, 2,018 shares held by
a trust of which Mr. Culver is a co-trustee, 2,116 shares owned by a child
of Mr. Golub, 280 shares owned by two children of Mr. Lewis and 204,814
shares disclaimed by all current Directors and Executive Officers as a
group.
(e) The number of American Express common shares owned by all current Directors
and Executive Officers as a group includes 159,167 shares of restricted
stock, as to which shares the holders possess sole voting power, but no
investment power, during the restricted period. Restrictions on the sale of
such restricted stock lapse over a period of years ending in 1997.
(f) Shares shown include American Express common shares subject to stock
options.
(g) The number of shares shown does not include 5,150,000 shares owned by Fund
American Enterprises Holdings, Inc. ("FAEH") and certain subsidiaries. Mr.
Byrne is Chairman, President and Chief Executive Officer of FAEH and owns
approximately 5% of its outstanding voting capital stock. (The outstanding
voting preferred stock of FAEH is owned by American Express.) Mr. Byrne
also owns warrants to purchase 1,280,000 additional shares of FAEH voting
capital stock. Upon exercise of such warrants, Mr. Byrne would own
approximately 13% of the outstanding
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<PAGE> 77
voting capital stock of FAEH. Mr. Byrne has disclaimed beneficial ownership
of the shares of American Express owned by FAEH and its subsidiaries.
(h) The Company's current Directors and Executive Officers as a group
beneficially owned approximately 1.96 million American Express common
shares as of March 25, 1994, representing approximately 0.4% of American
Express' then outstanding common shares.
SECURITY OWNERSHIP OF NAMED EXECUTIVES
The following table sets forth (i) the expected beneficial ownership of
Common Stock as of the Distribution Date and (ii) as of March 25, 1994,
beneficial ownership of American Express common shares of Richard S. Fuld, Jr.,
Chairman and Chief Executive Officer of Holdings, each of the four most highly
compensated Executive Officers of Holdings at the end of 1993 other than Mr.
Fuld, and certain other individuals who are named in the summary compensation
table below (collectively, the "Named Executives").
<TABLE>
<CAPTION>
NUMBER OF AMERICAN PERCENT OF CLASS
NUMBER OF SHARES OF NUMBER OF AMERICAN EXPRESS COMMON OF AMERICAN
COMMON STOCK EXPRESS SHARES WHICH MAY EXPRESS
OWNED AS OF THE COMMON SHARES BE ACQUIRED WITHIN COMMON
NAME DISTRIBUTION DATE(A) OWNED(B)(C)(D) 60 DAYS(E) SHARES
- ------------------------------------- -------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
R.S. Fuld, Jr........................ 128,808 105,264 104,120 0.043%
T.C. Pettit.......................... 89,432 9,734 14,694 0.005
J.M. Gregory......................... 49,421 7,498 7,491 0.003
M.A. Shaftel......................... 50,482 48,049 17,735 0.013
B.R. Lakefield....................... 43,066 14,891 7,491 0.005
H.L. Clark, Jr....................... 28,722 90,077 366,587 0.093
J.T. Hill III........................ 30,635 153,180 0 0.031
</TABLE>
- ---------------
(a) Includes the number of shares of Common Stock expected (i) to be acquired in
the Offering and Phantom Share Conversion and (ii) to be received in the
Distribution as a dividend on American Express common shares.
(b) As a result of the Distribution, adjustments will be made by American
Express to the American Express restricted stock awards and options on
American Express common shares held by Holdings' employees. As of the
Distribution Date, such awards will be cancelled by American Express and
restricted Common Stock and options on Common Stock will be granted to such
employees under Holdings' 1994 Management Replacement Plan. The number of
shares of restricted Common Stock and options on Common Stock to be granted
under such plan can be determined only subsequent to the Distribution. See
"1994 Management Replacement Plan" below.
(c) The number of American Express common shares owned by Messrs. Fuld, Pettit,
Gregory, Shaftel, Lakefield, Clark and Hill includes 134, 134, 134, 152,
2,719, 8,166 and 3,756 shares held in their respective employee benefit plan
accounts as of dates ranging from September 30, 1993 to March 1, 1994.
(d) The number of American Express common shares owned by Mr. Clark includes
23,000 shares of restricted stock, as to which shares Mr. Clark possesses
sole voting power, but no investment power, during the restricted period.
(e) Shares shown include American Express common shares subject to stock options
and common shares issuable upon conversion of a convertible debenture held
by Mr. Clark. Mr. Clark's debenture is convertible into 6,921 American
Express common shares. The conversion price of Mr. Clark's debenture will be
adjusted pursuant to its terms as a result of the Distribution.
73
<PAGE> 78
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ending December 31, 1993,
1992 and 1991, as applicable, the cash and other compensation paid or accrued
and certain American Express long-term awards made to the Named Executives for
services in all capacities. None of the Named Executives was an executive
officer of Holdings prior to 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
AWARDS PAYOUTS
--------------------------- -------------
NAME AND OTHER ANNUAL RESTRICTED LONG-TERM ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/SARS INCENTIVE COMPENSATION
AT DECEMBER 31, 1993 YEAR ($) ($)(A) ($)(B) ($)(C) (# SHARES) PAYOUTS($)(D) ($)(E)
- -------------------- ----- --------- ---------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R.S. Fuld, Jr....... 1993 $ 400,000 $8,425,000 $175,883 $ 0 0 $ 74,710 $ 243,081
Chairman and Chief
Executive Officer
T.C. Pettit......... 1993 300,000 6,800,000 122,272 0 0 0 157,255
President and Chief
Operating Officer
J.M. Gregory........ 1993 225,000 5,375,000 76,739 0 0 0 97,735
Managing Director
of LBI
M.A. Shaftel........ 1993 300,000 4,400,000 62,798 0 0 0 187,203
Managing Director
of LBI
B.R. Lakefield...... 1993 225,000 4,375,000 63,432 0 0 0 156,990
Managing Director
of LBI
H.L. Clark, Jr...... 1993 382,696 1,717,302 139,636 0 0 404,670 1,468,521
Former Chairman and 1992 525,000 1,500,000 73,890 0 55,000 1,198,523 346,678
Chief Executive 1991 525,000 1,500,000 -- 233,463 55,000 252,792 --
Officer
J.T. Hill III....... 1993 173,077 0 0 0 0 0 5,313,343
Former Co-President
</TABLE>
- ---------------
(a) Pursuant to the Operating Committee Ownership Plan (the "OCP") and the
Employee Ownership Plan ("EOP"), in 1993 50% of the salary and bonus of
Messrs. Fuld and Pettit, and 33 1/3% of the salary and bonus of Messrs.
Gregory, Shaftel, and Lakefield was deferred. In addition, 25% of the bonus
of Mr. Clark was deferred under the EOP. In connection with the
Distribution, the Finance Committee has determined to terminate the OCP
which will result in the acceleration of vesting and payment in cash prior
to the Distribution of amounts deferred by the participants in the OCP. It
is anticipated that each OCP participant will purchase Common Stock with
the after-tax proceeds received from such plan. Under the EOP each
participant was credited with phantom units, each consisting of a Phantom
Share and a Cash Right. The Phantom Shares will be converted into shares of
Common Stock as of on or prior to the Distribution Date and the Cash Right
will be paid to the EOP participants as of such date. See "Employee
Ownership Plan" below.
(b) Amounts reported in this column for 1993 reflect perquisites and other
personal benefits, amounts reimbursed for the payment of taxes and cash
earnings on deferred compensation paid or payable in 1993 in excess of 120
percent of the applicable federal long-term rate. Included in the cost to
Holdings and its subsidiaries are the following: above-market interest paid
under the Participating Preferred Plan for Messrs. Fuld, Pettit, Gregory,
Shaftel and Lakefield of $161,678, $122,272, $76,739, $62,798 and $63,432,
respectively; and financial counseling expenses of $44,936 and personal
travel expenses of $28,209 for Mr. Clark.
(c) Mr. Clark held 23,000 American Express restricted shares on December 31,
1993 with a fair market value of $710,125, based on the per share closing
price of American Express common shares on the NYSE on December 31, 1993
($30.875). These restricted shares will be cancelled as of the Distribution
Date (except for approximately 8,000 of such shares which will vest in May
1994) in accordance with the terms of the American Express 1989 Long-Term
Incentive Plan and new restricted shares of Common Stock will be issued to
Mr. Clark under the 1994 Management Replacement Plan. See "1994 Management
Replacement Plan" below.
Dividends are payable on the restricted shares to the extent and on the
same date as dividends are paid on all other American Express common
shares.
(d) Includes payouts of a portion of the final values of Portfolio Grant-II
("PG-II") awards granted under the American Express 1989 Long-Term
Incentive Plan. Final values of the PG-II awards were based on achievement
of cumulative earnings and average return on equity targets for the
business segments of American Express and for American Express on a
consolidated basis, weighted based on the Named Executive's
responsibilities. PG-II awards were based on performance for the period
January 1989 to December 1991 for Mr. Clark and January 1991 through
December 1991 for Mr. Fuld.
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<PAGE> 79
(e) Amounts reported under "All Other Compensation" for 1993 consist of the
dollar value of the following:
<TABLE>
<CAPTION>
ABOVE-MARKET
PAYMENTS EARNINGS
UNDER CAPITAL ACCRUED ON VALUE OF PAYMENTS
PARTNERS I DEFERRED SPLIT-DOLLAR UNDER
AND II COMPENSATION LIFE INSURANCE AGREEMENTS
------------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
R.S Fuld, Jr. ............................ $ 238,055 $5,026 $ 0 $ 0
T.C. Pettit............................... 156,347 908 0 0
J.M. Gregory.............................. 95,164 2,571 0 0
M.A. Shaftel.............................. 186,988 215 0 0
B.R. Lakefield............................ 156,347 643 0 0
H.L. Clark, Jr. .......................... 136,018 6,791 30,789 1,294,924
J.T. Hill III............................. 289,123 2,992 0 5,021,228
</TABLE>
Capital Partners I and Capital Partners II are limited partnerships
established by LBI in 1985 and 1988, respectively. Pursuant to these
partnerships, senior officers were offered the opportunity to invest in a
portfolio of high risk investments. An affiliate of Holdings is general
partner and invested most of the capital of the partnerships. Amounts
reported reflect income distributions and distributions related to the sale
of assets.
Above-market earnings on deferred compensation include credits to
compensation deferred pursuant to the Executive and Select Employees Plan
which was established in 1985 and Lehman Brothers Kuhn Loeb Deferred
Compensation Plans, which were established in 1977, 1980 and 1983 for the
Named Executives other than Mr. Clark who received credits under various
American Express plans.
In January 1993, Mr. Clark relinquished his position as Chairman and Chief
Executive Officer of Holdings and LBI, and in March 1993 he signed an
agreement with LBI. Amounts shown in the column "Payments under Agreements"
for Mr. Clark include $200,000 received at that time in consideration of
his agreement to comply with certain new restrictive covenants, and
$902,128 representing accelerated vesting and payment of a portion of his
balance under a 1992 incentive award. In May 1993, Mr. Clark assumed the
position of a Vice Chairman of LBI and signed an employment contract with
LBI. Pursuant to such contract, Mr. Clark was awarded $182,796 under a
deferred compensation plan for certain of the Company's executives. See
"Agreements with Former Executives" below. During 1993 Mr. Clark received
$10,000 as an advisor to Ayco Asset Management, a subsidiary of American
Express.
In March 1993, Mr. Hill relinquished his positions as Co-President and
Co-Chief Operating Officer of Holdings and LBI, and in June 1993 signed an
agreement with LBI. Amounts shown in the column "Payments under Agreements"
for Mr. Hill include $4,901,923 received during 1993 in consideration of
his agreement to provide advisory services to the Company and to comply
with certain restrictive covenants, and $119,305, representing accelerated
vesting and payment of certain balances under incentive plans. See
"Agreements with Former Executives" below.
The following table sets forth information for the Named Executives
regarding the exercise of stock options and/or SARs during 1993 and unexercised
options and SARs held as of the end of 1993:
AGGREGATED AMERICAN EXPRESS OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
YEAR-END AMERICAN EXPRESS OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1993 DECEMBER 31, 1993(A)
ACQUIRED VALUE --------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---------------------------- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R.S. Fuld,
Jr. ........... 0 0 97,453 11,947 $ 101,665 $ 35,835
T.C. Pettit...... 0 0 14,694 480 16,549 0
J.M. Gregory..... 0 0 7,491 288 15,515 0
M.A. Shaftel..... 0 0 17,735 960 31,029 0
B.R. Lakefield... 0 0 7,491 288 15,515 0
H.L. Clark,
Jr. ........... 67,152 648,060 322,999 55,001 1,179,164 446,881
J.T. Hill III.... 13,333 76,665 0 0 0 0
</TABLE>
- ---------------
(a) Calculated based on the closing price per share of American Express common
shares on the NYSE on December 31, 1993 ($30.875).
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<PAGE> 80
The following table sets forth information concerning long-term incentive
plan awards made in 1993 to the Named Executives:
LONG TERM INCENTIVE PLANS -- AWARDS IN 1993
<TABLE>
<CAPTION>
NAME DOLLAR VALUE($)(A)
---------------------------------------------------- ------------------
<S> <C>
R.S. Fuld, Jr. ..................................... $646,717
T.C. Pettit......................................... 489,090
J.M. Gregory........................................ 306,952
M.A. Shaftel........................................ 251,188
B.R. Lakefield...................................... 253,730
H.L. Clark, Jr. .................................... 114,241
J.T. Hill III....................................... 0
</TABLE>
- ---------------
(a) Reflects credits under the Participating Preferred Plan ("PPP"), an
incentive compensation plan. Participant account balances under the PPP are
adjusted annually by crediting or debiting the account with a return based
on Holdings' after-tax return on average annual risk-adjusted equity
(calculated as provided in the Plan). The amounts indicated above reflect
credits based on Holdings' 1993 results. It is anticipated that the Finance
Committee will approve the termination of the PPP which would result in the
acceleration of payment of all deferred balances immediately prior to the
Distribution Date.
PENSION BENEFITS
Lehman Brothers Holdings Inc. Retirement Plan (the "Holdings Retirement
Plan") is a funded, qualified, noncontributory, integrated, defined benefit
pension plan covering eligible employees.
LEHMAN BROTHERS HOLDINGS INC. RETIREMENT PLAN
GROSS ANNUAL BENEFIT BY YEARS OF SERVICE
<TABLE>
<CAPTION>
CAREER
AVERAGE
EARNINGS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 20,277 $ 26,287 $ 32,272 $ 38,303 $ 44,646
150,000 32,652 42,787 52,897 63,053 73,521
200,000 45,027 59,287 73,522 87,803 102,396
235,840 53,897 71,115 88,306 105,544 123,094
</TABLE>
The table above illustrates the annual pension benefits provided by the
Holdings Retirement Plan for the benefit of eligible employees upon retirement
at age 65. The benefits shown in the table are not subject to reduction for
Social Security benefit amounts.
Employees eligible to participate in the Holdings Retirement Plan are
generally salaried or commissioned employees of Holdings or a designated
subsidiary who have attained the age of 21 and completed one year of service.
The Holdings Retirement Plan formula provides for an annual retirement benefit
payable at age 65, calculated as a straight life annuity. Pensionable earnings
are total Form W-2 earnings (plus elective deferrals under the Lehman Brothers
Holdings Inc. Tax Deferred Savings Plan and certain other health plan deferral
amounts) up to the Internal Revenue Service maximum of $235,840 in 1993
($150,000 for 1994 plan year). For each year of plan participation prior to
1989, the annual accrual was based on percentages of pensionable earnings up to
and in excess of the Social Security taxable wage base. After 1988 the annual
accrual is equal to one percent of pensionable earnings up to the average Social
Security taxable wage base plus 1.65% of pensionable earnings in excess of the
average taxable wage base. Generally, participants have a non-forfeitable right
to their accrued benefits upon completing five years of vesting service. As of
January 1, 1994, the estimated credits for Messrs. Fuld, Pettit, Gregory,
Shaftel and Lakefield for purposes of projecting annual benefits under Holdings
Retirement Plan were 24, 17, 19, 18 and 19 years, respectively. Mr. Hill will
receive annual benefits under the Holdings Retirement Plan based upon 11 years
of employment.
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<PAGE> 81
The Compensation and Benefits Committee of the Board of Directors of
American Express approved unfunded, non-qualified arrangements for Mr. Clark who
in 1990 transferred at the request of American Express to a position at
Holdings. As of January 1, 1994, Mr. Clark had three years of credited service
under the Holdings Retirement Plan. The arrangement provides that for Mr. Clark
the total value of the pension benefits to which he would be entitled at the
time of his retirement (based on 13 total years of service), plus the value of
his base salary and cash bonus received while employed by Holdings, would not be
lower as a result of his assumption of duties at Holdings than would have been
the case had he remained in his prior position at American Express. The American
Express Compensation and Benefits Committee has retained broad discretion in the
methodology for determining the respective values for comparisons and making any
equitable adjustments deemed necessary to carry out the intent of the
arrangements.
CERTAIN AGREEMENTS
In January 1993, Mr. Clark relinquished his positions as Chairman and Chief
Executive Officer of Holdings and LBI. Pursuant to an agreement signed in March
1993, Mr. Clark agreed to continue to provide transition and advisory services
until April 15, 1994 or earlier commencement of other full-time employment. At
that time LBI made certain payments to Mr. Clark which are included in the
summary compensation table above. In May 1993, Mr. Clark was named a Vice
Chairman of LBI and in connection therewith executed an employment contract
which rescinded the March 1993 agreement. LBI (i) agreed to pay Mr. Clark salary
and bonus for 1993 and 1994 of at least $1.75 million per year, subject to
resignation or termination for cause, (ii) credited Mr. Clark with a $182,796
award under an incentive compensation plan for Lehman Brothers executives and
(iii) agreed that Mr. Clark would continue to participate in Lehman Brothers'
employee benefit and incentive programs.
On March 29, 1993, Mr. Hill relinquished all officer and director positions
with LBI, Holdings and their subsidiaries. Pursuant to an agreement signed on
June 1, 1993 (the "Agreement"), Mr. Hill agreed, among other things, to continue
providing advisory assistance to the Company through December 31, 1993 and also
agreed to comply with certain restrictive covenants through December 31, 1994,
in consideration for which LBI made payments to Mr. Hill during 1993 aggregating
$4,901,923. Under the terms of the Agreement, Mr. Hill also received $74,710
upon acceleration of vesting of a performance award, the acceleration of receipt
of 12,302 shares of Computervision Corporation common stock and approximately
$52,573 in accordance with the terms of a deferred compensation plan. Mr. Hill's
3,600 restricted American Express common shares vested in accordance with the
terms of the plan under which they were awarded. Mr. Hill also is entitled to
continue his participation in Capital Partners I and II and to receive,
beginning at age 65, payments under a deferred compensation plan. Under the
terms of the Holdings Retirement Plan, Mr. Hill will receive an annual
retirement benefit of approximately $42,919. The Company made a payment of
$1,392,820 to a charitable trust designated by Mr. Hill in satisfaction of any
claims under an incentive compensation plan. Mr. Hill will also receive
$1,100,000 in December 1994, subject to his compliance with restrictive
covenants.
During 1993, the Company reimbursed Robert Genirs, a member of the
Operating Committee, for approximately $65,000 in mortgage and utility payments
incurred for an apartment located in lower Manhattan which is utilized by the
Company and not occupied by Mr. Genirs.
1994 MANAGEMENT OWNERSHIP PLAN
Holdings has adopted, effective as of the Distribution Date, the Lehman
Brothers Holdings Inc. 1994 Management Ownership Plan ("1994 Plan"). The 1994
Plan is administered by the Compensation Committee, which is comprised
exclusively of non-employee Directors. The 1994 Plan provides for the granting
of incentive and non-qualified stock options, stock appreciation rights
("SARs"), restricted stock and restricted stock units ("RSUs"), performance
shares and performance units (collectively or individually, "Awards"). Except
with respect to grants of RSUs to non-employee Directors, as described above,
the Compensation Committee has discretion to select the individuals to whom
Awards will be granted and to determine the type, size and terms of each Award
and the authority to administer, construe and interpret the 1994 Plan. The
Compensation Committee's decisions are final, binding and conclusive. Awards may
be issued to officers, salaried or commissioned employees and consultants. In
addition, non-employee Directors will
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<PAGE> 82
receive an annual grant of RSUs. See "Compensation of Directors" above. As of
March 28, 1994, approximately 9,000 individuals were eligible to participate in
the 1994 Plan.
A total of 16,500,000 shares of Common Stock may be subject to Awards under
the 1994 Plan, subject to adjustment in accordance with the terms of the 1994
Plan. A total of 150,000 additional shares of Common Stock may be subject to
RSUs which will be issued to non-employee Directors. Common Stock issued under
the 1994 Plan may be either authorized but unissued shares, or treasury shares,
or any combination thereof. Unless prohibited by Rule 16b-3 under Section 16 of
the Exchange Act, as amended, if any shares of Common Stock subject to
repurchase or forfeiture rights are reacquired by Holdings or if any Award is
cancelled, terminates or expires unexercised, the shares of Common Stock which
were issued or would have been issuable pursuant thereto will become available
for new Awards. No individual may receive options or SARs over the life of the
1994 Plan attributable to more than 1,650,000 shares of Common Stock, subject to
adjustment in accordance with the terms of the 1994 Plan.
Set forth below are the types of awards which may be granted under the 1994
Plan.
Stock Options for Eligible Individuals. A stock option (each, an
"Option"), which may be a non-qualified or an incentive stock option, is the
right to purchase a specified number of shares of Common Stock at a price (the
"Option Price") fixed by the Compensation Committee. The Option Price of an
Option may be no less than the fair market value of the underlying Common Stock
on the date of grant.
Options are not transferable during the Optionee's lifetime and will
generally expire not later than ten years after the date on which they are
granted. Options become exercisable at such times and in such installments as
the Compensation Committee shall determine. The Committee may also accelerate
the period for the exercise of any or all Options held by an Optionee. Payment
of the Option Price must be made in full at the time of exercise in cash or by
tendering to the Company Common Stock having a fair market value equal to the
Option Price, or by other means that the Compensation Committee deems
appropriate.
The Committee may, at the time of the grant of an Option or thereafter,
grant a Limited Right, defined as a right to surrender to Holdings all or a
portion of the related Option in connection with a Change in Control (as defined
in the 1994 Plan). In exchange for such surrender, the Optionee would receive
cash in an amount equal to the number of shares subject to the Option multiplied
by the excess of the higher of (i) the highest price per share of Common Stock
paid in certain Change in Control transactions or (ii) the highest fair market
value per share of Common Stock at any time during the 90-day period preceding
such a Change in Control over the Option Price of the Option to which the
Limited Right relates. A Limited Right can be exercised within the 30-day period
following a Change in Control. A Limited Right will only be exercisable during
the term of the related Option and may be granted following the Distribution
Date.
Stock Appreciation Rights. An SAR may be granted alone or in tandem with
Options or other Awards. An SAR granted in connection with an Option shall be
exercisable to the extent that the related Option is exercisable, and will be
transferable only to the extent the related Option may be transferred. Upon the
exercise of an SAR related to an Option, the Grantee shall be entitled to
receive an amount determined by multiplying (A) the excess of the fair market
value of a share of Common Stock on the date preceding the date of exercise of
such SAR over the per share Option Price, by (B) the number of shares as to
which such SAR is being exercised. The Option related thereto will be cancelled.
SARs unrelated to an Option shall contain such terms and conditions as to
exercisability, vesting and duration as the Compensation Committee shall
determine, but such duration shall be no greater than ten years. The Committee
may accelerate the period for the exercise of an SAR unrelated to an Option.
Upon exercise of an SAR unrelated to an Option, the Grantee shall be entitled to
receive an amount determined by multiplying (A) the excess of the fair market
value of a share of Common Stock on the date the SAR was exercised over the fair
market value of Common Stock on the date preceding the date the SAR was granted,
by (B) the number of shares as to which the SAR is being exercised. The Grantee
will receive, at the election of the Compensation Committee, cash or shares of
Common Stock. An individual to whom an Award is made has no rights as a
stockholder with respect to any Common Stock issuable pursuant to any such
Option or SAR until the date of issuance of the stock certificate for such
shares upon payment of the Option Price or settlement of the SAR. The Committee
may, at the time of the grant of an SAR unrelated to an Option or thereafter,
grant a Limited Right in tandem
78
<PAGE> 83
with the SAR which will operate in a manner comparable to the Limited Rights
described above under the caption "Stock Options for Eligible Individuals."
Restricted Stock. A Restricted Stock Award is an Award of Common Stock
which is subject to forfeiture and/or a restriction against transfer (except in
the case of death) for a period specified by the Compensation Committee. Prior
to the expiration of the restricted period, a Grantee who has received a
Restricted Stock Award has the right to vote and to receive dividends on the
shares subject to the Award. Dividends may be deferred until the lapsing of the
restrictions and, at the Compensation Committee's discretion, reinvested in
shares of restricted Common Stock or paid in cash. If deferred dividends are to
be held in cash, they may be credited at the end of each year with interest on
the amount in the account at the beginning of the year at a rate the
Compensation Committee may determine. Payment of deferred dividends, together
with interest, shall be made upon the lapsing of restrictions and any deferred
dividends shall be forfeited upon the forfeiture of such shares.
Restricted Stock Units. An RSU is an Award of a unit representing the
right to receive a share of Common Stock upon the lapse of such restrictions as
may be determined by the Compensation Committee. Dividend equivalents may be
deferred until the lapsing of the restrictions and, at the Compensation
Committee's discretion, reinvested in RSUs or paid in cash. See "Directors as of
the Distribution Date" above for a description of the annual grant of RSUs to
non-employee Directors.
Performance Units. Performance Units are Awards whose final value, if any,
is determined by the degree to which specified company, business unit,
participant and/or other performance objectives are achieved during a specified
performance period (the "Performance Cycle"), subject to such adjustments as the
Compensation Committee may approve based on relevant factors. Performance
objectives may be based on earnings per share, net income, return on equity,
and/or on other measures as it deems appropriate. Prior to the end of a
Performance Cycle, the Compensation Committee, in its discretion and only under
conditions which do not affect the deductibility of compensation attributable to
Performance Units under Section 162(m) of the Code, may adjust the performance
objectives to reflect a change in the capitalization, a change in the tax rate
or book tax rate of Holdings or any subsidiary or any other event which may
materially affect the performance of Holdings, a subsidiary or a division,
including, but not limited to, market conditions or a significant acquisition or
disposition of assets or other property by Holdings, a subsidiary or a division.
Performance Units may be denominated in shares of Common Stock or a
specified dollar amount and, contingent upon the attainment of specified
performance objectives within the Performance Cycle, represent the right to
receive payment (i) in the case of Common Stock-denominated Performance Units,
the fair market value of a share of Common Stock on the date the Performance
Unit was granted, the date the Performance Unit became vested or any other date
specified by the Compensation Committee, (ii) in the case of dollar-denominated
Performance Units, the specified dollar amount or (iii) a percentage (which may
be more than 100%) of the amount described in clause (i) or (ii) depending on
the level of performance objective attainment; provided, however, that the
Compensation Committee may, at the time a Performance Unit is granted, specify a
maximum amount payable in respect of a vested Performance Unit. A Grantee shall
vest to the extent the performance objectives are satisfied. Payment shall be
made within 60 days after the last day of the Performance Cycle.
Performance Shares. Performance Shares are Awards whose final value, if
any, is denominated or paid in Common Stock or RSUs, as determined by the
Compensation Committee at the time of grant. The number of shares of Common
Stock or RSUs earned will be based on the factors described above with respect
to Performance Units. The Compensation Committee shall specify at the time of
grant the length of the performance period. The Grantee shall have, in the
discretion of the Compensation Committee, the right to receive payments
equivalent in value to dividends or other distributions paid or made with
respect to the underlying shares of Common Stock ("Dividend Equivalents"). Until
any restrictions upon the Performance Shares have lapsed, such Performance
Shares shall not be sold, transferred or otherwise disposed of and shall not be
pledged or otherwise hypothecated, nor shall they be delivered to the Grantee.
Restrictions upon Performance Shares shall lapse at such time or times and
on such terms, as the Compensation Committee may determine at the time an Award
is granted. The Compensation Committee
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<PAGE> 84
may determine that the payment of Dividend Equivalents shall be deferred until
the lapsing of the restrictions upon such Performance Shares and reinvested in
shares of Common Stock (which shall be held as additional Performance Shares) or
held in cash. If such Dividend Equivalents are held in cash, such amount may be
credited with interest at a rate determined by the Compensation Committee.
Payment of deferred Dividend Equivalents shall be made upon the lapsing of
restrictions and any Dividend Equivalents deferred (together with any interest
accrued thereon) in respect of any Performance Shares shall be forfeited upon
the forfeiture of such Performance Shares.
Additional Information. Under the 1994 Plan, if there is any change in the
outstanding shares of Common Stock by reason of any stock split, stock dividend,
combination, subdivision or exchange of shares, recapitalization, merger,
consolidation, reorganization or other extraordinary or unusual event, the
Compensation Committee may direct that appropriate changes be made in the number
or kind of securities that may be issued under the 1994 Plan and in the terms of
outstanding Awards, except that RSUs granted to non-employee Directors may be
adjusted only to maintain the proportionate interests of the holder in RSUs and
to preserve the value of such RSUs. The Committee may accelerate vesting,
exercisability or lapse of restrictions on all or any portion of any Award at
any time, other than with respect to: (i) Awards of RSUs to non-employee
Directors, vesting of which may be accelerated only under such circumstances as
will not cause such persons to fail to be "disinterested persons," within the
meaning of Rule 16b-3 under the Exchange Act; and (ii) Awards other than Options
or SARs, to the extent that such acceleration would jeopardize the Company's tax
deduction for the payment or exercise of the Awards under Section 162(m) of the
Code.
Generally, an individual's rights under the 1994 Plan may not be assigned
or transferred (except in the event of death). The Compensation Committee may
permit an individual to pay taxes required to be withheld with respect to an
Award in any appropriate manner (including, without limitation, by the surrender
of Holdings Common Stock owned by such person or Common Stock that would
otherwise be distributed, or have been distributed, as the case may be, pursuant
to such Award).
The 1994 Plan shall terminate on the day preceding the tenth anniversary of
the date of its adoption by Holdings and no Award may be granted thereafter.
Holdings may terminate the 1994 Plan sooner and the Board of Directors may at
any time and from time to time amend, modify or suspend the 1994 Plan; provided,
however, that no such amendment, modification, suspension or termination shall
materially impair or materially adversely alter any Awards theretofore granted
under the 1994 Plan, except with the consent of the Optionee or Grantee, nor
shall any amendment, modification, suspension or termination deprive any
Optionee or Grantee of any Common Stock which he or she may have acquired
through or as a result of the 1994 Plan; and no such amendment shall be
effective unless and until the same is approved by stockholders of Holdings
where the absence of stockholder approval would adversely affect the compliance
of the 1994 Plan with Rule 16b-3, Code Section 162(m) or other applicable law or
regulation. Rule 16b-3 currently requires stockholder approval if the amendment
would, among other things, materially increase the benefits accruing to
Optionees or Grantees under the 1994 Plan.
Certain Federal Income Tax Consequences of Options. Certain of the federal
income tax consequences to Optionees and their employers of Options granted
under the 1994 Plan should generally be as set forth in the following summary.
For purposes of this discussion, the term "employer" shall be deemed to include
the employer of an employee Optionee and the taxpayer for whom a non-employee
Optionee performs services.
An employee to whom an incentive stock option ("ISO") which qualifies under
Section 422 of the Code is granted will not recognize income at the time of
grant or exercise of such Option. No federal income tax deduction will be
allowable to the employee's employer upon the grant or exercise of such ISO.
However, upon the exercise of an ISO, special alternative minimum tax rules
apply for the employee. When the employee sells such shares more than one year
after the date of transfer of such shares and more than two years after the date
of grant of such ISO, the employee will normally recognize a long-term capital
gain or loss equal to the difference, if any, between the sale prices of such
shares and the Option exercise price. If the employee does not hold such shares
for this period, when the employee sells such shares, the employee will
recognize ordinary compensation income and possibly capital gain or loss in such
amounts as are prescribed by
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<PAGE> 85
the Code and regulations thereunder and the employee's employer will generally
be entitled to a federal income tax deduction in the amount of such ordinary
compensation income.
An individual to whom a non-qualified Option (which is treated as an option
for federal income tax purposes) is granted will not recognize income at the
time of grant of such Option. When such optionee exercises such non-qualified
Option, the optionee will recognize ordinary compensation income equal to the
difference, if any, between the Option Price paid and the fair market value, as
of the date of Option exercise, of the shares the optionee receives. The tax
basis of such shares to such optionee will be equal to the Option Price paid
plus the amount includable in the optionee's gross income, and the optionee's
holding period for such shares will commence on the day on which the optionee
recognized taxable income in respect of such shares. Subject to applicable
provisions of the Code and regulations thereunder, the employer of such optionee
will generally be entitled to a federal income tax deduction in respect of
non-qualified Options in an amount equal to the ordinary compensation income
recognized by the optionee. Any compensation includable in the gross income of
an employee in respect of a non-qualified Option will be subject to appropriate
federal income and employment taxes.
The discussion set forth above does not purport to be a complete analysis
of all potential tax consequences relevant to recipients of Options or their
employers or to describe tax consequences based on particular circumstances and
does not address Awards other than Options. It is based on federal income tax
law and interpretational authorities as of the date of this prospectus, which
are subject to change at any time.
1994 MANAGEMENT REPLACEMENT PLAN
Holdings has adopted, effective as of the Distribution Date, the Lehman
Brothers Holdings Inc. 1994 Management Replacement Plan (the "Replacement
Plan"). A maximum of 3,200,000 shares of Common Stock will be subject to awards
under the Replacement Plan. Under the Replacement Plan, the Compensation
Committee will have the authority to grant nonqualified stock options and shares
of restricted Common Stock. The primary purpose of the Replacement Plan is to
replace awards relating to American Express common shares which were outstanding
as of April 4, 1994. Substantially all awards previously made under the American
Express 1979 and 1989 Long-Term Incentive Plans to Lehman Brothers' employees
which are outstanding immediately prior to the Distribution Date and subject to
the terms of these plans will be cancelled as of the Distribution Date.
Approximately 1,000 of the Company's employees hold such awards and will be
eligible to receive, as of the Distribution Date, the new awards under the
Replacement Plan.
Cancelled American Express restricted common shares and cancelled options
on American Express common shares will be replaced with restricted Common Stock
and options on Common Stock, respectively. The number of shares of restricted
Common Stock and options on Common Stock issued in replacement of the cancelled
American Express awards will be determined as of the Distribution Date, and will
be based upon such factors as: (i) the relative trading price of American
Express common shares and the Common Stock at the close of business on the first
day of "regular way" trading; (ii) the application of a valuation model to be
determined by the Compensation Committee, which model may be modified as the
Compensation Committee deems appropriate; and (iii) such other factors as the
Compensation Committee, in its discretion shall determine.
It is expected that the replacement options will mirror those of the
American Express options with respect to which they are granted, including
similar exercisability and termination provisions. In all other material
respects, the replacement options are expected to be identical to stock options
granted under the 1994 Plan, including, without limitation, the availability of
Limited Rights (as described above under the 1994 Plan) with respect to options
granted under the Replacement Plan. Similarly, awards of Common Stock under the
Replacement Plan are expected to include a number of shares of restricted Common
Stock having a value substantially equivalent to the cancelled American Express
restricted shares, and to continue the same vesting and other conditions that
apply to the replaced awards.
The Compensation Committee has authority to administer, construe and
interpret the Replacement Plan. Its decisions are final, binding and conclusive.
In addition, the Replacement Plan has substantially the same provisions as those
described more fully above under "1994 Management Ownership Plan."
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<PAGE> 86
EMPLOYEE OWNERSHIP PLAN
During 1993, LBI established the Lehman Brothers Inc. Employee Ownership
Plan (the "Employee Ownership Plan") pursuant to which certain key employees of
the Company deferred a percentage of their 1993 salary and bonus for the
purchase of certain Phantom Units of Holdings. Each Phantom Unit is comprised of
a phantom equity interest representing a notional interest in a share of Common
Stock (a "Phantom Share") and the right to receive a certain amount in cash with
respect to a Phantom Share ("Cash Right"). The number of Phantom Units which
were available to each participant was determined by the Finance Committee.
Up to 6,000,000 Phantom Shares (3,566,277 as adjusted for the Reverse Stock
Split) were available for "purchase" through voluntary and mandatory deferrals
of 1993 compensation. Currently, approximately $57 million is credited to
participants' Phantom Unit accounts. Such amount may be reduced prior to the
Distribution Date in the event of terminations of employment. The price of each
Phantom Unit was $10.00 per Phantom Share and $6.67 for each related Cash Right
($16.82 per Phantom Share and $11.22 per related Cash Right, as adjusted for the
Reverse Stock Split) and was determined by the Finance Committee in July 1993
using an assumed capital structure of Holdings for purposes of the program and
taking into account various factors, including market multiples for comparable
companies, the absence of a public market for Holdings, vesting requirements,
and the restrictions on transferability of the Phantom Units.
The Phantom Units representing voluntary deferrals are immediately vested
and non-forfeitable; however, there is a restriction on transferability of such
Units. There is also a restriction on transferability of the Common Stock which
employees will receive upon conversion of Phantom Shares. Generally, such
restrictions will lapse ratably over a three-year period. In accordance with the
terms of the Employee Ownership Plan, each Phantom Share will be converted to
Common Stock and each Cash Right will be paid upon or prior to the Distribution.
The Phantom Units representing mandatory deferrals are subject to the same
restrictions on transfer provisions as described above. Common Stock which
employees receive upon conversion of these Phantom Shares, in addition to the
three-year restriction on transferability, will continue to be subject to
forfeiture in accordance with the vesting schedule applicable to the Phantom
Shares prior to conversion. Vested Common Stock issued with restrictions upon
conversion will be subject to repurchase if the participant resigns or is
terminated for cause.
PARTICIPATING PREFERRED PLAN
During 1993, LBI converted a deferred compensation plan that was
established in 1990 into the Participating Preferred Plan (the "PPP").
The deferred balances in the PPP are credited with a fixed return of 12%
per annum, payable in cash on or as soon as possible following the end of each
calendar quarter. The deferred balances are also credited or debited with an
annual return (the "New Accretions") equal to the after-tax return on average
annual risk-adjusted equity of Lehman Brothers multiplied by the deferred
balance in the PPP account.
The beginning balance in all PPP accounts will vest on January 1, 1995. New
Accretions will vest on the first anniversary of crediting to the PPP accounts
commencing January 1, 1994. Except as the administrator of the PPP may
determine, all unvested amounts will be forfeited upon termination of
employment, except termination upon retirement, death, disability, government
service or termination without cause. The Finance Committee may pay out all or
any portion of a PPP account at any time. Such distribution, and distributions
of vested amounts upon termination of employment, will be paid in cash in a lump
sum, or in three annual installments together with 8% interest thereon. After
two years of participation in the PPP (including participation in the previous
plans), any participant age 52 or older will begin to receive annual payments of
10% (20% at age 57) of his or her PPP account balance.
It is anticipated that the Finance Committee will approve the termination
of the PPP which would result in the acceleration of payment of all deferred
balances immediately prior to the Distribution Date.
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1994 EMPLOYEE STOCK PURCHASE PLAN
The Compensation Committee adopted effective June 1, 1994, or such later
date as the Compensation Committee shall designate, and subject to the
Distribution, the Lehman Brothers Holdings Inc. 1994 Employee Stock Purchase
Plan (the "ESPP"), under which 6,000,000 shares of Common Stock were reserved
for issuance subject to adjustment in accordance with the terms of the ESPP.
Purpose, Eligibility and Administration. The ESPP, which is intended to
qualify under Section 423 of the Code, is designed to encourage stock ownership
by employees of the Company. All employees of Holdings and designated
subsidiaries are eligible to participate. No employee is eligible to participate
who, after the grant of options under the ESPP, owns (including all shares which
may be purchased under any outstanding options) 5% or more of the total combined
voting power or value of all classes of shares of Holdings. Approximately 9,000
persons will be eligible to participate in the ESPP. The ESPP is administered by
the Compensation Committee.
Payroll Deductions. Each ESPP participant may authorize the Company to
deduct up to 10% of the participant's total cash remuneration for each quarterly
period (each, an "Offering Period") subject to a maximum amount of $15,000 per
year.
Stock Purchase. On the first day of each Offering Period, Holdings will
grant to each participant an option to purchase on the last day of the Offering
Period (the "Exercise Date") at a price determined as described below (the
"Purchase Price") the number of full shares of Common Stock of Holdings which
his or her accumulated payroll deductions on the Exercise Date will purchase at
the Purchase Price; provided, however, that prior to an Offering Period the
Committee may, in its discretion, determine a maximum number of shares which may
be subject to an option granted under the ESPP. The Purchase Price for each
Offering Period will be 85% of the fair market value of Holdings Common Stock on
the Exercise Date. Fractional shares of Common Stock may be purchased, at the
discretion of the Committee; if the purchase of fractional shares is not
allowed, and only full shares of Common Stock may be purchased, any balance
remaining in the participant's account will be carried over to the next Offering
Period or returned to the participant.
Adjustment for Recapitalization, Merger, Etc. Subject to any required
action by the stockholders of Holdings, the number of shares available under the
ESPP as well as the price per share of Common Stock covered by each option under
the ESPP that has not yet been exercised shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of shares of Common Stock effected without receipt of consideration
by Holdings.
In the event of a proposed sale of all or substantially all of the assets
of Holdings, or the merger of Holdings with or into another corporation, each
option under the ESPP shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Compensation Committee determines to shorten
the Offering Period then in progress, in which case a new Exercise Date will be
set and participants will be given the choice of having their options exercised
on the new Exercise Date or withdrawing from the ESPP and receiving the balance
of their accounts.
Withdrawal from ESPP. A participant may withdraw from the ESPP at any
time. Upon such withdrawal, the entire amount credited to the participant's
account will be refunded to him. Upon any termination of a participant's
service, the entire amount then credited to the participant's account shall be
refunded to the participant, or, in case of the participant's death, to the
participant's estate.
Termination or Amendment. The Board of Directors of Holdings may amend or
terminate the ESPP at any time without the approval of stockholders, provided
that no such action shall adversely affect options already granted thereunder,
and further provided that no such action will (a) increase the total number of
shares of Common Stock available under the ESPP (except in connection with
certain capital adjustments), (b) expand the class of persons eligible to
receive shares, or (c) extend the term during which shares may be purchased. See
"Adjustment for Recapitalization, Merger, Etc." above.
Federal Income Tax Consequences. Under Section 423(a) of the Code, the
transfer of a share of Common Stock to a participant pursuant to the ESPP is
entitled to the benefits of Section 421(a) of the
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Code. Under that Section, a participant will not be required to recognize income
at the time the option is granted or at the time the option is exercised. If the
option price under the ESPP is less than the fair market value of the stock on
the date of grant, Section 423(c) of the Code requires that, provided the
holding periods described below are met, when the shares of Common Stock
received pursuant to the ESPP are sold or otherwise disposed of in a taxable
transaction (or in the event of the death of the participant while owning such
shares whether or not the holding period requirements are met), the participant
will recognize compensation income (taxed as ordinary income), for the taxable
year in which disposition or death occurs, in an amount equal to the lesser of
(i) the excess of the fair market value of the Common Stock at the time of such
disposition or death over the amount paid for the shares, and (ii) the excess of
the fair market value of the stock at the time the option was granted over the
option price. Such recognition of compensation income upon disposition shall
have the effect of increasing the basis of the shares in the participant's hands
by an amount equal to the amount of compensation income recognized. The Company
will not be entitled to any business expense deduction with respect to the ESPP,
except in connection with a disqualifying disposition as discussed below. Any
additional gain or loss resulting from the disposition (provided it is not a
disqualifying disposition), measured by the difference between the amount paid
for the shares and the amount realized (less the amount recognized as
compensation income as described above), will be recognized by the participant
as long-term capital gain or loss. No portion of the amount received pursuant to
such a disposition will be subject to withholding for federal income taxes, or
be subject to FICA or FUTA taxes.
In order for a participant to receive the favorable tax treatment provided
in Section 421(a) of the Code, Section 423(a) requires that the participant make
no disposition of the shares within two years from the date the option was
granted nor within one year from the date such option was exercised and the
shares were transferred to him or her.
If a participant disposes of Common Stock acquired pursuant to the ESPP
before the expiration of the holding period requirements set forth above, the
participant will realize, at the time of the disposition, ordinary income to the
extent the fair market value of the Common Stock on the date the shares were
purchased exceeds the Purchase Price. The difference between the fair market
value of the Common Stock on the date the shares were purchased and the amount
realized on disposition is treated as long-term or short-term capital gain or
loss, depending on the participant's holding period in the Common Stock. The
amount treated as ordinary income may be subject to the income tax withholding
requirements of the Code and FICA withholding requirements. The participant will
be required to reimburse Holdings, either directly or through payroll deduction,
for all withholding taxes (e.g., federal income tax and FICA) Holdings is
required to pay on behalf of the participant. At the time of the disposition,
the Company may adopt procedures to assist it in identifying such deductions,
and may require a participant to notify Holdings of his or her intention to
dispose of any such shares.
The market value of the Common Stock that may be issued or acquired
pursuant to the 1994 Plan, the Replacement Plan and the ESPP cannot be
determined until the Distribution Date.
SHORT-TERM EXECUTIVE COMPENSATION PLAN
The Short-Term Executive Compensation Plan (the "STEP") was adopted by the
Compensation Committee effective as of January 1, 1994 (and subject to the
successful completion of the Distribution). The STEP allows the Compensation
Committee (or, in certain situations, its delegate) to grant to certain
employees of the Company annual cash awards of two types -- "Standard Awards"
and "Special Awards."
A Standard Award may be granted in the discretion of the Compensation
Committee or its delegate to any employee. The amount of the Standard Award will
be based on any criteria the Compensation Committee or its delegate wishes to
consider, including but not limited to, the objective or subjective performance
of the employee, the Company or any subsidiary or division thereof. A Standard
Award will be paid at the time determined by the Compensation Committee or its
delegate.
A Special Award may be granted in the discretion of the Compensation
Committee to any employee who the Compensation Committee reasonably believes may
be a "Covered Employee," as defined in Section 162(m) of the Code. Section
162(m) limits the Company's deduction to $1 million per year per executive for
certain compensation paid to each of its Chief Executive Officer ("CEO") and the
four highest
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compensated executives other than the CEO. In general, the proposed regulations
exclude from this limitation compensation that is calculated based on
"objective" performance criteria. The amount of any Special Award will be based
on objective performance goals established by the Compensation Committee. The
Compensation Committee must certify as to the attainment of the applicable
performance goals prior to payment of any Special Award, and may reduce the
amount of any Special Award. Under no circumstances may a Special Award be paid
unless the material terms of the Special Award, including the performance
measures applicable thereto, have been disclosed to and approved by the
stockholders of Holdings. All terms and conditions of Special Awards, and the
STEP provisions referring thereto, shall be administered and interpreted in
accordance with Section 162(m) of the Code, to ensure the deductibility by the
Company of the Special Awards.
NEW PLAN BENEFITS
The table set forth below shows (i) the number of shares of Common Stock
underlying the awards of stock options made by the Compensation Committee on
March 28, 1994, to the individuals and group listed below and (ii) the value of
the annual grant of restricted stock units to all of Holdings' non-employee
Directors as a group, assuming that seven non-employee Directors will each
receive an annual grant of RSUs representing underlying Common Stock with a fair
market value of $30,000 in each case under the 1994 Plan.
LEHMAN BROTHERS HOLDINGS INC. 1994 MANAGEMENT OWNERSHIP PLAN
<TABLE>
<CAPTION>
DOLLAR VALUE OF
COMMON STOCK NUMBER OF SHARES OF
UNDERLYING RESTRICTED COMMON STOCK
STOCK UNITS UNDERLYING OPTIONS
--------------------- -------------------
<S> <C> <C>
NAME AND POSITION
R.S. Fuld, Jr.
Chairman and Chief Executive Officer 0 78,320
T.C. Pettit
President and Chief Operating Officer 0 61,760
J.M. Gregory
Managing Director of LBI 0 29,440
M.A. Shaftel
Managing Director of LBI 0 23,680
B.R. Lakefield
Managing Director of LBI 0 23,040
H.L. Clark, Jr.
Former Chairman of the Board and Chief
Executive Officer 0 0
J.T. Hill III
Former Co-President and Co-Chief
Operating Officer 0 0
GROUP
Executive Officer group 0 360,720
GROUP
Non-Employee Director group $ 210,000 0
</TABLE>
Lehman Brothers Holdings Inc. 1994 Management Replacement Plan. Certain
restricted American Express common shares and options on American Express common
shares previously awarded under the American Express 1979 and 1989 Long-Term
Incentive Plans held by employees of the Company will be cancelled as of the
Distribution Date. As more fully described above, the number and value of new
awards to be issued under the Replacement Plan will be based upon the closing
price of the Common Stock on the NYSE on the first day of "regular way" trading,
as well as the value of the cancelled awards. Therefore, the actual number of
shares of restricted Common Stock and options on Common Stock can be determined
only subsequent to the Distribution. See "1994 Management Replacement Plan"
above.
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CERTAIN TRANSACTIONS AND AGREEMENTS BETWEEN THE COMPANY
AND AMERICAN EXPRESS
SERVICES AND PAYMENTS BETWEEN THE COMPANY AND AMERICAN EXPRESS
American Express and its subsidiaries, including TRS, AEB and IDS (as
hereafter defined), from time to time provide services to the Company. The
following table lists the fees paid by the Company for significant services,
other expenses allocated by American Express to the Company and amounts received
by the Company in respect of certain projects funded by American Express.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
(in thousands of dollars)
<S> <C> <C> <C>
Rent and shared services(a)(b)................................ $ 4,941 $ 5,738 $ 4,636
Communications and data processing(b)(c)...................... 4,975 5,337 4,797
General services(b)(d)........................................ 4,642 2,718 4,120
Insurance(b).................................................. 9,561 12,515 9,468
Salaries and incentives(b)(e)................................. 2,161 5,299 3,526
Tax payments (credits)(f)..................................... (74,331) 72,569 (3,337)
American Express Tower common charges(g)(h)................... 18,335 16,159 16,477
American Express funded projects(b)(i)........................ (1,754) (4,675) (3,708)
Other(j)...................................................... 376 2,393 1,725
</TABLE>
- ---------------
(a) Primarily represents rents and allocations paid to American Express for
shared facilities other than American Express Tower.
(b) Services expected to be discontinued on the Distribution Date or prior to
December 31, 1994.
(c) Charges and allocations for shared communications equipment, time sharing
services and data processing.
(d) Charges for certain central purchasing, distribution, supplies and services.
(e) Represents salary allocations as well as certain consulting payments and the
cost of training provided by American Express.
(f) See "Tax Allocation Agreements" below. The future amount of tax payments
cannot be determined.
(g) The Company's share of common area and service charges at American Express
Tower and fees charged by American Express as managing co-tenant of World
Financial Center.
(h) See "World Financial Center" below.
(i) Amounts funded by American Express for certain of the Company's technology
projects.
(j) See "Intercompany Agreements" below.
CERTAIN TRANSACTIONS WITH AMERICAN EXPRESS AND SUBSIDIARIES
The Company, American Express International Inc., a subsidiary of American
Express Travel Related Services Company, Inc. ("TRS"), and American Express Bank
Ltd. ("AEB") share office space in Hong Kong for which they are jointly and
severally liable for lease payments of approximately $3.1 million per year.
Until the sale of Shearson (a) IDS Life Insurance Company, a wholly owned
subsidiary of IDS Financial Corporation ("IDS"), and IDS Life Insurance Company
of New York, a wholly owned subsidiary of IDS Life Insurance Company, sold
deferred annuities and single premium variable life policies through the
Company's Financial Consultants and (b) AMEX Life Assurance Company sold
long-term care insurance through the Company's Financial Consultants. Such
insurance companies paid the Company a selling commission in connection with the
sale of such products.
American Express has invested $5.2 million in a domestic merchant banking
partnership in which the Company acts as general partner and remains committed
to invest an additional $0.5 million. American Express has received partnership
distributions in an aggregate amount of $8.9 million in respect of this
investment. Subsidiaries of American Express are the general partners and
another subsidiary is a limited
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partner in a limited partnership which has invested in an offshore merchant
banking partnership which the Company acts as general partner.
Lehman Brothers Financial Resource Accounts include, as one of the features
of the integrated financial services accounts, the Gold Card, issued by TRS, for
which Lehman Brothers pays TRS a portion of the fees received from the holders.
Lehman Brothers and TRS have agreed to extend such arrangements for a three-year
period on an exclusive basis. TRS also provides the Corporate Card to employees
of the Company, for which TRS receives annual fees. In January 1994, the Company
agreed to consolidate all its business travel reservations through TRS' Travel
Center in Omaha. Lehman Brothers and TRS have agreed to extend such arrangements
with respect to the Corporate Card and travel services for 5 years, with TRS as
the sole provider of such services.
Until 1992 the Company and AEB had a Swiss joint venture, Lehman Brothers
Finance S.A., which engaged in certain trading and underwriting activities.
In August 1990, American Express acquired all of the then publicly-held
common stock of Holdings pursuant to a merger of a wholly owned subsidiary of
American Express with and into Holdings (the "Merger"). In connection with the
Merger, American Express agreed to guarantee certain payments to employees who
were then active employees of the Company or its affiliates under the Company's
Executive and Select Employees Plan, a deferred compensation plan for highly
compensated executives (the "ESEP"), the Company's Voluntary Deferred
Compensation Plan, the Lehman Brothers Kuhn Loeb Deferred Compensation Plans
("LDCP") and certain other deferred compensation programs of the Company,
subject to certain limitations. The guarantee covered participants of the ESEP
and the LDCP only if such participants elected to accept certain amendments to
these plans and the deferral agreements thereunder. As of December 31, 1993,
deferred compensation with an aggregate balance of approximately $59 million was
covered by this guarantee. The Company will pay to American Express after the
Distribution an annual fee equal to 0.625% of the outstanding balance under such
deferred compensation plans, in consideration of American Express maintaining
the guarantee.
American Express provided letters to several foreign regulatory bodies,
confirming the Company's financial well-being and ongoing business operations.
These letters did not constitute guarantees but did further the Company's
ability to secure certain regulatory approvals for its business operations.
These letters are being rescinded at the Distribution and will be replaced with
letters from Holdings.
Lehman Brothers has participated, along with other units of American
Express, in the American Express philanthropic program. In 1993, 1992 and 1991,
Lehman Brothers contributed $2.8 million, $3.6 million and $4 million,
respectively, to support American Express philanthropic activities.
In April 1992, American Express pledged $1 million callable from January 1,
1997 to December 31, 2003 for the development by the New York Public Library of
a Science, Business and Industry Library. Holdings, as co-pledgor, has agreed to
reimburse American Express for 50% of the pledge.
In connection with the sale of The Ayco Corporation ("Ayco") by the Company
to American Express on December 31, 1989, the Company agreed to guarantee
specified levels of revenue from certain financial planning services to be
performed for Lehman Brothers in the years 1990 and 1991, which was terminated
on March 31, 1991. The parties also agreed that until December 31, 1994, Ayco
and Lehman Brothers would continue certain working relationships whereby Ayco
will provide financial consulting and related services to customers of Lehman
Brothers or its affiliates, and Lehman Brothers or its affiliates will provide
certain investment services and products to Ayco clients. In addition, Ayco
provides certain administrative services for the ESEP and for certain other
Company plans, pursuant to which Ayco receives customary fees. Ayco also
provides financial counseling and tax preparation services to certain executive
officers of the Company.
In June 1989, the domestic mutual fund transfer agency business ("TSSG") of
an affiliate of The Boston Company was sold to certain subsidiaries of American
Express which included First Data Corporation. In connection with such sale, the
Company agreed that, for each calendar quarter during the period from January 1,
1991 to December 1, 1995, in the event TSSG does not act as transfer agent for a
specified percentage of shareholder accounts of certain mutual funds, unit
investment trusts, limited partnerships, offshore investment companies and money
market demand accounts, then The Boston Company will pay
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TSSG the amount of any resulting shortfall in net revenues. The Boston Company's
obligations were guaranteed by Holdings. Subject to applicable fiduciary
requirements, the Company is also obligated, until June 1999, to designate TSSG
as transfer agent for those unit investment trusts and other entities for which
the Company has the legal power or authority to make such appointment, and
otherwise to recommend TSSG as transfer agent. The Company and its affiliates
also agreed, subject to applicable fiduciary duties, to recommend a TSSG nominee
to serve on the board of directors of selected representative mutual funds, for
which Lehman Brothers is the primary adviser, until 1996. The Company is
obligated to promote actively the transfer agent services provided by TSSG,
until June 1996.
On June 28, 1991, Lehman sold all the issued and outstanding stock (the
"Stock") of its wholly owned subsidiary The Balcor Company ("Balcor") to
National Express Company, Inc. ("NEC"), a wholly owned subsidiary of American
Express. In connection therewith, the Company sold to American Express certain
loans (the "Loans") made by the Company to Balcor and one of Balcor's wholly
owned subsidiaries. Pursuant to the terms of the transaction, NEC and American
Express purchased the Stock and the Loans at book value for $1.445 billion
consisting of $500 million in cash and a $945 million promissory note due June
28, 1996 (the "Balcor Note"). Effective as of the Distribution Date, the Balcor
Note will be divided into two separate notes, each with a maturity date of June
28, 1996, in the amounts of $382 million and $563 million (collectively, the
"Balcor Notes"). The Company will have the ability to pledge the $382 million
note (the principal amount of which may be increased as described below)(the
"Pledge Right") subject to American Express' right, commencing one year
subsequent to the Distribution Date, to revoke the Pledge Right (and any pledge
of the $382 million note) if American Express has a reasonable belief that such
note is necessary to secure outstanding Lehman Brothers debt to American Express
at such time. American Express will have a set-off right with respect to the
$563 million note which could be extended to the $382 million note in connection
with the revocation referred to above. The principal amount of the $382 million
note will be increased (but not above $500 million) and the principal amount of
the $563 million note will be decreased (but not below $445 million) by an
amount equal to any principal repayments of the WFC Indebtedness (as defined
below) by the Company. See "World Financial Center" below.
In order to facilitate the sale by the Company of SLHMC to GE Capital
Mortgage Services, Inc. ("GE") on August 31, 1993, American Express provided an
indemnity to GE with respect to certain tax and ERISA liabilities. In
consideration of American Express providing such indemnity, the Company paid
American Express $10 million.
In connection with the Primerica Transaction and the Mellon Transaction,
certain securities received as proceeds were transferred by the Company to
American Express for consideration. See "Recent Developments" for further
information with respect to these transfers.
FINANCIAL SERVICES
The Company from time to time provides investment banking, commercial paper
placement, brokerage and various other financial services such as repurchase
transactions, investment advisory, strategic advisory and derivative products to
American Express and its subsidiaries, including acting as placement agent for
medium-term notes, dealer for commercial paper and advisor regarding certain
dispositions. The Company, American Express and its subsidiaries also engage in
the ordinary course of business in various trading and short-term funding
transactions, including foreign exchange and precious metals transactions. AEB
issues letters of credit and provides overnight loans which are used in
financing the Company's overseas activities.
TAX ALLOCATION AGREEMENT
Holdings and American Express have entered into an agreement (the "Tax
Allocation Agreement") providing for the allocation and settlement of their
respective federal, state and local income tax liabilities (including Holdings'
and its subsidiaries' share of liability, if any, for alternative minimum tax)
and detailing the procedures that determine the payments to be made to or by
Holdings with respect to those liabilities, including payments with respect to
adjustments to tax liabilities resulting from audits or other proceedings with
respect to taxes for taxable periods for which Holdings or its subsidiaries were
included in a consolidated federal or combined state or local income tax return
with American Express. The Tax Allocation Agreement supersedes prior tax sharing
agreements and applies retroactively to all periods prior to the Distribution
during
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which Holdings or its subsidiaries filed as members of the American Express
consolidated federal group or combined state or local group, dating back to the
original acquisition in July 1981. Certain relevant terms of the Tax Allocation
Agreement are as described below.
In general, Holdings will be liable and has agreed to indemnify American
Express for Holdings' share of the American Express consolidated federal tax
liability or combined state or local tax liability (together with interest,
penalties and additions to tax) for taxable periods for which Holdings or its
subsidiaries are included in any returns with American Express. Holdings' share
of federal tax liabilities will generally be based on its tax liability
determined as if Holdings and its subsidiaries filed federal income tax returns
as a separate taxpayer. Holdings will be given credit for tax benefits American
Express can use in its consolidated federal income tax return, provided that it
will be subject to any consolidated limitations, as adjusted, that affect
American Express, and, if these limitations apply, Holdings' benefits will be
considered to be used after the benefits of other members of the American
Express consolidated group. If Holdings is required under the Tax Allocation
Agreement to repay amounts previously received in respect of a tax benefit or
attribute arising during an affiliation year, Holdings could report a permanent
earnings charge. Holdings' share of combined state or local tax liabilities will
generally be based on Holdings' and its subsidiaries' proportionate share of the
tax liabilities of all members of the combined group with positive tax
liabilities, determined as if such members were each separate taxpayers after
giving effect to all apportionment factors on a separate taxpayer basis.
Under U.S. consolidated federal income tax return rules, Holdings is
jointly and severally liable for the tax liability of all members of the
American Express consolidated group for all periods during which Holdings filed
consolidated federal income tax returns with members of such group. Joint and
several liability is generally the liability that each member of a consolidated
federal tax group has for the liability of the group during the years in which
such corporation was a member of the group.
Holdings will be liable to American Express for any taxes (together with
interest, penalties and additions to tax) resulting from any adjustment in the
tax liability of the American Express consolidated or combined group (as a
result, for example, of tax audits or judicial decisions) that results in an
increase in its share of such tax liability as described above. Holdings will be
required to settle all unsettled audit issues that do not satisfy a prescribed
legal standard or the taxes for which do not exceed $1 million in the aggregate
in a taxable year. Such legal standard requires that there be a realistic
possibility of a position being sustained on the merits under applicable IRS
rules. These settlement requirements may result in Holdings' settling issues
which in the aggregate do not exceed such $1 million threshold or satisfy this
legal standard on terms that are less favorable than it might have been able to
in the absence of these requirements. Holdings will indemnify American Express
for taxes (together with interest, penalties and additions to tax) with respect
to certain new tax issues or tax liabilities in excess of those previously
identified if Holdings is permitted by American Express to assume control of the
proceedings.
American Express will control the filing and content of all consolidated
and combined tax returns which include Holdings or its subsidiaries, including
all determinations whether to file amended returns or claims for refund. In
addition, American Express may, in its discretion, in good faith, determine
whether to claim carrybacks or carryovers of losses and credits by Holdings or
its subsidiaries from taxable years during which they have or will file federal
income tax returns separately from American Express ("separate return years") to
taxable years in which they filed returns with American Express, provided,
however, American Express may, in its discretion, without regard to whether it
acts in good faith, determine whether to effect most such carryback or carryover
claims. In addition, American Express may impose certain limits on Holdings or
its subsidiaries taking inconsistent positions.
In the Tax Allocation Agreement, American Express and the Company have
agreed to reattribute to American Express up to $35 million of net operating
losses of Holdings and its subsidiaries to the extent allowable by law, the tax
benefits for which have not been reflected in the consolidated financial
statements of Holdings and its subsidiaries.
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WORLD FINANCIAL CENTER
LBI, LGSI and Lehman Commercial Paper Inc. (collectively, the "LB
Co-tenants") are co-tenants together with American Express and certain of its
other subsidiaries (the "AXP Co-tenants" and, together with the LB Co-tenants,
the "Co-tenants") of the leasehold interest in 3 World Financial Center in New
York City (the "Property").
The Co-tenants issued approximately $649 million aggregate original
principal amount, and American Express issued $175 million original principal
amount (a portion of which was re-loaned to the LB Co-tenants) of long-term debt
to finance the Property, in a series of notes with various financial terms and
maturities through the year 2000 (the "WFC Indebtedness"). The LB Co-Tenants are
liable, on a limited recourse basis, for their proportionate share
(approximately 50%) of the debt issued by the Co-tenants, which debt has been
guaranteed by American Express, and are liable to American Express, on a limited
recourse basis, for their proportionate share of the notes issued by American
Express. Certain of the debt issued by the Co-tenants is secured by a first
and/or second mortgage granted on the interest of the Co-tenants as tenants-
in-common in the Property. In consideration of the American Express guarantee of
the WFC Indebtedness, the Company will pay a guarantee fee, commencing upon the
repayment of the Balcor Notes, of 0.625% of its proportionate share of the
aggregate outstanding WFC Indebtedness per annum. Holdings has agreed to
indemnify American Express for all payments that American Express may be
required to make on behalf of the LB Co-tenants under the guarantees and under
the Agreement of Tenants-In-Common referred to below, and Holdings has
guaranteed payment of their share of the $175 million in long-term debt
originally issued by American Express. After the Distribution Date, American
Express will assign to the Company its tenancy-in-common interest applicable to
five floors of the Property in exchange for promissory notes in an aggregate
principal amount of $44 million.
In 1987, the Co-tenants entered into an Agreement of Tenants-In-Common
which sets forth their respective rights, obligations and interests as
tenants-in-common with respect to the Property. On or before the Distribution
Date, a new Agreement of Tenants-In-Common will be entered into which supersedes
the 1987 agreement. The new agreement provides, among other things, that: (i) a
Co-tenant is obligated to pay its proportionate share of all Property
obligations; (ii) a Co-tenant may not assign or transfer all or any portion of
its interest in the Property without the consent of the managing Co-tenant,
which consent shall not be unreasonably withheld or delayed after satisfaction
of the WFC Indebtedness; (iii) a Co-tenant may enter into a sublease of all or a
portion of its space subject to the terms and conditions set forth in the
agreement; (iv) a Co-tenant shall not have the right to partition its interest
in the Property so long as any initial Co-tenant or an affiliate thereof shall
own an interest in the Property; (v) a Co-tenant can not pledge or mortgage its
interest in the Property without the consent of the managing Co-tenant; (vi)
subject to certain conditions, American Express will act as managing Co-tenant
of the Property and in that capacity will retain certain discretionary rights
with respect to its management and operation; (vii) after satisfaction of the
WFC Indebtedness, a Co-tenant may cause the conversion of the Property to a
condominium form of ownership; and (viii) American Express has a right of first
refusal with respect to any proposed sublease of the LBI Co-tenants' space or
any proposed assignment or transfer of their interest in the Property and the
LBI Co-tenants have similar rights with respect to the AXP Co-tenants; and (ix)
LBI Co-tenants may, for certain periods of time after the Distribution, continue
to use certain shared facilities at the World Financial Center, such as the
fitness centers, the cafeteria, the medical center.
Under the terms of the WFC Indebtedness, certain events affecting one or
more of the Co-tenants of the Property constitute events of default. Such
defaults in turn may cause the acceleration of other indebtedness of a
Co-tenant. In order to afford themselves better individual protection against
the effects of such defaults, and in furtherance of the ongoing separation of
the Company's activities and obligations from those of American Express, the
Co-tenants are presently engaged in discussions concerning the possible
severance of their joint obligations under the WFC Indebtedness and the
Property. Among the possibilities are transfer of legal or beneficial title to
the Property to a different legal structure (including by sale-leaseback) and/or
exchange of debt. None of the Co-tenants, by engaging in such discussions, has
committed or obligated itself to implement any particular change except as
described in the next paragraph below. Certain of these alternatives may
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require consent of the ground lessor or the trustees or holders of the debt and,
if they agree, modification of the ground lease or debt instruments.
The alternative that will be adopted if no other approach is agreed upon by
the parties, or the relevant debt instruments are not amended, is a mutual
buy-sell agreement (the "Buy-Sell Agreement") under which, upon the occurrence
of certain specified events with respect to a Co-tenant (and subject to the
receipt of certain third-party approvals that may be required), American Express
(if such Co-tenant is a Lehman Brothers entity) or the Company (if such
Co-tenant is an American Express entity) could acquire such Co-tenant's interest
in the Property at fair value. In connection with such purchase, (i) the selling
party would borrow from the purchasing party funds necessary to pay the selling
party's prior share of the WFC indebtedness as and when due thereafter, in
consideration of the payment by the purchaser of such amounts to the holders of
the WFC indebtedness, and (ii) the purchasing party would sublease the
applicable portion of Property back to the selling party for a term to expire
upon satisfaction of the WFC Indebtedness upon terms and conditions
substantially similar to those contained in the Agreement of Tenants-In-Common
with such modifications as may be required by the provisions of the WFC
Indebtedness. Upon exercise of such purchase option, depending on the then
current valuation of the Property, the selling party might be required to
recognize a loss, which could be substantial. The Buy-Sell Agreement would
provide that at the end of the term of the sublease, the Property would be
reconveyed to the seller and the Agreement of Tenants-in-Common would be
reinstated.
As to any of the possible alternatives (whether the Buy-Sell Agreement or,
in lieu thereof, any other alternative to which the parties may hereafter
mutually agree), whenever implemented, the transaction costs thereof, such as
transfer, occupancy, income and mortgage recording taxes, could be significant.
As part of their continuing discussion the parties will agree as to how any such
expenses would be shared. The implementation of any of such options could also
have tax, regulatory, accounting or other consequences which may have a material
adverse effect on the business or financial condition of the Company.
INTERCOMPANY AGREEMENTS
As of May 1, 1987, Holdings and American Express entered into an
Intercompany Agreement which governed certain rights and liabilities of the
parties with respect to trademark usage, insurance, the sharing of facilities
and certain other matters. Such agreement terminates in its entirety at the
Distribution Date.
American Express and the Company will enter into a new Intercompany
Agreement (the "1994 Intercompany Agreement") which will govern certain business
arrangements between the parties after the Distribution. The 1994 Intercompany
Agreement, among other things, will provide: that, after the Distribution, each
party will be responsible, with certain exceptions, for losses, liabilities and
claims relating to or arising out of such party's business; how certain joint
litigation will be managed and how any monies payable in respect thereof will be
shared; and whether the Company shall be entitled to receive its proportionate
share of certain refunded insurance premiums.
It is expected that prior to the Distribution Date, Holdings and American
Express will enter into a stock purchase agreement relating to the American
Express Common Stock Purchase and the acquisition by American Express of the
Cumulative Preferred Stock and the Redeemable Preferred Stock. The agreement
will contain customary representations, warranties and covenants and certain
other terms including registration and information rights with respect thereto.
The Company has agreed to pay $5 million of American Express' expenses in
connection with such registration rights. In the case American Express selects
the Company as its underwriter pursuant to its registration rights, the Company
has agreed that its underwriting compensation for such offering would not exceed
such amount.
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CERTAIN TRANSACTIONS AND AGREEMENTS AMONG HOLDINGS,
AMERICAN EXPRESS AND NIPPON LIFE
INVESTMENT AGREEMENT
In connection with the sale in 1987 of 13,000,000 shares of Cumulative
Convertible Voting Preferred Stock, Series A ("Series A Preferred Stock"), to
Nippon Life, Holdings, American Express and Nippon Life entered into an
Investment Agreement which was amended in 1990 (as so amended, the "Investment
Agreement"). Nippon Life, Holdings and American Express have entered into a new
agreement (the "1994 Agreement"), as part of the Concurrent Transactions, which,
in addition to providing for Nippon Life's Equity Investment and the right to
receive a portion of the Participation Rights as described above, requires
Nippon Life in connection therewith to make certain additional payments in
respect of the assignment of such portion of the Participation Rights and
provides for certain modifications to the investment arrangement with Nippon
Life, as described below. The following is a description of the Investment
Agreement, and the proposed changes to be made by the 1994 Agreement.
Board of Directors Representation. Pursuant to the Investment Agreement,
Nippon Life has nominated, and American Express has voted its shares of Voting
Stock for two directors to Holdings' Board of Directors, one of whom serves on
the Finance Committee of the Board of Directors. These rights continue so long
as Nippon Life owns shares of Voting Stock, with a value (as determined in
accordance with the Investment Agreement) equal to not less than two-thirds of
the aggregate purchase price of the Series A Preferred Stock ($508.3 million),
as adjusted (the "Investor's Minimum Investment"). Except to the extent Nippon
Life may participate in the management of Holdings through its nominees, Nippon
Life has agreed that it will not, alone or in concert with any other person,
seek to affect or influence the control of the management or business operations
of Holdings. Voting Stock means all securities issued by Holdings having the
ordinary power to vote in the election of directors of Holdings, other than
securities having such power only upon the occurrence of a default or any other
extraordinary contingency.
Rights Under the Series A Preferred Stock. In the event that in April 1996
Holdings does not have any class or series of Voting Stock registered under the
Securities Exchange Act of 1934 which is broadly held and actively traded
("Public Stock"), then Nippon Life will have the right to require either
American Express or Holdings (at the option of American Express) to purchase all
of the shares of Series A Preferred Stock at the price at which Nippon Life
purchased from Holdings the Series A Preferred Stock ($39.10 per share or $508.3
million in the aggregate) plus accumulated and unpaid dividends (the "Preferred
Sale Price") and shares of Common Stock Holdings received upon any conversion of
the Series A Preferred Stock at a price per share equal to the conversion price
per share (currently $122.97) on the date of conversion for such shares
(adjusted for stock dividends, splits and reverse stock splits) plus declared
and unpaid dividends ("the Common Sale Price") on terms specified in the
Investment Agreement (the "1996 Put Option"). American Express intends to
require Holdings to purchase the Series A Preferred Stock in the event Nippon
Life were to exercise the 1996 Put Option.
The 1996 Put Option will expire prior to April 1996 if the trading price of
the American Express common shares equals or exceeds the exchange price of
$81.46 (as it may be adjusted) for a period of 20 days out of any 30 consecutive
trading days. See "Right to Exchange Series A Preferred Stock for American
Express Common Shares" below. American Express' and Holdings' obligations under
the 1996 Put Option may be satisfied by delivering, in lieu of cash, freely
marketable American Express common shares or debt securities (other than
"zero-coupon" or "deep discount" debt, but including debt of American Express
Credit Corporation, a subsidiary of American Express, if it has a credit rating
at least as high as American Express' rating), or certain investment grade debt
securities or other marketable securities of non-American Express issuers.
Holdings and Nippon Life have agreed that effective upon the completion of
the NL Common Stock Purchase, the Series A Preferred Stock, currently entitled
to one vote per share, would have its votes reduced to a number of votes per
share equal to the quotient obtained by dividing $39.10 by the Conversion Price
then in effect.
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Right to Exchange Series A Preferred Stock for American Express Common
Shares. In addition to Nippon Life's right to convert the Series A Preferred
Stock into Common Stock at a conversion price of $122.97 per share, American
Express has granted to Nippon Life the non-transferable right (the "Exchange
Right") to exchange all or a portion of the Series A Preferred Stock for
American Express common shares. The Exchange Right entitles Nippon Life to sell
shares of Series A Preferred Stock to American Express and receive 0.48 of an
American Express common share for each share of Series A Preferred Stock to be
exchanged (or an aggregate of 6,240,000 American Express common shares at the
initial exchange price of $81.46 per share). The exchange price is subject to
certain anti-dilution adjustments. The Exchange Right terminates on December 31,
1999, provided that American Express or Holdings may require Nippon Life to sell
to American Express or Holdings, as the case may be, the Series A Preferred
Stock in cumulative annual increments of 2,600,000 shares, on any dividend
payment date, if the average market price (as defined in the Investment
Agreement) of American Express common shares exceeds the exchange price per
share, and American Express or Holdings may require such sale to American
Express or Holdings, as the case may be, on any dividend payment date on and
after June 15, 1994, if the average per share market price of publicly traded
Common Stock exceeds the conversion price per share of Series A Preferred Stock,
in each case, on the date notice of required sale is given.
Pursuant to the 1994 Agreement, American Express would not have the right
to require Nippon Life to sell to American Express shares of the Series A
Preferred Stock.
Warrant for Common Stock. In 1990, Nippon Life acquired a Warrant (the
"Warrant") to purchase approximately 3.3 million shares of Common Stock (the
"Warrant Shares"). The Warrant has an exercise price of $47.17 per share and
expires on April 15, 1996. If the Common Stock is publicly traded, Holdings may
accelerate the expiration of the Warrant with respect to 20% of the underlying
Warrant Shares each year if at the time of acceleration the per share trading
price of the underlying Common Stock for 20 out of 30 consecutive trading days
is equal to or greater than 135% of the exercise price of the Warrant. The right
to accelerate the Warrant is cumulative each year. The Warrant is
non-transferable except to affiliates of Nippon Life. The Warrant Shares are
non-transferable except (i) among affiliates of Nippon Life, (ii) subject to
American Express' right of first refusal, after American Express ceases to own
at least 70% of the outstanding Voting Stock of Holdings and (iii) subject to
American Express' right of first refusal, after December 31, 1999.
Notwithstanding the foregoing, Nippon Life is not subject to any restriction
against transfer of Warrant Shares purchased upon exercise of that portion of
the Warrant the expiration of which has been accelerated. The exercise price of
the Warrant and the number of Warrant Shares are subject to certain
anti-dilution adjustments.
Pursuant to the 1994 Agreement, the exercise price of the Warrant would be
reduced to $35.03 per share and American Express' right of first refusal would
terminate.
Nippon Life and its affiliates have certain registration rights with
respect to the Warrant Shares if the Common Stock is publicly traded at the
time.
Other Rights and Restrictions. Until April 2012, Nippon Life has agreed
that it will not directly or indirectly increase its ownership of Voting Stock
above 33 1/3% of the outstanding Voting Stock without the consent of Holdings.
Nippon Life will, to the extent permitted by any securities exchange upon which
the Voting Stock is listed or as otherwise granted to American Express and so
long as it owns the Investor's Minimum Investment, have the right to purchase a
pro rata share (based on its then current percentage equity interest in
Holdings) of any voting equity security or any securities convertible into or
exchangeable for shares of voting equity securities issued by Holdings
(excluding shares of any such security offered pursuant to Holdings' employee
benefit plans, dividend reinvestment plans and other offerings other than for
cash). After April 1994, all shares of Common Stock received upon conversion of
the Series A Preferred Stock and Series A Preferred Stock held by Nippon Life
are freely transferable, except that American Express (so long as American
Express owns directly or indirectly at least 5% of the issued and outstanding
Holdings' Voting Stock) and Holdings will have a right of first refusal with
respect to any sales of shares of Voting Stock by Nippon Life in an amount
greater than 2% of the total outstanding Voting Stock of Holdings during any
six-month period (from January to June and from July to December). All
transferees of shares in an amount
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greater than 2% of the total outstanding Voting Stock of Holdings must agree to
the restrictions to which Nippon Life is subject, and provided the Company then
has Public Stock outstanding, Nippon Life is entitled to require Holdings to
register under the Securities Act its shares of Common Stock acquired upon
conversion of the Series A Preferred Stock and is also entitled, subject to
certain limitations and exceptions, to have such shares registered in the event
Holdings registers common equity securities for sale to the public. Any such
sales by Nippon Life are subject to American Express' and Holdings' right of
first refusal, the right of Holdings to delay the public offering under certain
circumstances and the requirement that Nippon Life use its best efforts to
effect a broad distribution of the shares of Common Stock sold in the public
offering.
Pursuant to the 1994 Agreement, American Express' rights of first refusal
would terminate and Holdings' rights of first refusal would not be applicable to
sales made pursuant to underwritten public offerings involving broad
distributions. In addition, the 1994 Agreement would provide Nippon Life with
certain registration rights with respect to the Series A Preferred Stock and the
Common Stock acquired in the NL Common Stock Purchase if there is Public Stock
outstanding at the time.
BUSINESS TRANSACTIONS
Holdings, American Express and Nippon Life entered into a Business
Association Agreement in 1987. The Company and Nippon Life have conducted
certain personnel exchanges pursuant to such agreement.
On September 24, 1987 and October 3, 1988, Holdings entered into loan
agreements with Nippon Life (the "1987 Loan" and the "1988 Loan," respectively).
Pursuant to these loan agreements Holdings borrowed Y10,000,000,000. These
borrowings were used to meet the Company's general funding requirements.
Interest on any advance outstanding under the 1987 Loan was paid at a rate of
5.3% per annum, and under the 1988 Loan is paid at a rate of 5.5% per annum. The
1987 Loan matured in September 1992. The Company, through certain of its
subsidiaries, has entered into securities lending agreements with Nippon Life
pursuant to which Nippon Life loans securities and in exchange therefor the
Company provides collateral, the types and amounts of which are negotiated on an
arm's-length basis. Nippon Life invested $134.8 million in a merchant banking
partnership in which the Company acts as general partner. Nippon Life remains
committed to invest approximately $4.2 million in this merchant banking
partnership. Nippon Life has received partnership distributions in an aggregate
amount of $62.8 million in respect of this investment. The relationship also
provides the Company with access to numerous Asian institutions for private
placements and underwritings.
Holdings' subsidiaries from time to time engage in certain trading
activities with Nippon Life in return for commissions and fees which are
negotiated on an arm's-length basis.
Each of the Company and Nippon Life owns 50% of the outstanding common
stock of PanAgora Asset Management Inc. ("PanAgora"). Nippon Life and the
Company also are parties to an agreement regarding the cooperation and
management of PanAgora and PanAgora Asset Management Ltd., an asset management
company established by the Company and Nippon Life in London in July 1989.
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PRINCIPAL STOCKHOLDERS
Set forth below are those persons known to Holdings to be beneficial owners
of more than five percent of any class of voting securities of Holdings.
<TABLE>
<CAPTION>
SHARES OWNED
------------------------------------------------------------------
AFTER THE EQUITY
INVESTMENT,
THE OFFERING
AND THE PHANTOM
BEFORE CONCURRENT AFTER THE
SHARE
TRANSACTIONS(A) CONVERSION DISTRIBUTION
-------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
NAME OF NUMBER OF OF NUMBER OF OF NUMBER OF OF
TITLE OF CLASS BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS
- ----------------------------- ---------------------------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock American Express Company(b) 53,494,158 87.8% 98,254,243 86.8% -0- 0.0%
Common Stock Nippon Life Insurance
Company(c)................ 7,439,986(d) 12.2 10,932,844(d) 9.7 12,930,552(d) 11.4
Cumulative Convertible Voting
Preferred Stock, Series A Nippon Life Insurance
Company(c)................ 13,000,000 100.0 13,000,000 100.0 13,000,000 100.0
Cumulative Voting Preferred
Stock American Express
Company(b)................ -- -- 8,000,000 100.0 8,000,000 100.0
Redeemable Voting Preferred
Stock American Express
Company(b)................ -- -- 928 92.8 928 92.8
Redeemable Voting Preferred
Stock Nippon Life Insurance
Company(c)................ -- -- 72 7.2 72 7.2
</TABLE>
- ---------------
(a) Gives effect to the Reverse Stock Split.
(b) The address of American Express Company is American Express Tower, World
Financial Center, New York, New York 10285.
(c) The address of Nippon Life Insurance Company is 2-2, Yurakucho, 1-chome,
Chiyoda-ku, Tokyo, 100, Japan.
(d) Includes 3,306,346 shares of Common Stock issuable upon exercise of the
Warrant and 4,133,640 shares of Common Stock issuable upon conversion of the
Cumulative Convertible Voting Preferred Stock, Series A.
------------------------
American Express is selling in the Offering 441,600 shares of Common Stock
to executive officers of Lehman Brothers for an aggregate purchase price of
approximately $11.3 million, or approximately $25.53 per share. See "The
Offering and the Distribution." Holdings will not receive any proceeds from the
sale of shares of Common Stock by American Express in the Offering.
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DESCRIPTION OF CAPITAL STOCK
Under the Restated Certificate of Incorporation of Holdings which will be
in effect as of the Distribution Date (the "Certificate of Incorporation"),
Holdings is authorized to issue up to 38,000,000 shares of preferred stock, par
value $1.00 per share ("Preferred Stock"), and 300,000,000 shares of Common
Stock. All outstanding shares of Common Stock are, and the shares of Common
Stock to be outstanding upon completion of the Offering and the Distribution
will be, legally issued, fully paid and non-assessable.
COMMON STOCK
Dividends. Subject to any prior dividend rights of the holders of
Preferred Stock, dividends may be paid on the Common Stock as determined by the
Board of Directors out of funds legally available therefor. Holdings' ability to
pay dividends is contingent upon the earnings of its subsidiaries, as well as
their ability to declare and pay dividends to Holdings. Certain subsidiaries may
be limited in their ability to pay dividends by capital and other rules of
regulatory bodies, as well as certain covenants in instruments governing certain
indebtedness.
Voting. Holders of Common Stock are entitled to vote, together with the
holders of Series A Preferred Stock, the Cumulative Preferred Stock and the
Redeemable Preferred Stock as a single class, on all matters to be voted on by
the stockholders of Holdings, including the election of directors. Each share of
Common Stock is entitled to one vote on all matters. Holders of Common Stock do
not have cumulative voting rights.
Liquidation Value. After the satisfaction in full of any liquidation
preferences of holders of Preferred Stock, holders of Common Stock are entitled
to ratable distribution of the remaining assets available for distribution to
stockholders in the event of any liquidation, dissolution or winding up of
Holdings.
Other. The Common Stock is not subject to redemption by operation of a
sinking fund or otherwise. Holders of Common Stock are not entitled to
preemptive rights under the Certificate of Incorporation or under the Restated
By-laws of Holdings which will be in effect as of the Distribution Date (the
"By-laws").
The transfer agent and registrar for the Common Stock is First National
Bank of Boston.
PREFERRED STOCK
General. Preferred Stock may be issued from time to time in one or more
series with such designations, voting powers, dividend rates, rights of
redemption, conversion rights, participating, optional or other special rights,
and qualifications, limitations or restrictions thereon as may be stated in the
resolutions providing for the issue of such series adopted by the Board of
Directors. The rights and preferences of each series of the Preferred Stock, if
issued, will be superior and prior to the rights of the Common Stock to the
extent determined by the resolution of the Board of Directors creating such
series.
Certain terms of the Redeemable Preferred Stock may be deemed to have an
anti-takeover effect. See "Redeemable Voting Preferred Stock" below. In
addition, although Holdings has no intention at the present time of doing so, it
could issue an additional series of Preferred Stock that could, depending on the
terms of such series, either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For instance, such series of Preferred
Stock might impede a business combination by including class voting rights which
would enable the holder to block such a transaction or facilitate a business
combination by including voting rights which would provide a required percentage
vote of the stockholders. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of Holdings, the Board of Directors could act in a
manner that would discourage an acquisition attempt or other transaction that
some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or stock exchange
regulations. Frequently, opportunities arise that require prompt action, and the
Board of Directors believes that the delay occasioned by seeking stockholder
approval of a specific issuance could be to the detriment of Holdings and its
stockholders.
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Series A Preferred Stock. Holdings has issued 13,000,000 shares of Series
A Preferred Stock pursuant to the authority granted to it by the Certificate of
Incorporation.
As of the date hereof, Nippon Life owns all of the issued and outstanding
shares of Series A Preferred Stock.
Holders of shares of Series A Preferred Stock are entitled to receive
preferential dividends, as and when declared by the Board of Directors out of
funds legally available therefor, in an amount equal to 5% per annum of the
price per share paid by Nippon Life ($39.10) upon purchase of the Series A
Preferred Stock (the "Preferred Sale Price") payable quarterly on a cumulative
basis before any dividends are paid to the holders of shares of Common Stock.
Upon the liquidation or winding-up of Holdings (other than by merger or transfer
of assets to a successor), holders of shares of Series A Preferred Stock will be
entitled to receive, out of the assets of Holdings legally available for
distribution to stockholders and before any payment to holders of Common Stock,
an amount per share equal to the Preferred Sale Price plus accumulated and
unpaid dividends.
Except as otherwise agreed to in the Investment Agreement, holders of
Series A Preferred Stock have no preemptive rights or subscription rights, and
are not subject to further calls or assessments by Holdings. See "Certain
Transactions and Agreements Among Holdings, American Express and Nippon Life."
Holdings may not redeem shares of Series A Preferred Stock prior to June
15, 1994. Thereafter, subject to restrictions on redemptions when dividends are
in arrears, Holdings (to the extent funds are legally available therefor) will
have the right to redeem shares of Series A Preferred Stock on not less than 30
nor more than 45 days' notice in cumulative annual increments of 2,600,000
shares, subject to adjustment for shares theretofore converted. Such redemption
will be at a price per share equal to the Preferred Sale Price and is permitted
only if there is a public market for the Common Stock and the average market
price of shares of Common Stock exceeds the conversion price on the date notice
of redemption is given.
Each share of Series A Preferred Stock is convertible, at any time prior to
the date of redemption, into 0.3179723 of a share of Common Stock, provided that
at least 250,000 shares of Series A Preferred Stock (or such lesser number of
such shares then outstanding) must be converted each time. The conversion rate
is subject to adjustment in certain events. Holders of Series A Preferred Stock
are entitled to vote, together with the holders of Common Stock as one class
(except as otherwise required by law), on all matters to be voted on by
stockholders of the Company, including the election of Directors. Each share of
Series A Preferred Stock is entitled to one vote, subject to adjustment at the
Distribution Date, at which time each share will be entitled to 0.3179723 votes,
and thereafter the number of votes per share will be equal to the quotient
obtained by dividing $39.10 by the Conversion Price then in effect. In addition,
the affirmative vote of the holders of at least a majority of the Series A
Preferred Stock is required to (i) amend, alter or repeal the Certificate of
Designation of the Series A Preferred Stock or the Certificate of Incorporation
or authorize any reclassification of the Series A Preferred Stock in a manner
which adversely affects the preferences, special rights or powers of the Series
A Preferred Stock or (ii) authorize any capital stock of Holdings ranking, as to
dividends or upon liquidation, senior to the Series A Preferred Stock.
Nippon Life has the non-transferable right to exchange the Series A
Preferred Stock for American Express common shares. In addition, Holdings will
also have the right to redeem the Series A Preferred Stock if the average market
price of American Express common shares exceeds the exchange price on the date
notice of redemption is given. See "Certain Transactions and Agreements Among
Holdings, American Express and Nippon Life."
Cumulative Voting Preferred Stock. Prior to the Distribution, Holdings
will issue and sell to American Express 8,000,000 shares of the Cumulative
Preferred Stock pursuant to the authority granted to it by the Certificate of
Incorporation. Immediately following the Distribution, American Express will own
all of the issued and outstanding shares of Cumulative Preferred Stock.
Holders of shares of Cumulative Preferred Stock will be entitled to receive
preferential dividends, as and when declared by the Board of Directors out of
funds legally available therefor, at the Annual Dividend Rate, payable quarterly
on a cumulative basis before any dividends are paid to the holders of shares of
Common Stock. "Annual Dividend Rate" means the average of the yields immediately
prior to the Distribution Date of selected publicly traded, split-rated,
cumulative perpetual preferred stocks of certain financial institutions. Upon
the liquidation or winding-up of Holdings (other than by merger or transfer of
assets to a successor),
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holders of shares of the Cumulative Preferred Stock will be entitled to receive,
out of Holdings' assets legally available for distribution to stockholders and
before any payment to holders of Common Stock, an amount per share equal to
$25.00 plus accumulated and unpaid dividends.
Holders of the Cumulative Preferred Stock will not have preemptive rights
or subscription rights, and will not be subject to further calls or assessments
by Holdings. Holders of the Cumulative Preferred Stock will have certain
registration and information rights.
Holdings may not redeem shares of the Cumulative Preferred Stock prior to
June 1, 2001. Thereafter, subject to restrictions on redemptions when dividends
are in arrears, Holdings (to the extent funds are legally available therefor)
will have the right to redeem shares of the Cumulative Preferred Stock on not
less than 30 days' notice at a price per share equal to $25.00 plus accumulated
and unpaid dividends.
Holders of the Cumulative Preferred Stock will be entitled to vote,
together with the holders of Common Stock as one class on all matters to be
voted on by stockholders of Holdings, including the election of Directors.
Notwithstanding the foregoing, American Express has agreed that so long as it or
any of its subsidiaries holds any shares of the Cumulative Preferred Stock, it
will vote such shares in the same proportion as the votes cast by the holders of
shares of Common Stock on matters to be voted on by stockholders of Holdings
generally. Each share of the Cumulative Preferred Stock will be entitled to 0.25
votes. The affirmative vote of the holders of at least two-thirds of the
Cumulative Preferred Stock will be required to (i) amend, alter or repeal the
Certificate of Designation of the Cumulative Preferred Stock or the Certificate
of Incorporation in a manner which adversely affects the preferences, special
rights or powers of the Cumulative Preferred Stock or (ii) issue or increase the
authorized amount of any capital stock of Holdings ranking, as to dividends or
upon liquidation, senior to the Cumulative Preferred Stock. In addition, if the
equivalent of six quarterly dividends (whether or not consecutive) on the
Cumulative Preferred Stock or any parity preferred stock shall be in arrears,
then the authorized number of directors of Holdings shall be increased by two
and the holders of the Cumulative Preferred Stock will have the right (voting as
a class with the holders of any other parity preferred stock of Holdings upon
which like voting rights have been conferred and are exercisable) to elect such
two directors until such time as all accumulated dividends have been paid.
Redeemable Voting Preferred Stock. Prior to the Distribution, Holdings
will issue and sell to American Express 928 shares of Redeemable Preferred Stock
and to Nippon Life 72 shares of Redeemable Preferred Stock pursuant to the
authority granted to it by the Certificate of Incorporation. Immediately
following the Distribution, American Express and Nippon Life together will own
all of the issued and outstanding shares of Redeemable Preferred Stock.
The holders of shares of Redeemable Preferred Stock will be entitled to
receive preferential dividends, as and when declared by the Board of Directors
out of funds legally available therefor, on a cumulative basis before any
dividends are paid to the holders of shares of Common Stock. For each of eight
annual dividend periods following the Distribution, the holders of Redeemable
Preferred Stock will be entitled to receive dividends in an amount equal to, in
the aggregate, 50% of the amount, if any, by which the Company's net income for
the applicable dividend period exceeds $400 million, up to a maximum of $50
million for any such period (the "Dividend Formula"), payable on the 45th day
following the last day of the dividend period. Accumulated and unpaid dividends
on Redeemable Preferred Stock will accrue interest at a rate per annum based on
the yield on one year treasury securities plus 0.50%. Upon the liquidation or
winding-up of Holdings (other than by merger or transfer of assets to a
successor), holders of shares of Redeemable Preferred Stock will be entitled to
receive, out of Holdings' assets legally available for distribution to
stockholders and before any payment to holders of Common Stock, an amount per
share equal to $1.00 plus accumulated and unpaid dividends and accrued interest,
if any, thereon.
Holders of Redeemable Preferred Stock will not have preemptive rights or
subscription rights, and will not be subject to further calls or assessments by
Holdings. Holders of the Redeemable Preferred Stock will have certain
registration and information rights.
Other than as set forth below, Holdings may not redeem shares of Redeemable
Preferred Stock prior to the final dividend payment date for the Redeemable
Preferred Stock. Subject to funds being legally available therefor, Holdings
will be required to redeem all of the Redeemable Preferred Stock on the final
dividend
98
<PAGE> 103
payment date for the Redeemable Preferred Stock, or as soon as practicable
thereafter when funds become legally available, at a price per share equal to
$1.00 plus accumulated and unpaid dividends and accrued interest, if any,
thereon. In addition, if a Designated Event occurs, the holders of the
Redeemable Preferred Stock will have the right to require Holdings to redeem,
out of funds legally available therefor, all of the Redeemable Preferred Stock
for an aggregate redemption price initially equal to $400 million if such
Designated Event takes place prior to the first anniversary of the Distribution
Date, declining by $50 million per year in each of the next seven years
thereafter. These redemption rights may have an anti-takeover effect and may
delay, defer or prevent a tender offer or take-over attempt that a stockholder
might believe to be in his best interest, including those attempts that might
result in a premium over the market price for the shares held by stockholders.
"Designated Event" means an event or series of events as a result of which
(i) any "person" (as such term in used in Sections 13(d) and 14(d) of the
Exchange Act), other than a holder of Redeemable Preferred Stock, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of shares representing more than 30% (or 34% in the case of Nippon Life) of
the combined voting power of the then-outstanding Voting Stock; (ii) Holdings
consolidates with or merges into any other corporation, or conveys, transfers or
leases all or substantially all of its assets to any person, or any other
corporation merges into Holdings, and, in the case of any such transaction, the
outstanding Common Stock is changed or exchanged as a result, unless the
stockholders of Holdings immediately before such transaction own, directly or
indirectly immediately following such transaction, at least 51% of the combined
voting power of the outstanding voting securities of the corporation resulting
from such transaction in substantially the same proportion as their ownership of
the Voting Stock immediately before such transaction; (iii) Holdings or any of
its subsidiaries consummates an acquisition (other than the acquisition,
directly or indirectly through any special purpose entity, of securities or
other inventory in the ordinary course of the Company's business) involving
aggregate consideration to the seller in an amount exceeding 30% of the fair
market value of the outstanding Common Stock immediately prior to such
transaction and either (a) the ratio of consolidated indebtedness to
consolidated stockholders' equity of Holdings as of the last day of the calendar
month immediately preceding the calendar month in which such acquisition occurs
or (b) the ratio of adjusted consolidated tangible assets (total consolidated
assets less goodwill) to consolidated tangible net worth of Holdings as of the
last day of the calendar month immediately preceding the calendar month in which
such acquisition occurs increases, on a pro forma basis as if such acquisition
occurred on such day, by more than 20% as a result of such transaction; or (iv)
on any day (a "Calculation Date") Holdings makes any distribution or
distributions of cash, property or securities (other than regular quarterly
dividends, or in Common Stock, preferred stock which is substantially equivalent
to Common Stock or rights to acquire Common Stock or preferred stock which is
substantially equivalent to Common Stock) to holders of Common Stock, or
Holdings or any of its subsidiaries purchases or otherwise acquires Common
Stock, and the sum of the fair market value of such distribution or purchase on
the Calculation Date, plus the fair market value, when made, of all other such
distributions and purchases which have occurred during the 12-month period
ending on the Calculation Date, exceeds 30% of the aggregate fair market value
of all of the shares of Common Stock outstanding at the close of business on the
last day prior to such 12-month period. Notwithstanding the foregoing, a
Designated Event shall not be deemed to occur solely because any person (the
"Subject Person") becomes the beneficial owner of more than the permitted
amounts of the outstanding Voting Stock as a result of the acquisition of Voting
Stock by Holdings or any subsidiary of Holdings that, by reducing the number of
shares of Voting Stock outstanding, increases the proportional number of shares
beneficially owned by the Subject Person, provided that if a Designated Event
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Stock by Holdings or any subsidiary of Holdings, and after
such share acquisition, the Subject Person becomes the beneficial owner of any
additional Voting Stock that increases the percentage of the then-outstanding
Voting Stock beneficially owned by the Subject Person by more than 2%, then a
Designated Event shall occur. With respect to Designated Events covered by
clause (i) above, in the event of an acquisition of Voting Stock not approved by
a majority of the Board in place at the time any such acquisition takes place,
Holdings will pay the redemption price of the Redeemable Preferred Stock through
proceeds raised by the issuance of Holdings equity securities that are not
mandatorily redeemable.
99
<PAGE> 104
Holders of Redeemable Preferred Stock will be entitled to vote, together
with the holders of Common Stock as one class, on all matters to be voted on by
stockholders of Holdings, including the election of Directors. Notwithstanding
the foregoing, American Express has agreed that so long as it or any of its
subsidiaries holds any shares of the Redeemable Preferred Stock, it will vote
such shares in the same proportion as the votes cast by the holders of shares of
Voting Stock on matters to be voted on by stockholders of Holdings generally.
Each share of Redeemable Preferred Stock will be entitled to 560 votes. The
affirmative vote of at least two-thirds of the Redeemable Preferred Stock will
be required to (i) amend, alter, or repeal the Certificate of Designation of the
Redeemable Preferred Stock or the Certificate of Incorporation so as to affect
adversely the preferences, special rights or powers of the Redeemable Preferred
Stock or (ii) authorize, create or issue, or increase the authorized amount of,
any capital stock of Holdings ranking, as to dividends or upon liquidation,
senior to the Redeemable Preferred Stock. Notwithstanding the foregoing, so long
as Nippon Life holds any shares of Redeemable Preferred Stock, Holdings will not
permit any amendment to the Certificate of Designation of the Redeemable
Preferred Stock that adversely affects the preferences, special rights or powers
thereof without Nippon Life's written consent. In addition, if the equivalent of
six quarterly dividends (whether or not consecutive) to which the holders of the
Redeemable Preferred Stock are entitled in accordance with the Dividend Formula,
or to which the holders of any parity preferred stock are entitled pursuant to
the terms of such parity preferred stock, are in arrears, then the authorized
number of directors of Holdings shall be increased by two and the holders of the
Redeemable Preferred Stock will have the right (voting as a class with the
holders of any other parity preferred stock of Holdings upon which like voting
rights have been conferred and are exercisable) to elect such two directors
until such time as all accumulated dividends have been paid.
SENIOR SUBORDINATED CAPITAL NOTES OF THE COMPANY
Holdings has issued Senior Subordinated Capital Notes maturing February 8,
1995 in the aggregate principal amount of $150 million with an initial interest
rate of LIBOR plus 0.75% which upon maturity will be exchanged for Common Stock,
perpetual preferred stock of Holdings or a combination thereof (the "Equity
Securities"), which choice will be made by Holdings in its sole discretion,
having a market value equal to the principal amount of the Senior Subordinated
Capital Notes, except to the extent Holdings, at its option, elects to pay in
cash the principal amount of the Senior Subordinated Capital Notes, in whole or
in part, from amounts representing proceeds of other issuances of Equity
Securities which Holdings, in its sole discretion, has designated for such use
(the "Designated Proceeds"). Holdings will be unconditionally obligated to sell
Equity Securities in a secondary offering on behalf of the holders of Senior
Subordinated Capital Notes in an amount equal to the principal amount of such
Senior Subordinated Capital Notes less any Designated Proceeds applied by
Holdings to the payment of such Senior Subordinated Capital Notes. If Holdings
does not sell in such secondary offering a sufficient amount of Equity
Securities so that the sale proceeds thereof, when added to any Designated
Proceeds, are sufficient to satisfy the cash election of such holders, then such
holders will receive, at their option, either cash or Equity Securities to the
extent that aggregate cash elections exceed the aggregate amount of the sales
proceeds from such secondary offering and any Designated Proceeds. Prior to the
exchange of Equity Securities for Senior Subordinated Capital Notes, a holder of
a Senior Subordinated Capital Note will have none of the rights or privileges of
a stockholder of Holdings. None of the holders of the Senior Subordinated
Capital Notes is affiliated with Holdings. As of December 31, 1993, Designated
Proceeds were $150 million.
100
<PAGE> 105
CERTAIN CORPORATE GOVERNANCE MATTERS
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Certificate of Incorporation and By-laws
summarized below may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
believe to be in its best interest, including those attempts that might result
in a premium over the market price for the shares of Common Stock.
As of the Distribution Date, the Certificate of Incorporation will provide
(i) for a classified Board of Directors and (ii) that any action required or
permitted to be taken by the stockholders of Holdings may be effected only at an
annual or special meeting of stockholders, and that stockholder action by
written consent in lieu of a meeting is prohibited. As of the Distribution Date,
the By-laws will provide (i) that directors can be removed from office only for
cause and only by the affirmative vote of the holders of a majority of the then
outstanding shares of capital stock entitled to vote generally in an election of
directors, (ii) that vacancies on the Board of Directors may be filled only by
the remaining directors and not by the stockholders unless there are no
directors then in office, (iii) for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors, as well as for other stockholder proposals
to be considered at annual or special meetings of stockholders and (iv) special
meetings of stockholders may be called only by the Chairman of the Board, the
Chief Executive Officer, the President, or the Secretary of Holdings at the
request of the Board of Directors or any committee thereof or the holders of at
least a majority of capital stock entitled to vote thereat. In general, notice
of intent to nominate a director or raise business at such meetings must be
received by Holdings not less than 90 or more than 120 days prior to the
anniversary of the previous year's annual meeting, and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal.
The foregoing summary is qualified in its entirety by the provisions of the
Certificate of Incorporation and By-laws, copies of which have been filed with
the Securities and Exchange Commission as exhibits to the Registration Statement
of which this Prospectus forms a part.
CERTAIN STATUTORY PROVISIONS
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder", which is defined as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value in excess of 10% of the consolidated assets
of the corporation and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder acquired shares; (ii) the interested stockholder
acquired at least 85% of the voting stock of the corporation in the transaction
in which it became an interested stockholder; or (iii) the business combination
is approved by a majority of the board of directors and by the affirmative vote
of two-thirds of the votes entitled to be cast by disinterested stockholders at
an annual or special meeting. Section 203 of the DGCL could prohibit or delay
mergers or other takeover or change of control attempts with respect to Holdings
and, accordingly, may discourage attempts to acquire Holdings.
LIMITATION OF LIABILITY OF DIRECTORS
As of the Distribution Date, the Certificate of Incorporation will provide,
pursuant to authority conferred by Section 102 of the DGCL, that the directors
of Holdings shall not be personally liable to Holdings or its stockholders for
monetary damages for breach of fiduciary duty. The directors of Holdings will
remain liable, however, for (i) any breach of the duty of loyalty to Holdings or
its stockholders, (ii) any act or omission not
101
<PAGE> 106
in good faith or which involves intentional misconduct or a knowing violation of
law, (iii) any violation of Section 174 of the DGCL, which proscribes the
payment of dividends and stock purchases or redemptions under certain
circumstances, and (iv) any transaction from which the director derives an
improper personal benefit. The Certificate of Incorporation also will provide
that any future repeal or amendment of its terms will not adversely affect any
rights or directors existing thereunder with respect to acts or omissions
occurring prior to such repeal or amendment and incorporates any future
amendments to Delaware law which further eliminate or limit the liability of
directors.
INDEMNIFICATION AND INSURANCE
The Certificate of Incorporation authorizes and the By-laws provide that
the Company will indemnify its directors and officers to the fullest extent
permitted by Delaware law from time to time. In addition, the Company is
obligated to, in the case of a director, and may, in the case of an officer,
advance the expenses of defending a civil or criminal action or proceeding
against such director or officer. The Certificate of Incorporation and By-laws
provide that such rights to indemnification are not exclusive of any other
rights which a director or officer may have or thereafter acquire under the
By-laws or any contract or agreement with Holdings.
The Certificate of Incorporation and By-laws also authorize Holdings to
purchase insurance for directors, officers, employees and agents of Holdings or
another person against any expense, liability or loss, whether or not Holdings
would have the power to indemnify such person against such expense, liability or
loss under the DGCL. Holdings maintains such insurance coverage for its officers
and directors, as well as insurance coverage to reimburse Holdings for potential
costs of its corporate indemnification of directors and officers.
LEGAL MATTERS
Certain legal matters will be passed upon for Holdings and American Express
by Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, and for Holdings by Thomas A. Russo, Esq., Chief Legal Officer of
Holdings. Certain attorneys of Skadden, Arps, Slate, Meagher & Flom own or have
investment discretion with respect to an aggregate of approximately 112,000
common shares of American Express. Upon completion of the Distribution, Mr.
Russo will own approximately 18,150 shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company at December 31, 1993
and 1992 and for each of the three years in the period ended December 31, 1993
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
102
<PAGE> 107
INDEX TO HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors..................................................... F-2
Consolidated Balance Sheet at December 31, 1992 and 1993........................... F-3
Consolidated Statement of Operations for the three years ended December 31, 1993... F-4
Consolidated Statement of Stockholders' Equity for the three years ended
December 31, 1993............................................................... F-5
Consolidated Statement of Cash Flows for the three years ended December 31, 1993... F-6
Notes to Consolidated Financial Statements......................................... F-8
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Pro Forma Consolidated Balance Sheet at December 31, 1993.......................... F-31
Pro Forma Consolidated Statement of Operations for the year ended December 31,
1993............................................................................ F-33
Notes to Pro Forma Financial Statements............................................ F-34
</TABLE>
F-1
<PAGE> 108
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Lehman Brothers Holdings Inc.
We have audited the accompanying consolidated balance sheet of Lehman
Brothers Holdings Inc. and Subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lehman Brothers
Holdings Inc. and Subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, in 1992
the Company changed its methods of accounting for postretirement benefits and
income taxes.
Ernst & Young
New York, New York
February 3, 1994, except for Note 2
as to which the date is April 4, 1994
F-2
<PAGE> 109
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 641 $ 1,333
Cash and securities segregated and on deposit for regulatory and other
purposes............................................................... 1,253 1,073
Securities and other financial instruments owned......................... 33,165 35,699
Collateralized short-term agreements:
Securities purchased under agreements to resell........................ 26,366 26,046
Securities borrowed.................................................... 7,705 4,372
Receivables:
Brokers and dealers.................................................... 2,841 5,059
Customers.............................................................. 6,078 2,646
Other.................................................................. 2,028 2,693
Property, equipment and leasehold improvements (net of accumulated
depreciation and amortization of $766 in 1992 and $438 in 1993)........ 1,122 529
Deferred expenses and other assets....................................... 1,972 750
Net assets of discontinued operations.................................... 1,004
Excess of cost over fair value of net assets acquired (net of accumulated
amortization of $272 in 1992 and $107 in 1993)......................... 1,057 274
------- -------
$85,232 $80,474
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and short-term debt..................................... $13,427 $11,205
Securities and other financial instruments sold but not yet purchased.... 11,442 8,313
Securities sold under agreements to repurchase........................... 37,437 39,191
Securities loaned........................................................ 2,777 1,116
Payables:
Brokers and dealers.................................................... 2,071 1,385
Customers.............................................................. 5,183 4,130
Accrued liabilities and other payables................................... 2,854 3,183
Senior notes............................................................. 5,468 7,779
Subordinated indebtedness................................................ 2,212 2,120
------- -------
Total liabilities.............................................. 82,871 78,422
------- -------
Stockholders' equity:
Preferred stock, $1 par value; 38,000,000 shares authorized:
5% Cumulative Convertible Voting, Series A, 13,000,000 shares
authorized, issued and outstanding; $39.10 liquidation preference
per share.......................................................... 508 508
Money Market Cumulative, 3,300 shares authorized; 250 shares issued
and outstanding; $1,000,000 liquidation preference per share....... 250 250
Common Stock, $.10 par value; 300,000,000 shares authorized;
168,235,284 shares issued and outstanding in 1992 and 1993.......... 17 17
Additional paid-in capital............................................. 1,871 1,871
Net unrealized securities losses....................................... (13)
Foreign currency translation adjustment................................ (5) (12)
Accumulated deficit.................................................... (267) (582)
------- -------
Total stockholders' equity..................................... 2,361 2,052
------- -------
$85,232 $80,474
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 110
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Revenues
Market making and principal transactions.................... $ 1,696 $ 1,697 $ 1,967
Investment banking.......................................... 674 892 972
Commissions................................................. 1,649 1,677 1,316
Interest and dividends...................................... 5,239 5,661 5,840
Other....................................................... 572 684 491
------- ------- -------
Total revenues...................................... 9,830 10,611 10,586
Interest expense............................................ 4,925 5,185 5,368
------- ------- -------
Net revenues........................................ 4,905 5,426 5,218
------- ------- -------
Non-interest expenses
Compensation and benefits................................... 2,899 3,310 2,989
Communications.............................................. 353 378 318
Occupancy and equipment..................................... 300 326 254
Professional services....................................... 169 212 203
Advertising and market development.......................... 164 205 161
Depreciation and amortization............................... 197 185 157
Brokerage, commissions and clearance fees................... 106 117 140
Other....................................................... 423 695 282
Loss on sale of Shearson.................................... 535
Reserves for non-core businesses............................ 152
Computervision write-down................................... 245
First Capital Holdings Corp. write-off...................... 144
------- ------- -------
Total non-interest expenses......................... 4,755 5,673 5,191
------- ------- -------
Income (loss) from continuing operations before taxes and
cumulative effect of changes in accounting principles....... 150 (247) 27
Provision for (benefit from) income taxes..................... (47) (54) 318
------- ------- -------
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles.................. 197 (193) (291)
------- ------- -------
Income from discontinued operations, net of taxes:
Income from operations...................................... 10 77 24
Gain on disposal............................................ 165
------- ------- -------
10 77 189
------- ------- -------
Income (loss) before cumulative effect of changes in
accounting principles....................................... 207 (116) (102)
Cumulative effect of changes in accounting principles......... (7)
------- ------- -------
Net income (loss)............................................. 207 (123) (102)
Preferred stock dividends..................................... 48 48 48
------- ------- -------
Net income (loss) applicable to Common Stock.................. $ 159 $ (171) $ (150)
------- ------- -------
------- ------- -------
Income (loss) from continuing operations per share of Common
Stock....................................................... $ (3.20)
-------
-------
Net income (loss) per share of Common Stock................... $ (1.41)
-------
-------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 111
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993
(IN MILLIONS)
<TABLE>
<CAPTION>
MONEY NET FOREIGN
SERIES A MARKET ADDITIONAL UNREALIZED CURRENCY
PREFERRED PREFERRED COMMON PAID-IN SECURITIES TRANSLATION ACCUMULATED
TOTAL STOCK STOCK STOCK CAPITAL LOSSES ADJUSTMENT DEFICIT
------ --------- --------- ------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991.... $2,027 $ 508 $ 250 $ 16 $1,700 $ (174) $(51) $(222)
Net income.................... 207 207
Preferred dividends........... (48) (48)
Net change in unrealized
securities losses........... 119 119
Other......................... 43 (3) 46
------ --------- --------- ------ ---------- ---------- ----- -----------
Balance at December 31,
1991........................ 2,348 508 250 16 1,697 (55) (5) (63)
Net loss...................... (123) (123)
Preferred dividends........... (48) (48)
Common dividends.............. (33) (33)
Net change in unrealized
securities losses........... 42 42
Issuance of Common Stock...... 175 1 174
------ --------- --------- ------ ---------- ---------- ----- -----------
Balance at December 31,
1992........................ 2,361 508 250 17 1,871 (13) (5) (267)
Net loss...................... (102) (102)
Preferred dividends........... (48) (48)
Common dividends.............. (165) (165)
Net change in unrealized
securities losses........... 13 13
Foreign currency translation
adjustment.................. (7) (7)
------ --------- --------- ------ ---------- ---------- ----- -----------
Balance at December 31,
1993........................ $2,052 $ 508 $ 250 $ 17 $1,871 $ $(12) $(582)
------ --------- --------- ------ ---------- ---------- ----- -----------
------ --------- --------- ------ ---------- ---------- ----- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 112
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations before cumulative
effect of changes in accounting principles.................. $ 197 $ (193) $ (291)
Adjustments to reconcile income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 197 185 157
Provisions for losses and other reserves.................... 181 458 106
Loss on sale of Shearson.................................... 535
Non-core business reserves.................................. 152
Deferred tax benefit........................................ (46) (65) (82)
Computervision write-down................................... 245
First Capital Holdings Corp. write-off...................... 144
Other adjustments........................................... 131 103 100
Net change in:
Cash and securities segregated.............................. 273 (44) 180
Receivables from brokers and dealers........................ (1,049) (88) (2,313)
Receivables from customers.................................. (703) (908) (268)
Securities purchased under agreements to resell............. (2,497) (10,680) 320
Securities borrowed......................................... 864 (4,634) 3,251
Loans originated or purchased for resale.................... (126) (26) (62)
Securities and other financial instruments owned............ (3,013) (10,844) (2,228)
Payables to brokers and dealers............................. 676 450 (361)
Payables to customers....................................... 344 (19) 430
Accrued liabilities and other payables...................... 101 (506) 902
Securities sold under agreements to repurchase.............. (368) 13,905 1,754
Securities loaned........................................... 306 (170) (881)
Securities and other financial instruments sold but not yet
purchased................................................ 1,674 6,081 (3,093)
Other receivables and other assets.......................... 200 464 (97)
------- ------- -------
(2,514) (6,286) (1,789)
Net cash flows provided by (used in) operating activities of
discontinued operations..................................... (597) 9 428
------- ------- -------
Net cash used in operating activities....................... (3,111) (6,277) (1,361)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes........................ 1,663 3,407 3,609
Principal payments of senior notes............................ (1,113) (1,567) (1,346)
Proceeds from issuance of subordinated indebtedness........... 214 88 568
Principal payments of subordinated indebtedness............... (339) (14) (602)
Issuance of other indebtedness................................ 3,996 4,992 5,751
Principal payments of other indebtedness...................... (3,853) (5,482) (6,023)
Increase (decrease) in commercial paper and short-term debt,
net......................................................... 1,168 4,048 (1,815)
Issuance of stock............................................. 175
Dividends paid................................................ (48) (81) (213)
Net cash flows used in financing activities of discontinued
operations.................................................. (1,531) (653) (301)
------- ------- -------
Net cash provided by (used in) financing activities......... $ 157 $ 4,913 $ (372)
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 113
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of buildings, furnishings, equipment and leasehold
improvements................................................ $ (75) $ (108) $ (129)
Proceeds from the sale of:
The Boston Company.......................................... 1,300
Shearson.................................................... 1,200
SLHMC....................................................... 70
Other assets................................................ 607
Balcor loans................................................ 500
Other......................................................... 98 (38) 111
Net cash flows provided by (used in) investing activities of
discontinued operations..................................... 2,834 (438) (85)
------- ------- -------
Net cash provided by investing activities................... 3,357 23 2,467
------- ------- -------
Net change in cash and cash equivalents of discontinued
operations.................................................. 706 (1,082) 42
------- ------- -------
Effect of exchange rate changes on cash....................... 4 9
------- ------- -------
Net change in cash and cash equivalents............. (299) (250) 692
------- ------- -------
Cash and cash equivalents at beginning of year................ 1,190 891 641
------- ------- -------
Cash and cash equivalents at end of year............ $ 891 $ 641 $ 1,333
------- ------- -------
------- ------- -------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN MILLIONS)
(INCLUDING THE BOSTON COMPANY)
Interest paid (net of amount capitalized) totaled $5,535 in 1991; $5,561 in
1992 and $5,591 in 1993. Income taxes (received) paid totaled $(47) in 1991; $86
in 1992 and $28 in 1993.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITY
During 1993, the Company completed the sale of The Boston Company, Shearson
and SLHMC. The cash proceeds related to these sales have been separately
reported in the above statement. Excluded from the statement are the individual
balance sheet changes related to the net assets sold as well as the non cash
proceeds received related to these sales. See notes 3, 4 and 5 which discuss
these sale transactions in further detail.
See notes to consolidated financial statements.
F-7
<PAGE> 114
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of Lehman
Brothers Holdings Inc. (formerly Shearson Lehman Brothers Holdings Inc.,
"Holdings"), (Holdings together with its subsidiaries, the "Company" or "Lehman
Brothers" unless the context otherwise requires) whose principal subsidiary is
Lehman Brothers Inc. (formerly Shearson Lehman Brothers Inc., "LBI"), a
registered broker-dealer. American Express Company ("American Express") owns
100% of Holdings' common stock, par value $.10 per share (the "Common Stock"),
which represents approximately 93% of Holdings' voting stock. The remainder of
Holdings' voting stock is owned by Nippon Life Insurance Company ("Nippon
Life"). (See Note 2.) All material intercompany transactions and accounts have
been eliminated.
The Consolidated Statement of Operations includes the results of operations
of Shearson and SLHMC, which were sold on July 31, 1993 and August 31, 1993,
respectively. (See Notes 4 and 5 for definitions and additional information
concerning these sales.)
The balance sheet accounts of the Company's foreign subsidiaries are
translated using the exchange rates at the balance sheet date. Revenues and
expenses are translated at average exchange rates during the year. The resulting
translation adjustments, net of hedging gains or losses, are included in
stockholders' equity. Gains or losses resulting from foreign currency
transactions are included in the Consolidated Statement of Operations.
The Company uses the trade date basis of accounting for recording principal
transactions. Customer accounts reflect transactions on a settlement date basis.
Certain amounts reflect reclassifications to conform to the current
period's presentation.
The number of shares outstanding at December 31, 1993 included in the
consolidated financial statements and notes thereto do not give effect to the
Reverse Stock Split which will be effected immediately prior to the
Distribution. Per share amounts, except earnings per share, also have not been
adjusted for the Reverse Stock Split. (See Note 2 for a discussion of the
Reverse Stock Split and the Distribution.)
Discontinued Operations
As described in Note 3, the Company completed the sale of The Boston
Company, Inc. ("The Boston Company"), on May 21, 1993. The accompanying
consolidated financial statements and notes to consolidated financial statements
reflect The Boston Company as a discontinued operation.
Securities and Other Financial Instruments
Securities and other financial instruments owned and securities and other
financial instruments sold but not yet purchased, including interest rate and
currency swaps, caps, collars, floors, swaptions, forwards, options and similar
instruments are valued at market or fair value, as appropriate, with unrealized
gains and losses reflected in market making and principal transactions in the
Consolidated Statement of Operations. These amounts also include certain
instruments with multiple characteristics whose principal repayment is
contingent upon the performance of certain stocks, stock indexes or change in
foreign exchange rates. Market value is generally based on listed market prices.
If listed market prices are not available, market value is determined based on
other relevant factors, including broker or dealer price quotations, and
valuation pricing models which take into account time value and volatility
factors underlying the financial instruments.
F-8
<PAGE> 115
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to trading and market making activities, the Company enters
into a variety of financial instruments and derivative products as an end user
to hedge and/or modify its exposure to foreign exchange and interest rate risk
of certain assets and liabilities. As an end user, the Company primarily enters
into interest rate swaps and caps to modify the interest characteristics of its
long-term debt obligations. The Company recognizes the net interest
expense/revenue related to these instruments on an accrual basis, including the
amortization of premiums, over the life of the contracts. Other than in
connection with its debt related hedging programs, the Company's other hedging
activities are immaterial.
Repurchase and Resale Agreements
Securities purchased under agreements to resell and Securities sold under
agreements to repurchase, which are treated as financing transactions for
financial reporting purposes, are collateralized primarily by government and
government agency securities and are carried at the amounts at which the
securities will be subsequently resold or repurchased plus accrued interest. It
is the policy of the Company to take possession of securities purchased under
agreements to resell and to value the securities on a daily basis to protect the
Company in the event of default by the counterparty. In addition, provisions are
made to obtain additional collateral if the market value of the underlying
assets is not sufficient to protect the Company. Securities and other financial
instruments owned which are sold under repurchase agreements are carried at
market value with changes in market value reflected in the Consolidated
Statement of Operations.
Securities purchased under agreements to resell and Securities sold under
agreements to repurchase for which the resale/repurchase date corresponds to the
maturity date of the underlying securities are accounted for as purchases and
sales, respectively. At December 31, 1993, such resale and repurchase agreements
aggregated $5.5 billion and $5.2 billion, respectively.
Securities Borrowed and Loaned
Securities borrowed and Securities loaned are carried at the amount of cash
collateral advanced or received plus accrued interest. It is the Company's
policy to value the securities borrowed and loaned on a daily basis, and to
obtain additional cash as necessary to ensure such transactions are adequately
collateralized.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
Prior to January 1, 1992, the Company accounted for income taxes under the
provisions of SFAS No. 96.
Fixed Assets and Intangibles
Property and equipment is depreciated on a straight-line basis over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lesser of their economic useful lives or the terms of the
underlying leases. The Company capitalizes interest costs during construction
and amortizes the interest costs based on the useful lives of the assets.
Excess of cost over fair value of net assets acquired is amortized using
the straight-line method over a period of 35 years.
Statement of Cash Flows
The Company defines cash equivalents as highly liquid investments with
original maturities of three months or less, other than those held for sale in
the ordinary course of business.
F-9
<PAGE> 116
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUBSEQUENT EVENTS:
Equity Investments and Distribution of Common Stock
American Express has announced its intention to distribute, subject to
certain conditions, all of the Common Stock then held by it on a pro rata basis
to the common shareholders of American Express (the "Distribution"). Prior to
the Distribution, the following series of transactions which affect the capital
structure of Holdings will occur.
-- The shares of Common Stock presently outstanding will be subject to a
reverse stock split of approximately .3179723 for 1 (the "Reverse Stock
Split") prior to the offerings of Common Stock and preferred stock
discussed below. The calculation of the reverse split ratio is based on
the number of American Express common shares outstanding as of February
28, 1994; however, the final reverse split ratio will be based on the
number of American Express common shares outstanding as of the record
date for the Distribution.
-- Holdings will sell 35,407,931 shares of Common Stock to American Express
for an aggregate purchase price of approximately $903.8 million (the
"American Express Common Stock Purchase") and 3,492,858 shares of Common
Stock to Nippon Life for an aggregate purchase price of approximately
$89.2 million (the "NL Common Stock Purchase").
-- Holdings will issue up to 3,387,963 shares of Common Stock, having an
aggregate purchase price of approximately $57 million, upon conversion
of all outstanding phantom equity interests issued pursuant to the
Lehman Brothers Holdings Inc. Employee Ownership Plan (the "Phantom
Share Conversion") and American Express will offer 441,600 shares of
Common Stock to executive officers of the Company for an aggregate
purchase price of $11.3 million (the "Offering").
-- American Express will purchase 8,000,000 shares of Cumulative Voting
Preferred Stock of Holdings (the "Cumulative Preferred Stock") for an
aggregate purchase price of $200 million and 928 shares of Redeemable
Voting Preferred Stock of Holdings (the "Redeemable Preferred Stock")
for $1 per share and Nippon Life will purchase 72 shares of Redeemable
Preferred Stock for $1 per share (collectively, the "Preferred Stock
Purchases"). Holders of the Redeemable Preferred Stock will be entitled
to receive, in the aggregate, 50% of the Company's net income in excess
of $400 million per year, with a maximum dividend of $50 million per
year, for each of the next eight years commencing on or about the date
of the Distribution.
-- In exchange for $250 million of Money Market Preferred Stock of Holdings
held by American Express, Holdings will issue to American Express
9,793,754 shares of Common Stock (the "MMP Exchange").
-- Under the Lehman Brothers Holdings Inc. 1994 Management Replacement
Plan, as described below, Holdings will issue approximately 200,000
shares of restricted Common Stock to employees in replacement of
restricted stock awards of American Express.
The American Express Common Stock Purchase, the NL Common Stock Purchase
and the Preferred Stock Purchases are collectively referred to herein as the
"Equity Investment." The Equity Investment, the Offering, the Phantom Share
Conversion, the MMP Exchange and the Distribution are collectively referred to
herein as the "Concurrent Transactions." The Company will incur costs in
connection with the Concurrent Transactions and certain other related expenses
estimated to be approximately $20 million, which will be charged primarily to
operating expenses in the second quarter of 1994. The Company and American
Express are entering into several agreements for the purpose of giving effect to
the Distribution and defining their ongoing relationships.
Following the Concurrent Transactions, American Express and Nippon Life
will be entitled to receive 92.8% and 7.2%, respectively, of certain revenue and
profit participation rights received in connection with the sale of Shearson.
(See Note 4.)
F-10
<PAGE> 117
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per share calculations are based on 105,776,664 pro forma number
of shares of Common Stock outstanding immediately following the Concurrent
Transactions. This includes 53,052,558 shares of Common Stock held by American
Express prior to the American Express Common Stock Purchase and the MMP
Exchange, 35,407,931 and 9,793,754 shares of Common Stock to be acquired by
American Express in the American Express Common Stock Purchase and the MMP
Exchange, respectively, 441,600 shares to be issued in the Offering, 3,387,963
shares to be issued in the Phantom Share Conversion, 3,492,858 shares to be
acquired by Nippon Life in the NL Common Stock Purchase and approximately
200,000 shares of Restricted Common Stock to be issued to employees in
replacement of American Express restricted stock awards. Earnings per share data
is not presented for years other than the most recent year as such presentation
would not be meaningful.
Nippon Life Warrant Amendment
In connection with the Concurrent Transactions, the exercise price of
Nippon Life's warrant to purchase approximately 3,306,346 shares of Common Stock
(10,398,221 shares before adjusting for the Reverse Stock Split) will be reduced
from $47.17 per share ($15 per share before adjusting for the Reverse Stock
Split) to $35.03 per share.
Establishment of Long-Term Incentive Plans
Prior and subject to the Distribution, Holdings adopted the Lehman Brothers
Holdings Inc. 1994 Management Ownership Plan (the "1994 Plan"), the Lehman
Brothers Holdings Inc. 1994 Management Replacement Plan (the "Replacement
Plan"), and the Lehman Brothers Holdings Inc. Employee Stock Purchase Plan (the
"ESPP").
The 1994 Plan provides for the Compensation and Benefits Committee (the
"Compensation Committee") of the Board of Directors to grant stock options,
stock appreciation rights ("SARs"), restricted stock units ("RSUs"), restricted
stock, performance related shares and performance units to eligible employees.
In addition, the 1994 Plan provides for non-employee directors to receive annual
RSUs representing $30,000 of Common Stock, which vests ratably over a three-year
period. Stock options may be awarded as either incentive stock options or
non-qualified stock options. The exercise price for any stock option shall not
be less than the market price of Common Stock on the day of the grant. SARs may
be awarded as a single award or in conjunction with a stock option. Vesting
provisions for stock options and SARs are at the discretion of the Compensation
Committee, but in no case may the term of the award exceed 10 years. The 1994
Plan also allows the Compensation Committee to grant restricted stock,
performance related shares and performance units to eligible employees, with
vesting and performance objective terms at the discretion of the Compensation
Committee. The 1994 Plan expires in ten years. A total of 16,500,000 shares of
Common Stock may be subject to awards under the 1994 Plan and an additional
150,000 shares may be subject to RSUs to be issued to non-employee directors. No
individual may receive options or SARs over the life of the 1994 Plan
attributable to more than 1,650,000 shares.
The Replacement Plan allows the Compensation Committee to grant stock
options and restricted stock awards to eligible employees. The primary purpose
of the Replacement Plan is to replace awards relating to American Express common
shares granted to Company employees which will be cancelled as of the date of
the Distribution. A maximum of 3,200,000 shares of Common Stock will be subject
to awards under the Replacement Plan. The number and terms of awards currently
outstanding to individuals, as well as the current stock prices of American
Express and the Company, will determine the actual number of shares awarded
under the Replacement Plan. Awards made under the Replacement Plan will
generally contain the same vesting conditions that apply to the cancelled
awards.
F-11
<PAGE> 118
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Compensation Committee adopted, effective June 1, 1994, or such later
date as the Compensation Committee shall designate, and subject to the
Distribution, the ESPP, under which 6,000,000 shares of Common Stock were
reserved for issuance. The ESPP will allow employees to purchase Common Stock at
a 15% discount to market value, with a maximum of $15,000 in annual aggregate
purchases by any one individual.
Change of Fiscal Year-End
On March 28, 1994, the Board of Directors of Holdings approved, subject to
the Distribution, a change in the Company's fiscal year-end from December 31 to
November 30. Such a change to a non-calendar cycle will shift certain year-end
administrative activities to a time period that conflicts less with the business
needs of the Company's institutional customers.
Reduction in Personnel
During the first quarter of 1994, the Company completed a review of
personnel needs, which will result in the termination of certain personnel. The
Company anticipates that it will record a severance charge of approximately $30
million pre-tax in the first quarter of 1994 as a result of these terminations.
3. SALE OF THE BOSTON COMPANY:
On May 21, 1993, pursuant to a stock purchase agreement (the "Mellon
Agreement") between Lehman Brothers and Mellon Bank Corporation ("Mellon Bank"),
LBI sold to Mellon Bank (the "Mellon Transaction") The Boston Company, which
through subsidiaries is engaged in the private banking, trust and custody,
institutional investment management and mutual fund administration businesses.
Under the terms of the Mellon Agreement, LBI received approximately $1.3 billion
in cash, 2,500,000 shares of Mellon Bank common stock and ten-year warrants to
purchase an additional 3,000,000 shares of Mellon Bank's common stock at an
exercise price of $50 per share. In June 1993, such shares and warrants were
sold by LBI to American Express for an aggregate purchase price of $169 million.
After accounting for transaction costs and certain adjustments, the Company
recognized a 1993 first quarter after-tax gain of $165 million.
As a result of the Mellon Transaction, the Company has treated The Boston
Company as a discontinued operation. Accordingly, the Company's financial
statements segregate the net assets of The Boston Company as of December 31,
1992, and operating results of The Boston Company for the three years ended
December 31, 1993.
Presented below are the results of operations and the gain on disposal of
The Boston Company included in income from discontinued operations (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1991 1992 1993
------ ---- ----
<S> <C> <C> <C>
Discontinued Operations:
Revenues.................................................. $1,157 $909 $201
Expenses.................................................. 1,145 758 159
------ ---- ----
Income before taxes....................................... 12 151 42
Provision for income taxes................................ 2 74 18
------ ---- ----
Income from operations.................................... 10 77 24
Gain on disposal, net of taxes of $37..................... 165
------ ---- ----
Income from discontinued operations, net of taxes......... $ 10 $ 77 $189
------ ---- ----
------ ---- ----
</TABLE>
F-12
<PAGE> 119
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SALE OF SHEARSON:
On July 31, 1993, pursuant to an asset purchase agreement (the "Primerica
Agreement"), the Company completed the sale (the "Primerica Transaction") of
LBI's domestic retail brokerage business (except for such business conducted
under the Lehman Brothers name) and substantially all of its asset management
business (collectively, "Shearson") to Primerica Corporation ("Primerica") (now
known as Travelers Corporation, "Travelers") and its subsidiary Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Also included in the Primerica
Transaction were the operations and data processing functions that support these
businesses, as well as certain of the assets and liabilities related to these
operations.
LBI received approximately $1.2 billion in cash and a $586 million interest
bearing note from Smith Barney which was repaid in January 1994 (the "Smith
Barney Note"). The Smith Barney Note was issued as partial payment for certain
Shearson assets in excess of $600 million which were sold to Smith Barney. The
proceeds received at July 31, 1993, were based on the estimated net assets of
Shearson, which exceeded the minimum net assets of $600 million prescribed in
the Primerica Agreement. As further consideration for the sale of Shearson,
Smith Barney agreed to pay future contingent amounts based upon the combined
performance of Smith Barney and Shearson, consisting of up to $50 million per
year for three years based on revenues, plus 10% of after-tax profits in excess
of $250 million per year over a five-year period (the "Participation Rights").
In contemplation of the Distribution, American Express received the first
Participation Right payment in the first quarter of 1994. All of the
Participation Rights will be assigned to American Express and Nippon Life prior
to the Distribution. As further consideration for the sale of Shearson, the
Company received 2,500,000 shares of 5.50% Convertible Preferred Stock, Series
B, of Travelers and a warrant to purchase 3,749,466 shares of common stock of
Travelers at an exercise price of $39 per share. In August 1993, American
Express purchased such preferred stock and warrant from the LBI for aggregate
consideration of $150 million.
The Company recognized a 1993 first quarter loss related to the Primerica
Transaction of approximately $630 million after-tax ($535 million pre-tax),
which amount includes a reduction in goodwill of $750 million and
transaction-related costs such as relocation, systems and operations
modifications and severance.
Presented below are the results of operations and the loss on the sale of
Shearson (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Revenues................................................. $2,601 $2,781 $1,825
Expenses................................................. 2,535 2,669 1,708
Loss on sale of Shearson................................. 535
------ ------ ------
Income (loss) before taxes............................... 66 112 (418)
Provision for income taxes............................... 37 57 149
------ ------ ------
Net income (loss)........................................ $ 29 $ 55 $ (567)
------ ------ ------
------ ------ ------
</TABLE>
Shearson operating results reflect allocated interest expense of $112
million, $102 million and $72 million for the years ended December 31, 1991,
1992 and 1993, respectively.
5. SALE OF SHEARSON LEHMAN HUTTON MORTGAGE CORPORATION:
LBI completed the sale of its wholly owned subsidiary, Shearson Lehman
Hutton Mortgage Corporation ("SLHMC") to GE Capital Corp. on August 31, 1993.
The sales price, net of proceeds used to retire debt of SLHMC, was approximately
$70 million. During the first quarter of 1993, the Company provided $120 million
of pre-tax reserves in anticipation of the sale of SLHMC, which are included in
the $152 million of pre-tax reserves for non-core businesses on the Consolidated
Statement of Operations. After accounting for these reserves, the sale did not
have a material effect on the Company's results of operations.
F-13
<PAGE> 120
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SECURITIES AND OTHER FINANCIAL INSTRUMENTS:
Securities and other financial instruments owned and Securities and other
financial instruments sold but not yet purchased are summarized as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
<S> <C> <C>
Securities and other financial instruments owned:
Government obligations................................. $15,600 $15,065
Certificates of deposit and other money market
instruments......................................... 3,348 2,051
Mortgage-backed........................................ 6,515 6,127
Corporate obligations and other contractual
commitments......................................... 6,330 10,103
Corporate stocks and options........................... 1,342 2,343
Spot commodities....................................... 30 10
------- -------
$33,165 $35,699
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
<S> <C> <C>
Securities and other financial instruments sold but not
yet purchased:
Government obligations................................. $ 9,706 $ 5,861
Mortgage-backed securities............................. 322 116
Corporate obligations and other contractual
commitments......................................... 167 1,109
Corporate stocks and options........................... 897 947
Spot commodities....................................... 350 280
------- -------
$11,442 $ 8,313
------- -------
------- -------
</TABLE>
7. CASH AND SECURITIES SEGREGATED AND ON DEPOSIT FOR REGULATORY AND OTHER
PURPOSES:
In addition to amounts presented in the accompanying Consolidated Balance
Sheet as Cash and securities segregated and on deposit for regulatory and other
purposes, securities with a market value of approximately $341 million and $890
million at December 31, 1992 and 1993, respectively, primarily collateralizing
resale agreements, have been segregated in a special reserve bank account for
the exclusive benefit of customers pursuant to the Reserve Formula requirements
of Securities and Exchange Commission Rule 15c3-3.
8. COMMERCIAL PAPER AND SHORT-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
(IN MILLIONS)
<S> <C> <C>
Commercial paper......................................... $ 6,849 $ 2,648
Short-term debt.......................................... 6,578 8,557
------- -------
$13,427 $11,205
------- -------
------- -------
</TABLE>
Short-term debt consists primarily of bank loans, master notes and payables
to banks. At December 31, 1992 and 1993, unused committed lines of credit
totaled approximately $1.7 billion and $1.6 billion, respectively. The proceeds
from these lines, if utilized, would be used primarily to repay commercial paper
F-14
<PAGE> 121
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligations. Commitment fees on the lines supporting the commercial paper
program are 1/8 of 1% on the committed line.
9. SENIOR NOTES:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
USD USD
DECEMBER 31, CONTRACTUAL CONTRACTUAL FOREIGN
MATURING IN 1992 FIXED RATE FLOATING RATE CURRENCY TOTAL
--------------------------- ------------ ----------- ------------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1993....................... $1,146
1994....................... 848 $ 428 $ 1,473 $125 $2,026
1995....................... 518 503 585 6 1,094
1996....................... 742 714 660 98 1,472
1997....................... 518 567 142 19 728
1998....................... 305 803 10 126 939
1999 and thereafter........ 1,391 1,352 150 18 1,520
------------ ----------- ------------- -------- ------
$5,468 $ 4,367 $ 3,020 $392 $7,779
------------ ----------- ------------- -------- ------
------------ ----------- ------------- -------- ------
</TABLE>
As of December 31, 1993 the Company had $4,367 million of U.S. dollar fixed
rate senior notes outstanding. Contractual interest rates on these notes ranged
from 3.69% to 12.20% as of December 31, 1993, with a contractual weighted
average interest rate of 7.79%.
The Company entered into interest rate swap contracts which effectively
converted $253 million of its U.S. dollar fixed rate senior notes to floating
rates based on the London Interbank Offered Rate ("LIBOR"). Excluding this $253
million, but including the effect of $552 million of U.S. dollar floating rate
senior notes effectively converted to fixed rates through the use of interest
rate swap contracts and $401 million of fixed rate basis swaps, the Company's
U.S. dollar fixed rate senior notes outstanding had an effective weighted
average interest rate of 7.84%.
As of December 31, 1993, the Company had $3,020 million of U.S. dollar
floating rate senior notes outstanding, including $192 million of U.S. dollar
floating rate senior notes on which the interest and/or redemption values have
been linked to movements in various indices. Excluding this $192 million,
contractual rates on the Company's U.S. dollar floating rate senior notes ranged
from 3.48% to 5.75%, with a contractual weighted average interest rate of 3.97%.
The Company entered into interest rate swap contracts which effectively
converted $552 million of its U.S. dollar floating rate senior notes to fixed
rates. Excluding this $552 million, but including the effect of $253 million of
U.S. dollar fixed rate senior notes converted to floating rates through the use
of interest rate swap contracts and $811 million of floating rate basis swaps,
the Company's U.S. dollar floating rate senior notes outstanding had an
effective weighted average interest rate of 3.90%.
As of December 31, 1993 the Company had the equivalent of $392 million of
foreign currency denominated senior notes outstanding of which $107 million were
fixed rate and $285 million were floating rate. Contractual interest rates on
the Company's fixed rate foreign currency denominated senior notes ranged from
2.65% to 5.50% as of December 31, 1993, with a contractual weighted average
interest rate of 4.43%. Contractual interest rates on the Company's floating
rate foreign currency denominated senior notes ranged from 2.43% to 10.06% as of
December 31, 1993, with a contractual weighted average interest rate of 3.51%.
The Company entered into cross currency swap contracts which effectively
converted a portion of its fixed and floating rate foreign currency denominated
senior notes into U.S. dollar obligations. The Company's fixed and floating rate
foreign currency senior notes not converted to U.S. dollar obligations, totaling
$283 million, were used to finance foreign currency denominated assets.
F-15
<PAGE> 122
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the Company's U.S. dollar fixed rate senior notes outstanding as of
December 31, 1993, $158 million are repayable prior to maturity at the option of
the holder. These obligations are reflected in the above table as $78 million,
$25 million, and $55 million maturing in 1994, 1996 and 1997, respectively,
rather than at their contractual maturities in 1998, 2003 and 2023,
respectively. The holders of these notes have the option to redeem them at par
value.
The Company's interest in 3 World Financial Center is financed with U.S.
dollar, fixed rate senior notes totaling $384 million as of December 31, 1993.
Of this amount, $301 million is guaranteed by American Express with a portion of
these notes being collateralized by certain mortgage obligations. The remaining
$83 million of debt supporting the Company's interest in 3 World Financial
Center was loaned to the Company by American Express, the recourse of which is
limited to certain fixed assets.
As of December 31, 1993, the Company had $3.2 billion available for
issuance of debt securities under various shelf registrations. In July 1993, the
Company initiated a $1.0 billion Euro medium-term note program which is not
registered under the Securities Act of 1933. As of December 31, 1993, $560
million of issuance availability remained under this program.
At December 31, 1993, the fair value of the Company's senior notes were
approximately $8,037 million ($5,608 million in 1992) which exceeded the
aggregate carrying value of the notes outstanding by approximately $258 million
($140 million in 1992). For purposes of this fair value calculation the carrying
value of variable rate debt that reprices within a year and fixed rate debt
which matures in less than six months approximates fair value. For the remaining
portfolio, fair value was estimated using either quoted market prices or
discounted cash flow analyses based on the Company's current borrowing rates for
similar types of borrowing arrangements. Unrecognized net losses on interest
rate swaps and other transactions used by the Company to manage its interest
rate risk within the senior notes portfolio were $54 million and $13 million at
December 31, 1993 and 1992, respectively. The unrecognized net losses on these
transactions reflect the estimated amounts the Company would pay if the
agreements were terminated as calculated based upon market rates as of December
31, 1993 and 1992, respectively.
10. SUBORDINATED INDEBTEDNESS:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------
DECEMBER 31, CONTRACTUAL CONTRACTUAL
MATURING IN 1992 FIXED RATE FLOATING RATE TOTAL
---------------------------------- ------------- ----------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1993.............................. $ 500
1994.............................. 469 $ 313 $ 194 $ 507
1995.............................. 150 145 199 344
1996.............................. 296 256 150 406
1997.............................. 191 191 191
1998.............................. 200 200
1999 and thereafter............... 606 472 472
------------- ----------- ------ ------
$ 2,212 $ 1,577 $ 543 $2,120
------------- ----------- ------ ------
------------- ----------- ------ ------
</TABLE>
As of December 31, 1993, the Company had $1,577 million of fixed rate
subordinated indebtedness outstanding. Contractual interest rates on this
indebtedness ranged from 5.75% to 12.50% as of December 31, 1993, with an
effective weighted average rate of 9.46%. The Company entered into interest rate
swap contracts which effectively converted $425 million of this debt to floating
rates based on the London Interbank Offered Rate (LIBOR). Exclusive of this $425
million, the Company utilized a series of fixed rate basis swaps totaling $1,949
million to lower the fixed rate of this portfolio to an effective weighted
average interest rate of 7.82% as of December 31, 1993.
F-16
<PAGE> 123
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1993, the Company had $543 million of floating rate
subordinated indebtedness outstanding. Contractual interest rates on this
indebtedness are primarily based on LIBOR and ranged from 2.91% to 4.25% as of
December 31, 1993, with an effective weighted average rate of 3.89%. Including
the effect of the $425 million of fixed rate indebtedness swapped to floating
rates at an effective weighted average rate of 3.58%, the effective weighted
average rate of the Company's floating rate subordinated indebtedness was 3.75%.
Of the Company's fixed rate subordinated indebtedness outstanding as of
December 31, 1993, $160 million is repayable prior to maturity at the option of
the holder. This obligation is reflected in the above table as maturing in 1996,
the year in which the holder has the option to redeem the debt at par value,
rather than its contractual maturity of 2003.
Of the Company's floating rate subordinated indebtedness maturing in 1995,
$150 million is redeemable, in whole or in part, at the option of the Company on
each quarterly interest payment date from proceeds of previously designated
equity securities issuances.
As of December 31, 1993, $1,926 million of the total subordinated
indebtedness outstanding was senior subordinated indebtedness.
As of December 31, 1993 the fair value of the Company's subordinated
indebtedness was approximately $2,265 million ($2,329 million in 1992) which
exceeded the aggregate carrying value of the notes outstanding by approximately
$145 million ($117 million in 1992). Unrecognized net gains on interest rate
swaps and other transactions used by the Company to manage its interest rate
risk on the debt was $49 million and $77 million at December 31, 1993 and 1992,
respectively.
11. CHANGES IN ACCOUNTING PRINCIPLES:
Accounting for Postretirement Benefits
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for the Company's
retiree health and other welfare benefit plans. This accounting pronouncement
requires the current recognition of these benefits as expenses based upon
actuarially determined projections of the benefits provided. The cumulative
effect of adopting SFAS No. 106 reduced 1992 net income by $76 million (net of
taxes of $52 million). Of this amount, $5 million (net of taxes of $3 million)
related to discontinued operations. Prior to the adoption of this accounting
principle, the Company recorded these benefits as they were paid.
Accounting for Income Taxes
The Financial Accounting Standards Board ("FASB") issued SFAS No. 109,
"Accounting for Income Taxes," which superseded SFAS No. 96, the accounting
standard that the Company had followed since 1987. The primary difference
between this accounting standard and SFAS No. 96, lies in the manner in which
income tax expense is determined. SFAS No. 96 provided for significantly more
restrictive criteria prior to the recognition of deferred tax assets. Under the
provisions of SFAS No. 109, deferred tax assets are recognized for temporary
differences that will result in deductible amounts in future years and for tax
loss carryforwards, if, in the opinion of management, it is more likely than not
that the tax benefit will be realized. A valuation allowance is recognized, as a
reduction of the deferred tax asset, for that component of the net deferred tax
asset which does not meet the more likely than not criterion for realization.
The Company adopted SFAS No. 109 as of January 1, 1992 and recorded a $69
million increase in consolidated net income from the Cumulative effect of a
change in accounting principle, $64 million of which related to discontinued
operations. In addition, the Company reduced goodwill by $258 million related to
the recognition of deferred tax benefits attributable to the Company's 1988
acquisition of The E.F. Hutton Group Inc. (now known as LB-1 Group, Inc.,
"Hutton").
F-17
<PAGE> 124
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSION PLANS:
The Company sponsors several noncontributory defined benefit pension plans.
The cost of pension benefits for eligible employees, measured by length of
service, compensation and other factors, is currently being funded through
trusts established under the plans. Funding of retirement costs for the
applicable plans complies with the minimum funding requirements specified by the
Employee Retirement Income Security Act of 1974, as amended, and other statutory
requirements. Plan assets consist principally of equities and bonds.
Total expense related to pension benefits amounted to $31 million, $27
million and $24 million for the years ended December 31, 1991, 1992 and 1993,
respectively, and consisted of the following components (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during the
period.................................... $ 27 $ 33 $ 32
Interest cost on projected benefit
obligation................................ 40 45 40
Actual return on plan assets................ $(76) $(59) $(73)
Net amortization and deferral............... 40 (36) 8 (51) 25 (48)
---- ---- ---- ---- ---- ----
$ 31 $ 27 $ 24
---- ---- ----
---- ---- ----
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit plans (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1992 1993
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $(487) $(370)
----- -----
----- -----
Accumulated benefit obligation............................ $(504) $(377)
----- -----
----- -----
Projected benefit obligation................................ $(577) $(401)
Plan assets at fair value................................... 606 430
----- -----
Plan assets in excess of projected benefit obligation....... 29 29
Unrecognized net (gain) loss................................ (21) 90
Unrecognized net obligation (asset)......................... 7 (2)
----- -----
Pension asset recognized in the consolidated balance
sheet..................................................... $ 15 $ 117
----- -----
----- -----
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation for the Company's plans ranged
primarily from 8.25% to 9.5% and 7.25% to 7.5% in 1992 and 1993, respectively.
The rate of increase in future compensation levels used ranged primarily from 6%
to 8% and 5.5% to 7% in 1992 and 1993, respectively. The expected long-term rate
of return on assets ranged primarily from 9% to 10% in 1992 and 9% to 9.75% in
1993.
During 1993, the Company incurred a settlement and curtailment with respect
to its domestic pension plan in relation to the Primerica Transaction. The net
gain of approximately $26 million (pre-tax) was included in the loss on sale of
Shearson.
13. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS:
The Company sponsors several defined benefit health care plans that provide
health care, life insurance and other postretirement benefits to retired
employees. The health care plans include participant contributions, deductibles,
co-insurance provisions and service-related eligibility requirements. The
Company funds the cost of these benefits as they are incurred.
F-18
<PAGE> 125
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost for the year ending December 31,
1992 and 1993 consisted of the following components (in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1992 1993
---- ----
<S> <C> <C>
Service cost................................................... $ 3 $ 2
Interest cost.................................................. 10 8
---- ----
Net periodic postretirement benefit cost....................... $13 $10
---- ----
---- ----
</TABLE>
The Company previously accounted for the cost of these benefits by
expensing the amount the Company paid. For the year ending December 31, 1991
$2.5 million was paid for such benefits.
During 1993, the Company incurred a curtailment with respect to its
postretirement plan, in relation to the Primerica Transaction. The net gain of
approximately $56 million (pre-tax) was included in the loss on sale of
Shearson.
The following table sets forth the amount recognized in the Consolidated
Balance Sheet for the Company's postretirement benefit plans (other than pension
plans) at December 31, 1992 and 1993 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1992 1993
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $ 43 $48
Fully eligible active plan participants..................... 40 7
Other active plan participants.............................. 32 7
---- ----
115 62
Unrecognized net gain......................................... 10 12
---- ----
Accrued postretirement benefit cost........................... $125 $74
---- ----
---- ----
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5% in 1992 and 7.25% in 1993.
The weighted average annual assumed health care cost trend rate is 13% for
1994 and is assumed to decrease at the rate 1% per year to 7% in 2000 and remain
at that level thereafter. An increase in the assumed health care cost trend rate
by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by approximately $1.4
million.
In November 1992, the FASB issued SFAS No. 112, "Employer's Accounting for
Postemployment Benefits." This statement requires the accrual of obligations
associated with services rendered to date for employee benefits accumulated or
vested for which payment is probable and can be reasonably estimated. The
Company will record a charge to reflect a cumulative effect of a change in
accounting principle of approximately $13 million after-tax in the first quarter
of 1994.
14. INCOME TAXES:
The Company's taxable income is included in the consolidated U.S. federal
income tax return of American Express and in combined state and local tax
returns with other affiliates of American Express. The income tax provision is
computed in accordance with the income tax allocation agreement between the
Company and American Express. Under the agreement, the Company receives income
tax benefits for net operating losses ("NOLs"), future tax deductions and
foreign tax credits that are recognizable on a stand-
F-19
<PAGE> 126
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
alone basis, or a share, derived by formula, of such losses, deductions and
credits that are recognizable on American Express' consolidated income tax
return. Intercompany taxes are remitted to or from American Express when they
are otherwise due to or from the relevant taxing authority. The balances due
from American Express at December 31, 1992 and 1993 were $117 million and $12
million, respectively, and are included in other receivables in the accompanying
Consolidated Balance Sheet.
The provision for (benefit from) income taxes from continuing operations
consists of the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal..................................................... $(21) $(19) $220
State....................................................... 5 22 130
Foreign..................................................... 15 8 50
---- ---- ----
(1) 11 400
Deferred:
Federal..................................................... (46) (67) (59)
State....................................................... 2 (23)
---- ---- ----
$(47) $(54) $318
---- ---- ----
---- ---- ----
</TABLE>
During the third quarter of 1993, the statutory U.S. federal income tax
rate was increased to 35% from 34%, effective January 1, 1993. The Company's
1993 tax provision includes a one-time benefit of approximately $10 million from
the impact of the rate change on the Company's net deferred tax assets as of
January 1, 1993.
Income from continuing operations before taxes included $318 million, $1
million and $26 million that was subject to income taxes of foreign
jurisdictions for 1993, 1992 and 1991, respectively.
The income tax provision for (benefit from) differs from that computed by
using the statutory federal income tax rate for the reasons shown below (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1991 1992 1993
----- ---- ----
<S> <C> <C> <C>
Federal income tax provision (benefit) at statutory rate..... $ 51 $(84) $ 9
State and local taxes........................................ 4 16 69
Tax-exempt interest and dividends............................ (2) (4) (20)
Goodwill reduction related to the sale of Shearson........... 263
Amortization of goodwill..................................... 17 14 9
Decrease in unrecognized deferred tax benefits............... (122)
U.S. federal rate change..................................... (10)
Other........................................................ 5 4 (2)
----- ---- ----
$ (47) $(54) $318
----- ---- ----
----- ---- ----
</TABLE>
Deferred income tax assets and liabilities result from the recognition of
temporary differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the consolidated
financial statements that will result in differences between income for tax
purposes and income for consolidated financial statement purposes in future
years.
F-20
<PAGE> 127
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1992 and 1993, the Company's net deferred tax assets from
continuing operations consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1992 1993
----- -----
<S> <C> <C>
Deferred tax assets................................................. $ 895 $ 746
Less: Valuation allowance........................................... 209 149
----- -----
Deferred tax assets net of valuation allowance...................... 686 597
Deferred tax liabilities............................................ (348) (332)
----- -----
Net deferred tax assets from continuing operations............. $ 338 $ 265
----- -----
----- -----
</TABLE>
At December 31, 1992 and 1993, deferred tax assets consisted primarily of
reserves not yet deducted for tax purposes of $398 million and $517 million,
respectively, and tax return NOLs of $256 million and $38 million, respectively,
and deferred compensation of $149 million and $178 million, respectively. At
December 31, 1992 and 1993, deferred tax liabilities consisted primarily of
unrealized trading and investment gains of $224 million and $183 million,
respectively, and excess tax over financial depreciation of $117 million and $68
million, respectively. During 1993, the Company increased deferred tax assets by
approximately $65 million related to transactions arising from the sale of The
Boston Company.
The net deferred tax asset is included in Deferred expenses and other
assets in the accompanying Consolidated Balance Sheet. At December 31, 1992, the
valuation allowance recorded against deferred tax assets from continuing
operations was $209 million as compared to $149 million at December 31, 1993.
The reduction in the valuation allowance was primarily attributable to 1993
utilization of tax return NOLs for which a valuation allowance was previously
established. Of the $149 million valuation allowance at December 31, 1993,
approximately $100 million will reduce goodwill if future circumstances permit
recognition.
For tax return purposes, the Company has approximately $175 million of NOL
carryforwards, all of which are attributable to the 1988 acquisition of Hutton.
Substantially all of the NOLs are scheduled to expire in the years 1999 through
2007. A portion of the valuation allowance discussed above relates to these
NOLs. This amount includes approximately $35 million of NOLs which will transfer
to American Express in connection with the Distribution discussed in Note 2, the
benefit of which had not been reflected in the financial statements.
15. PREFERRED STOCK:
In 1987, Holdings issued to Nippon Life 13,000,000 shares of Cumulative
Convertible Voting Preferred Stock, Series A ("Series A Preferred Stock"), for a
cash purchase price of $508 million, as adjusted, or $39.10 per share. The
holder of the Series A Preferred Stock is entitled to receive preferred
dividends at an annual rate of 5%, payable quarterly before any dividends are
paid to the holders of Common Stock.
The Company has the right to redeem the shares of Series A Preferred Stock
on any dividend payment date after June 15, 1994, in cumulative annual
increments of 2,600,000 shares, subject to adjustment, and subject to
restrictions on redemptions when dividends are in arrears. Such redemption will
be at a price per share equal to $39.10 and is permitted only if there is a
public market for the Common Stock and the average market price of shares of
Common Stock exceeds the conversion price on the date notice of redemption is
given.
Each share of Series A Preferred Stock is convertible, at any time prior to
the date of redemption, into one share of Common Stock, provided that at least
250,000 shares of Series A Preferred Stock (or such lesser
F-21
<PAGE> 128
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
number of such shares then outstanding) are converted each time. The conversion
rate is subject to adjustment in certain events.
In 1989, the Company issued to American Express Money Market Cumulative
Preferred Stock ("Cumulative Preferred Stock"), with a liquidation preference of
$250 million. The Cumulative Preferred Stock is pari passu with the Series A
Preferred Stock as to dividends and as to distributions upon liquidation. The
Cumulative Preferred Stock dividends are payable quarterly at an annual rate of
9% through the fifth anniversary of their issuance. After such time the dividend
rate will generally be set by auction.
16. COMMON STOCK:
Changes in shares of Common Stock outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Shares outstanding at beginning of year..... 156,568,617 156,568,617 168,235,284
Shares issued to American Express........... 11,666,667
----------- ----------- -----------
Shares outstanding at end of year........... 156,568,617 168,235,284 168,235,284
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company has reserved for issuance 13,000,000 shares of Common Stock for
conversion of the Series A Preferred Stock.
On August 10, 1990, the Company issued to Nippon Life a non-transferable
common stock purchase warrant, pursuant to which Nippon Life may purchase
10,398,221 shares of Common Stock with an initial exercise price of $15 per
share and an expiration date of April 15, 1996.
Effective December 31, 1992, the Company sold 11,666,667 shares of Common
Stock to American Express for $175 million.
17. EMPLOYEE OWNERSHIP PLAN:
During 1993, Lehman Brothers established the Lehman Brothers Inc. Employee
Ownership Plan (the "Employee Ownership Plan") pursuant to which certain key
employees of the Company deferred a percentage of their 1993 salary and bonus
for the purchase of certain Phantom Units of Holdings. Each Phantom Unit is
comprised of a phantom equity interest representing a notional interest in a
share of Common Stock ("Phantom Share") and the right to receive a certain
amount in cash with respect to a Phantom Share ("Cash Right"). The number of
Phantom Units which were available to each participant was determined by the
Finance Committee.
Up to 6,000,000 Phantom Shares were available for "purchase" through
voluntary and mandatory deferrals of 1993 compensation. The price of each
Phantom Unit was $10.00 per Phantom Share and $6.67 for each related Cash Right
and was determined by the Finance Committee in July 1993 using an assumed
capital structure of Holdings for purposes of the program and taking into
account various factors, including market multiples for comparable companies,
the absence of a public market for Holdings, vesting requirements, and the
restrictions on transferability of the Phantom Units. In accordance with the
terms of the Plan, Phantom Units will be converted to the Common Stock
contemporaneously with the effectiveness of the Distribution. (See Note 2.)
The Phantom Units purchased through voluntary deferrals are immediately
vested and non-forfeitable; however, there is a restriction on transferability
of such Phantom Units. There is also a restriction on transferability of the
Common Stock which employees will receive upon conversion of the Phantom Shares.
Generally, such restriction will lapse ratably over a three year period. The
Phantom Units purchased through mandatory deferrals apply to selected senior
executives and vest in accordance with a schedule established by
F-22
<PAGE> 129
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's Finance Committee of its Board of Directors and, together with the
Common Stock into which they convert, are also subject to transfer restrictions.
The Company will recognize compensation expense in 1994 equal to (i) the
increase in book value attributable to the Phantom Shares and (ii) the excess,
if any, of the market value of the Common Stock issued pursuant to the Phantom
Share conversion over the price paid by employees for the Phantom Shares.
18. CAPITAL REQUIREMENTS:
As registered broker-dealers, LBI and certain of its subsidiaries are
subject to the Net Capital Rule (Rule 15c3-1, the "Rule") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The New York
Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
monitor the application of the Rule by LBI and such subsidiaries, as the case
may be. LBI and such subsidiaries compute net capital under the alternative
method of the Rule which requires the maintenance of minimum net capital, as
defined. A broker-dealer may be required to reduce its business if net capital
is less than 4% of aggregate debit balances or 6% of the funds required to be
segregated pursuant to the Commodity Exchange Act (the "Commodity Act") and the
regulations thereunder, if greater. A broker-dealer may also be prohibited from
expanding its business or paying cash dividends if resulting net capital would
be less than 5% of aggregate debit balances or 7% of the funds required to be
segregated pursuant to the Commodity Act and the regulations thereunder, if
greater. In addition, the Rule does not allow withdrawal of subordinated capital
if net capital would be less than 5% of such debit balances or 7% of the funds
required to be segregated pursuant to the Commodity Act and the regulations,
thereunder, if greater.
The Rule also limits the ability of broker-dealers to transfer large
amounts of capital to parent companies and other affiliates. Under the Rule,
equity capital cannot be withdrawn from a broker-dealer without the prior
approval of the Securities and Exchange Commission (the "Commission") when net
capital after the withdrawal would be less than 25% of its securities positions
haircuts (which are deductions from capital of certain specified percentages of
the market value of securities to reflect the possibility of a market decline
prior to disposition). In addition, the Rule requires broker-dealers to notify
the Commission and the appropriate self regulatory organization two business
days before the withdrawal of excess net capital if the withdrawal would exceed
the greater of $500,000 or 30% of the broker-dealer's excess net capital, and
two business days after a withdrawal that exceeds the greater of $500,000 or 20%
of excess net capital.
Finally, the Rule authorizes the Commission to order a freeze on the
transfer of capital if a broker-dealer plans a withdrawal of more than 30% of
its excess net capital and the Commission believes that such a withdrawal would
be detrimental to the financial integrity of the firm or would jeopardize the
broker-dealer's ability to pay its customers. At December 31, 1993, LBI's net
capital aggregated $1,339 million and was $1,293 million in excess of minimum
requirement. Also at December 31, 1993, Lehman Government Securities Inc., a
wholly owned subsidiary of LBI, had net capital which aggregated $184 million
and was $161 million in excess of minimum requirement.
The Company is subject to other domestic and international regulatory
requirements. As of December 31, 1993, the Company believes it is in material
compliance with all such requirements.
F-23
<PAGE> 130
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment and has entered into ground
leases with the City of New York or its agencies. Total rent expense for each of
the years ended December 31, 1991, 1992 and 1993 was $269 million, $283 million
and $201 million, respectively. Minimum future rental commitments under
noncancellable operating leases (net of subleases of $679 million) are as
follows (in millions):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1994............................................... $ 45
1995............................................... 44
1996............................................... 44
1997............................................... 44
1998............................................... 38
1999 and thereafter................................ 425
------
$640
------
------
</TABLE>
Certain leases on office space contain escalation clauses providing for
additional rentals based upon maintenance, utility and tax increases.
On October 13, 1993, the Company executed a 16 year lease at 101 Hudson
Street in Jersey City, New Jersey. The lease, which commences in August 1994,
obligates the Company to make minimum lease payments of approximately $87
million over its term. Amounts shown above include this commitment.
In the normal course of its business, the Company has been named a
defendant in a number of lawsuits and other legal proceedings. After considering
all relevant facts, available insurance coverage and the opinions of outside
counsel, in the opinion of the Company such litigation will not, in the
aggregate, have a material adverse effect on the Company's consolidated
financial position or results of operations.
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company enters into financial
instrument transactions to conduct its trading activities, to satisfy the
financial needs of its clients and to manage its own exposure to credit and
market risks. Many of these financial instruments typically have
off-balance-sheet risk resulting from their nature including the terms of
settlement. These instruments can be broadly categorized as interest rate and
currency swaps, caps, collars, floors, swaptions and similar instruments
(collectively, "Swap Products"), foreign currency products, equity related
products, commitments and guarantees and certain other instruments.
Market risk arises from the possibility that market changes, including
interest and foreign exchange rate movements, may make financial instruments
less valuable. Credit risk results from the possibility that a loss may occur
from the failure of another party to perform according to the terms of a
contract. The Company has extensive control procedures regarding the extent of
the Company's transactions with specific counterparties, the manner in which
transactions are settled and the ongoing assessment of counterparty
creditworthiness.
The notional or contract amounts disclosed below provide a measure of the
Company's involvement in such instruments but are not indicative of potential
loss. Management does not anticipate any material adverse effect to its
financial position or results of operations as a result of its involvement in
these instruments. In many cases, these financial instruments serve to reduce,
rather than increase, market risk.
F-24
<PAGE> 131
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company enters into interest rate contracts as principal in its trading
operations or as an integral part of its interest rate risk management. These
contracts include Swap Products, financial future contracts and forward security
contracts.
The notional or contractual amounts of these instruments are set forth
below (in millions):
<TABLE>
<CAPTION>
NOTIONAL/CONTRACT
AMOUNT
---------------------
1992 1993
-------- --------
<S> <C> <C>
Swap Products.................................................. $109,695 $267,861
Financial futures:
To purchase.................................................. 27,673 95,333
To sell...................................................... 21,974 56,122
Forward contracts:
Securities:
To purchase............................................... 21,457 52,352
To sell................................................... 21,909 46,729
Foreign exchange:
To purchase............................................... 48,980 107,613
To sell................................................... 51,333 114,238
Options written:
Securities................................................... 5,195 95,672
Foreign exchange............................................. 3,495 7,803
-------- --------
$311,711 $843,723
-------- --------
-------- --------
</TABLE>
The majority of the Company's off-balance-sheet transactions are short-term
in duration with a weighted average maturity of approximately 1.64 years as of
December 31, 1992 and 1.80 years as of December 31, 1993. Presented below is a
maturity schedule for the notional/contractual amounts outstanding for Swap
Products and other off-balance-sheet instruments (in millions):
<TABLE>
<S> <C>
1994.............................................................. $592,835
1995.............................................................. 76,033
1996.............................................................. 41,640
1997.............................................................. 15,953
1998.............................................................. 82,330
1999 and thereafter............................................... 34,932
--------
$843,723
--------
--------
</TABLE>
At December 31, 1993, the replacement cost of contracts in a gain position
not recorded on the Company's consolidated balance sheet is as follows (in
millions):
<TABLE>
<S> <C>
Swap Products...................................................... $ 1,978
Forward and other contracts........................................ 1,431
-------
3,409
Less: Amounts recorded on the consolidated balance sheet......... (1,461)
-------
Credit exposure not recorded on the consolidated balance sheet..... $ 1,948
-------
-------
</TABLE>
As of December 31, 1992 and 1993, the Company was contingently liable for
$1.9 billion of letters of credit primarily used to provide collateral for
securities and commodities borrowed and to satisfy margin deposits at option and
commodity exchanges and other financial guarantees.
As of December 31, 1992 and 1993, the Company had pledged or otherwise
transferred securities, primarily fixed income, having a market value of $21.7
billion and $34.1 billion, respectively, as collateral for securities borrowed
or otherwise received having a market value of $21.4 billion and $33.8 billion,
respectively.
F-25
<PAGE> 132
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities sold but not yet purchased represent obligations of the Company
to purchase the securities at prevailing market prices. Therefore, the future
satisfaction of such obligations may be for an amount greater or less than the
amount recorded.
The Company's customer activities may expose it to off-balance sheet credit
risk. The Company may be required to purchase or sell financial instruments at
prevailing market prices in the event of the failure of a customer to settle
trades on their original terms, or in the event cash and securities in customer
accounts are not sufficient to fully cover customer losses. The Company seeks to
control the risks associated with customer activities through the use of systems
and procedures for financial instruments with off-balance-sheet risk.
In the normal course of business, subsidiaries of the Company, as general
partner, are contingently liable for the obligations of certain public and
private limited partnerships organized as pooled investment funds or engaged
primarily in real estate activities. In the opinion of the Company, contingent
liabilities, if any, for the obligations of such partnerships will not in the
aggregate have a material adverse effect on the Company's consolidated financial
position or results of operations.
Concentrations of Credit Risk
As a major international securities firm, the Company is actively involved
in securities underwriting, brokerage, distribution and trading. These and other
related services are provided on a worldwide basis to a large and diversified
group of clients and customers, including multinational corporations,
governments, emerging growth companies, financial institutions and individual
investors.
A substantial portion of the Company's securities and commodities
transactions is collateralized and is executed with and on behalf of commercial
banks and other institutional investors, including other brokers and dealers.
The Company's exposure to credit risk associated with the non-performance of
these customers and counterparties in fulfilling their contractual obligations
pursuant to securities transactions can be directly impacted by volatile or
illiquid trading markets which may impair the ability of customers and
counterparties to satisfy their obligations to the Company.
Securities and other financial instruments owned by the Company include
U.S. government and agency securities and securities issued by non-U.S.
governments (principally Japan, Germany, Great Britain and Canada) which, in the
aggregate, represented 16.6% of the Company's total assets at December 31, 1993.
In addition, substantially all of the collateral held by the Company for resale
agreements or bonds borrowed, which together represented 37.8% of total assets
at December 31, 1993, consisted of securities issued by the U.S. government,
federal agencies or non-U.S. governments. In addition to these specific
exposures, the Company's most significant concentration is financial
institutions, which include other brokers and dealers, commercial banks and
institutional clients. This concentration arises in the normal course of the
Company's brokerage trading, financing and underwriting business.
Financial Accounting Standards Board Interpretation No. 39, "Offsetting of
Amounts related to Certain Contracts" ("FIN No. 39"), was issued in March 1992.
Effective for balance sheets after January 1, 1994, FIN No. 39 restricts the
current industry practice of offsetting certain receivables and payables.
Although the implementation of this standard is expected to substantially
increase gross assets and liabilities, the Company believes that its results of
operations and overall financial condition will not be affected. The Financial
Accounting Standards Board has instructed its staff to explore modifying FIN No.
39 to create certain exceptions, which, if enacted, would substantially mitigate
the increase in gross assets and liabilities expected to initially result from
the implementation of FIN No. 39.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
In 1992, the Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires disclosure of the fair values of most on-
and off-balance-sheet financial instruments for which it
F-26
<PAGE> 133
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is practicable to estimate that value. The scope of SFAS No. 107 excludes
certain financial instruments, such as trade receivables and payables when the
carrying value approximates the fair value, employee benefit obligations and all
non-financial instruments, such as land, buildings and equipment and goodwill.
The fair values of the financial instruments are estimates based upon current
market conditions and perceived risks and require varying degrees of management
judgment.
For the majority of the Company's assets and liabilities which fall under
the scope of SFAS No. 107, book value approximates fair value, with the
exception of senior notes and subordinated indebtedness, which are discussed in
Notes 9 and 10, respectively.
21. RELATED PARTY TRANSACTIONS:
The Company has entered into various related party transactions with
American Express. The Company shares certain facilities, primarily the World
Financial Center, and administrative support with American Express for which the
Company is charged based upon specific identification and allocation methods.
The Company believes that amounts arising through related party
transactions, including those allocated expenses referred to above, are
reasonable and approximate the amount that would have been incurred if the
Company operated as an unaffiliated entity.
On June 28, 1991, LBI sold all the issued and outstanding stock (the
"Stock") of its wholly owned subsidiary, the Balcor Company ("Balcor"), to
National Express Company, Inc. ("NEC"), a wholly owned subsidiary of American
Express. In connection therewith, the Company sold to American Express certain
loans (the "Loans") made by the Company to Balcor and one of Balcor's wholly
owned subsidiaries. Pursuant to the terms of the transaction, NEC and American
Express purchased the Stock and the Loans at book value for $1.445 billion in a
combination of $500 million cash and a $945 million promissory note which
matures on June 28, 1996.
22. INTERNATIONAL OPERATIONS:
Although the Company's business activities are highly integrated and
constitute a single industry segment for the purposes of SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," they can be broadly
categorized into the three major geographic areas in which it conducts
operations: North America, Europe and Asia Pacific.
The Company manages its businesses with the goal of maximizing worldwide
profitability by product line. Activities such as the global distribution of
underwritings and the twenty-four hour risk management of trading positions
render geographic profitability to be highly subjective as it is the result of
numerous estimates and assumptions not normally performed by the Company for
internal management reporting purposes.
The amounts presented below provide a broad indication of each region's
contribution to the consolidated results. The method of allocation is as
follows: Gross and Net Revenues, if syndicate or trading related, have been
distributed based upon the location where the primary or secondary position was
fundamentally risk managed; if fee related, by the location of the senior
coverage banker; if commission related, by the location of the salesman. Income
(Loss) Before Taxes includes expenses both incurred within and allocated to the
region. Identifiable Assets represent essentially those recorded in the legal
entities in which the Company does business within the respective region.
F-27
<PAGE> 134
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS NET INCOME (LOSS) IDENTIFIABLE
REVENUES REVENUES BEFORE TAXES ASSETS
-------- -------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Year ended December 31, 1991
International operations:
Europe............................ $ 545 $ 362 $ 17 $ 3,413
Asia Pacific...................... 174 149 25 1,128
-------- -------- ------------- ------------
Total international.......... 719 511 42 4,541
Domestic operations.................. 9,111 4,394 108 55,201
-------- -------- ------------- ------------
Total........................ $ 9,830 $4,905 $ 150 $ 59,742
-------- -------- ------------- ------------
-------- -------- ------------- ------------
Year ended December 31, 1992
International operations:
Europe............................ $ 536 $ 362 $ (92) $ 8,188
Asia Pacific...................... 178 158 15 1,006
-------- -------- ------------- ------------
Total international.......... 714 520 (77) 9,194
Domestic operations.................. 9,897 4,906 (170) 76,038
-------- -------- ------------- ------------
Total........................ $ 10,611 $5,426 $(247) $ 85,232
-------- -------- ------------- ------------
-------- -------- ------------- ------------
Year ended December 31, 1993
International operations:
Europe............................ $ 988 $ 635 $ 109 $ 17,949
Asia Pacific...................... 267 215 31 1,944
-------- -------- ------------- ------------
Total international.......... 1,255 850 140 19,893
Domestic operations.................. 9,331 4,368 (113) 60,581
-------- -------- ------------- ------------
Total........................ $ 10,586 $5,218 $ 27 $ 80,474
-------- -------- ------------- ------------
-------- -------- ------------- ------------
</TABLE>
23. OTHER CHARGES:
Reserves for Non-Core Businesses
During the first quarter of 1993, the Company provided $152 million pre-tax
($100 million after-tax) of non-core business reserves. Of this amount, $32
million pre-tax ($21 million after-tax) relates to certain non-core partnership
syndication activities in which the Company is no longer actively engaged. The
remaining $120 million pre-tax ($79 million after-tax) relates to reserves
recorded in anticipation of the sale of SLHMC. Such sale was completed during
the third quarter of 1993.
Computervision Write-Down
In June 1992, in connection with the recapitalization of Computervision
Corporation ("Computervision") the Company and DR Holdings Inc. of Delaware
agreed to restructure the Company's $500 million subordinated loan (the "Loan")
to Computervision. On June 5, 1992, Computervision filed a Registration
Statement on Form S-1 with respect to the initial public offering of its common
stock (the "Computervision Stock").
On August 21, 1992, the initial public offering of the Computervision
Stock, for which the LBI was lead underwriter, was completed at a price of $12
per share. The Company received $250 million and 6,200,000 shares of
Computervision Stock as consideration for all notes held by it in connection
with the Loan and, as a result, recognized a second quarter 1992 after-tax
charge to earnings of $84 million ($137 million pre-tax) which reflected a
reduction in the carrying value of the Loan. Following the initial public
offering, LBI purchased and sold Computervision Stock in connection with its
activities as a broker-dealer and underwriter, and on August 28, 1992, sold
approximately 4,300,000 shares of Computervision Stock to Holdings thereby
F-28
<PAGE> 135
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increasing Holding's beneficial ownership of Computervision Stock to 22%. On
September 30, 1992, Holdings recorded a third quarter 1992 after-tax charge to
earnings of $66 million ($108 million pre-tax) which reflected the losses
incurred in connection with the aforementioned trading activities, the number of
shares of Computervision Stock owned by Holdings, the market value ($6.25 per
share) of such Computervision Stock at the close of business on September 30,
1992 and the Company's valuation.
First Capital Holdings Corp. Write-Off
Until December 24, 1992, the Company owned approximately 28% of the
outstanding common stock of First Capital Holdings Corp. ("FCH"), a financial
services holding company which specialized primarily in annuities and other life
insurance products, through two subsidiaries, First Capital Life Insurance
Company ("First Capital Life") and Fidelity Bankers Life Insurance Company
("Fidelity Bankers Life"). In May 1991, First Capital Life and Fidelity Bankers
Life were placed into conservatorship, and an order for bankruptcy relief was
entered with respect to FCH by United States Bankruptcy Court for the Central
District of California. As a result, FCH wrote off the net assets of First
Capital Life and Fidelity Bankers Life, resulting in a significant deficit in
FCH's shareholders' equity. In the second quarter of 1991, the Company recorded
a charge to earnings of approximately $144 million (pre-tax and after-tax)
related to its investment in FCH.
24. QUARTERLY INFORMATION (UNAUDITED):
Quarterly results for the year ended December 31, 1992 were as follows (in
millions):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues................................... $1,415 $ 1,459 $1,263 $ 1,289
Expenses....................................... 1,311 1,470 1,314 1,578
-------- ------- ------------ -----------
Income (loss) from continuing operations before
taxes and cumulative effect of changes in
accounting principles........................ 104 (11) (51) (289)
Provision for (benefit from) income taxes...... 52 5 (9) (102)
-------- ------- ------------ -----------
Income (loss) from continuing operations before
cumulative effect of changes in accounting
principles................................... 52 (16) (42) (187)
Income from discontinued operations, net of
taxes........................................ 19 20 17 21
-------- ------- ------------ -----------
Income (loss) before cumulative effect of
changes in accounting principles............. 71 4 (25) (166)
Cumulative effect of changes in accounting
principles................................... (7)
-------- ------- ------------ -----------
Net income (loss).............................. $ 64 $ 4 $ (25) $ (166)
-------- ------- ------------ -----------
-------- ------- ------------ -----------
</TABLE>
The results for the fourth quarter reflect $59 million after-tax ($90
million pre-tax) of additional legal provisions and a $107 million after-tax
($162 million pre-tax) write-down in the carrying value of certain real estate
investments.
F-29
<PAGE> 136
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Quarterly results for the year ended December 31, 1993 were as follows (in
millions):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues................................... $1,587 $ 1,604 $1,150 $ 877
Expenses....................................... 2,108 1,393 976 714
-------- ------- ------------ -----------
Income (loss) from continuing operations
before taxes................................. (521) 211 174 163
Provision for income taxes..................... 119 90 60 49
-------- ------- ------------ -----------
Income (loss) from continuing operations....... (640) 121 114 114
Income (loss) from discontinued operations, net
of taxes
Income from operations....................... 24
Gain on disposal............................. 165
-------- ------- ------------ -----------
189
-------- ------- ------------ -----------
Net income (loss).............................. $ (451) $ 121 $ 114 $ 114
-------- ------- ------------ -----------
-------- ------- ------------ -----------
</TABLE>
The results for the first quarter reflect a loss on the Primerica
Transaction of $630 million ($535 million pre-tax) and reserves for non-core
businesses of $100 million ($152 million pre-tax).
F-30
<PAGE> 137
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
UNAUDITED
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 1,333 $ $ 1,333
Cash and securities segregated and on deposit for
regulatory and other purposes............................ 1,073 1,073
Securities and other financial instruments owned........... 35,699 35,699
Collateralized short-term agreements:
Securities purchased under agreements to resell.......... 26,046 26,046
Securities borrowed...................................... 4,372 4,372
Receivables:
Brokers and dealers...................................... 5,059 5,059
Customers................................................ 2,646 2,646
Other.................................................... 2,693 2,693
Property, equipment and leasehold improvements (net of
accumulated depreciation and amortization of $438)....... 529 529
Deferred expenses and other assets......................... 750 750
Excess of cost over fair value of net assets acquired (net
of accumulated amortization of $107)..................... 274 274
---------- ----------- ---------
$ 80,474 $ $80,474
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See notes to pro forma financial statements.
F-31
<PAGE> 138
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
UNAUDITED
(IN MILLIONS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Commercial paper and short-term debt....................... $ 11,205 $(1,193)(a) $10,012
Securities and other financial instruments sold but not yet
purchased................................................ 8,313 8,313
Securities sold under agreements to repurchase............. 39,191 39,191
Securities loaned.......................................... 1,116 1,116
Payables:
Brokers and dealers...................................... 1,385 1,385
Customers................................................ 4,130 4,130
Accrued liabilities and other payables..................... 3,183 (57)(b) 3,126
Senior notes............................................... 7,779 7,779
Subordinated indebtedness.................................. 2,120 2,120
---------- ----------- ---------
Total liabilities..................................... 78,422 (1,250) 77,172
---------- ----------- ---------
Stockholders' equity:
Preferred stock, $1 par value; 38,000,000 shares
authorized:
5% Cumulative Convertible Voting, Series A, 13,000,000
shares authorized, issued and outstanding; $39.10
liquidation preference per share.................... 508 508
Money Market Cumulative, 3,300 shares authorized; 250
shares issued and outstanding; $1,000,000
liquidation preference per share.................... 250 (250)(c)
Cumulative Voting, 8,000,000 shares issued and
outstanding pro forma; $25.00 liquidation preference
per share........................................... 200(d) 200
Redeemable Voting, 1,000 shares issued and outstanding
pro forma; $1.00 liquidation preference per share... --(d) --
Common Stock, $.10 par value; 300,000,000 shares
authorized; 168,235,284 shares (53,494,158 as adjusted
for the Reverse Stock Split) issued and outstanding;
105,776,664 shares issued and outstanding pro forma.... 17 (6)(e) 11
Additional paid-in capital............................... 1,871 904(f) 3,177
250(c)
89(g)
57(b)
6(e)
Foreign currency translation adjustment.................. (12) (12)
Accumulated deficit...................................... (582) (582)
---------- ----------- ---------
Total stockholders' equity.......................... 2,052 1,250 3,302
---------- ----------- ---------
$ 80,474 $ $80,474
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See notes to pro forma financial statements.
F-32
<PAGE> 139
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------------------------
ADJUSTMENTS
---------------------------------------
CONCURRENT
HISTORICAL SHEARSON SLHMC TRANSACTIONS PRO FORMA
---------- -------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Market making and principal
transactions.................. $ 1,967 $ (323)(h) $ 1,644
Investment banking............... 972 (170)(h) 802
Commissions...................... 1,316 (828)(h) 488
Interest and dividends........... 5,840 (148)(h) $(13 )(i) 5,679
Other............................ 491 (356)(h) (56 )(i) 79
---------- -------- ----- ----------- ---------
Total revenues........... 10,586 (1,825) (69 ) 8,692
Interest expense................. 5,368 (116)(h),(j) (7 )(i) (42)(l) 5,203
---------- -------- ----- ----------- ---------
Net revenues............. 5,218 (1,709) (62 ) 42 3,489
---------- -------- ----- ----------- ---------
Non-interest expenses
Compensation and benefits........ 2,989 (1,147)(h) (17 )(i) 1,825
Communications................... 318 (126)(h) (4 )(i) 188
Occupancy and equipment.......... 254 (104)(h) (3 )(i) 147
Professional services............ 203 (40)(h) (2 )(i) 161
Advertising and market
development................... 161 (33)(h) (1 )(i) 127
Depreciation and amortization.... 157 (44)(h) 113
Brokerage, commissions and
clearance fees................ 140 32(h) 172
Other............................ 282 (110)(h) (35 )(i) 137
Loss on sale of Shearson......... 535 (535)(h)
Reserves for non-core
businesses.................... 152 (120 )(k) 32
---------- -------- ----- ----------- ---------
Total non-interest
expenses............... 5,191 (2,107) (182 ) 2,902
---------- -------- ----- ----------- ---------
Income (loss) from continuing
operation before taxes........... 27 398 120 42 587
Provision for (benefit from)
income taxes..................... 318 (157)(h),(m) 41 (k) 17(m) 219
---------- -------- ----- ----------- ---------
Income (loss) from continuing
operations....................... (291) 555 79 25 368
---------- -------- ----- ----------- ---------
Preferred stock dividends.......... 48 (6)(n) 42
---------- -------- ----- ----------- ---------
Income (loss) from continuing
operations applicable to Common
Stock............................ $ (339) $ 555 $ 79 $ 31 $ 326
---------- -------- ----- ----------- ---------
---------- -------- ----- ----------- ---------
Income (loss) from continuing
operations per share of Common
Stock(o)......................... $ (3.20) $ 3.08
---------- ---------
---------- ---------
</TABLE>
See notes to pro forma financial statements.
F-33
<PAGE> 140
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
BASIS OF REPORTING
The pro forma financial data has been prepared by the Company based on
certain adjustments to the audited historical consolidated financial statements
of the Company. The pro forma statement of operations reflects adjustments for
the Concurrent Transactions and the sale during 1993 of The Boston Company,
Shearson and SLHMC as if such transactions had occurred as of January 1. These
adjustments include (i) the elimination of revenues and expenses of Shearson and
SLHMC, (ii) the elimination of the loss on the sale of Shearson and the reserves
related to the sale of SLHMC, and (iii) a reduction in net interest expense to
reflect the use of proceeds from the Concurrent Transactions and the sales of
The Boston Company, Shearson and SLHMC to reduce commercial paper and short-term
debt and senior notes. The pro forma balance sheet reflects adjustments for the
Concurrent Transactions as if such transactions had occurred as of December 31,
1993.
The pro forma financial data does not purport to present the financial
position and results of operations of the Company had the Concurrent
Transactions and the sale of The Boston Company, Shearson and SLHMC actually
occurred as of such dates, nor is it necessarily indicative of results of
operations that may be achieved in the future.
The Company will incur costs in connection with the Concurrent Transactions
and certain other related expenses estimated to be $20 million which will be
charged primarily to operating expenses in the second quarter of 1994. In
addition, the Company will recognize compensation expense in 1994 equal to (i)
the increase in book value attributable to the Phantom Shares and (ii) the
excess, if any, of the market value of the Common Stock issued pursuant to the
Phantom Share Conversion over the price paid by employees for the Phantom
Shares.
PRO FORMA BALANCE SHEET ADJUSTMENTS:
As the sales of The Boston Company, Shearson and SLHMC were consummated
prior to December 31, 1993, the effects of these transactions are reflected in
the historical December 31, 1993 balance sheet. Accordingly, no further
adjustments relating to these transactions are necessary.
The pro forma adjustments to the balance sheet give effect to the items
described below:
(a) Reflects the repayment of commercial paper and short-term debt
with gross proceeds from the Equity Investment.
(b) Reflects the Phantom Share Conversion.
(c) Reflects the MMP Exchange.
(d) Reflects the Preferred Stock Purchases.
(e) Reflects the decrease in the aggregate par value of Common Stock
outstanding and corresponding increase in additional
paid-in-capital from the Reverse Stock Split, partially offset by
the increase in the aggregate par value due to the issuance of
Common Stock.
(f) Reflects the American Express Common Stock Purchase.
(g) Reflects the NL Common Stock Purchase.
PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:
The pro forma adjustments to the statement of operations give effect to the
items described below:
(h) The elimination of revenues and expenses of Shearson and the loss
on the sale of Shearson in 1993. Also eliminated is the income
tax expense of $149 million related to these items.
F-34
<PAGE> 141
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(i) The elimination of revenues and expenses of SLHMC.
(j) Elimination of interest expense of approximately $52 million
resulting from the utilization of cash proceeds from the sales
of The Boston Company, Shearson and SLHMC to reduce the
Company's commercial paper, short-term debt and senior notes,
offset by additional interest expense of $72 million allocated
to Shearson and SLHMC for the carrying costs of buildings,
improvements and equipment and certain acquisition-related debt,
which is not directly eliminated by the Primerica Transaction or
the sale of SLHMC other than through the utilization of
available sales proceeds.
(k) The elimination of the reserves related to the sale of SLHMC and
the related income tax benefit of $41 million.
(l) Reduced interest expense of approximately $42 million resulting
from the utilization of the cash proceeds to the Company from
the Equity Investment.
(m) Adjustments (j) and (l) above, tax effected at an assumed rate of
40%.
(n) Elimination of the dividend on the Money Market Cumulative
Preferred Stock partially offset by the addition of the dividend
on the Cumulative Preferred Stock. An 8 1/2% dividend rate has
been assumed on the Cumulative Preferred Stock. However, this
rate will be based on prevailing market rates at the time of
issuance and is therefore subject to adjustment. A 1/4% change
in the dividend rate would increase or decrease the Company's
annual dividend payment by $0.5 million. Holders of the
Redeemable Preferred Stock will be entitled to receive, in the
aggregate, an annual dividend equal to 50% of the Company's net
income in excess of $400 million per year, with a maximum
dividend of $50 million per year, for each of the next eight
years commencing on or about the Distribution Date. On a pro
forma basis, no such dividends would have been payable in 1993.
(o) Income (loss) from continuing operations per share of Common
Stock is calculated based on 105,776,664 pro forma number of
shares of Common Stock outstanding immediately following the
Concurrent Transactions.
F-35
<PAGE> 142
ANNEX A
April 29, 1994
The Board of Directors
American Express Company
American Express Tower
World Financial Center
New York, New York 10285-2150
Ladies and Gentlemen:
American Express Company ("American Express") proposes to distribute (the
"Distribution") to holders of common shares of American Express all outstanding
shares of common stock, par value $0.10 ("Common Stock"), of Lehman Brothers
Holdings Inc. ("Lehman Brothers") held by American Express, which will
represent, after giving effect to certain capital raising transactions,
approximately 93% of all Common Stock outstanding, all as described more fully
in the prospectus of Lehman Brothers, dated April 29, 1994, prepared in
connection with the Distribution (the "Prospectus").
You have asked for our opinion with respect to the fairness, from a
financial point of view, of the Distribution to holders of common shares of
American Express. In connection with this opinion, we have reviewed, among other
things, the Prospectus and the financial and other terms of the Distribution and
related transactions described therein; publicly available financial information
relating to American Express and Lehman Brothers, including pro forma financial
statements; and certain internal financial analyses for American Express and
Lehman Brothers prepared by their respective managements. We have held
discussions with members of the senior managements of American Express and
Lehman Brothers regarding their past and current business operations and
financial condition, and the future prospects and financial and strategic
business objectives of their respective companies. In addition, we have reviewed
the reported price and trading activity for common shares of American Express;
compared certain financial and stock market information for American Express and
Lehman Brothers to similar information for other public companies which we
deemed to be generally similar to American Express and Lehman Brothers; reviewed
the terms of selected recent transactions similar to the Distribution and the
price and trading activity of stocks in such transactions both prior and
subsequent to such transactions; and performed such other studies, analyses,
inquiries and investigations as we considered appropriate.
In conducting our analysis and in arriving at our opinion as expressed
herein, we have not conducted a physical inspection of any of the properties or
assets of American Express or Lehman Brothers, nor have we made or obtained any
independent evaluation or appraisals of any properties, assets or liabilities of
American Express or Lehman Brothers. We have assumed and relied upon the
accuracy and completeness of all the financial and other information provided to
us or publicly available, and have not attempted independently to verify any of
such information. With respect to the financial analyses discussed with or
furnished to us, we have assumed without independent verification that they
reflect the best currently available estimates and judgments of the managements
of American Express and Lehman Brothers as to the business operations, financial
results and condition and prospects of their respective companies. Our opinion
is necessarily based on economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof.
This opinion does not represent our opinion as to the value of the Common
Stock or common shares of American Express following the consummation of the
Distribution, and does not constitute a recommendation to any current or
prospective shareholder of either American Express or Lehman Brothers as to any
action or investment decision such person or party may take. You have not asked
us nor authorized us to solicit or investigate, and accordingly in rendering our
opinion we have not considered, the possible sale of Lehman Brothers.
A-1
<PAGE> 143
We have acted as financial advisor to American Express in connection with
the Distribution and will be paid a fee for our services as financial advisor
which is in substantial part contingent upon the consummation of the
Distribution. Our firm provides additional financial advisory services for
American Express and receives fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of American Express only, and may not be used for any other purpose or
disclosed or otherwise referred to without our prior written consent.
Based upon and subject to the foregoing, it is our view, as investment
bankers, that the Distribution is fair, from a financial point of view, to
holders of common shares of American Express.
Very truly yours,
A-2
<PAGE> 144
ANNEX B
April 29, 1994
The Board of Directors
American Express Company
American Express Tower
World Financial Center
New York, New York 10285-2150
Ladies and Gentlemen:
American Express Company ("American Express") proposes to distribute (the
"Distribution") to holders of common shares of American Express all outstanding
shares of common stock, par value $0.10 ("Common Stock"), of Lehman Brothers
Holdings Inc. ("Lehman Brothers") held by American Express, which will
represent, after giving effect to certain capital raising transactions,
approximately 93% of all Common Stock outstanding, all as described more fully
in the prospectus of Lehman Brothers, dated April 29, 1994, prepared in
connection with the Distribution (the "Prospectus").
You have asked for our opinion with respect to the fairness, from a
financial point of view, of the Distribution to holders of common shares of
American Express. In connection with this opinion, we have reviewed, among other
things, the Prospectus and the financial and other terms of the Distribution and
related transactions described therein; publicly available financial information
relating to American Express and Lehman Brothers, including pro forma financial
statements; and certain internal financial analyses, for American Express and
Lehman Brothers prepared by their respective managements. We have held
discussions with members of the senior managements of American Express and
Lehman Brothers regarding their past and current business operations and
financial condition, and the future prospects and financial and strategic
business objectives of their respective companies. In addition, we have reviewed
the reported price and trading activity for common shares of American Express;
compared certain financial and stock market information for American Express and
Lehman Brothers to similar information for other public companies which we
deemed to be generally similar to American Express and Lehman Brothers; reviewed
the terms of selected recent transactions similar to the Distribution and the
price and trading activity of stocks in such transactions both prior and
subsequent to such transactions; and performed such other studies, analyses,
inquiries and investigations as we considered appropriate.
In conducting our analysis and in arriving at our opinion as expressed
herein, we have not conducted a physical inspection of any of the properties or
assets of American Express or Lehman Brothers, nor have we made or obtained any
independent evaluation or appraisals of any properties, assets or liabilities of
American Express or Lehman Brothers. We have assumed and relied upon the
accuracy and completeness of all the financial and other information provided to
us or publicly available, and have not attempted independently to verify any of
such information. With respect to the financial analyses discussed with or
furnished to us, we have assumed without independent verification that they
reflect the best currently available estimates and judgments of the managements
of American Express and Lehman Brothers as to the business operations, financial
results and condition and prospects of their respective companies. Our opinion
is necessarily based on economic, market and other conditions as in effect on,
and the information made available to us as of, the date hereof.
This opinion does not represent our opinion as to the value of the Common
Stock or common shares of American Express following the consummation of the
Distribution, and does not constitute a recommendation to any current or
prospective shareholder of either American Express or Lehman Brothers as to any
action or investment decision such person or party may take. You have not asked
us nor authorized us to solicit or investigate, and accordingly in rendering our
opinion we have not considered, the possible sale of Lehman Brothers.
B-1
<PAGE> 145
We have acted as financial advisor to American Express in connection with
the Distribution and will be paid a fee for our services as financial advisor
which is in substantial part contingent upon the consummation of the
Distribution. Our firm provides additional financial advisory services for
American Express and receives fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of American Express only, and may not be used for any other purpose or
disclosed or otherwise referred to without our prior written consent.
Based upon and subject to the foregoing, it is our view, as investment
bankers, that the Distribution is fair, from a financial point of view, to
holders of common shares of American Express.
Very truly yours,
B-2
<PAGE> 146
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY COMMON
STOCK CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 11
The Offering and the Distribution..... 12
Recent Developments................... 17
Risk Factors.......................... 19
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Condensed Pro Forma Consolidated
Financial Statements................ 24
Selected Historical Consolidated
Financial Data...................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 43
Management............................ 62
Certain Transactions and Agreements
Between the Company and
American Express.................... 86
Certain Transactions and Agreements
Among Holdings, American Express and
Nippon Life......................... 92
Principal Stockholders................ 95
Description of Capital Stock.......... 96
Certain Corporate Governance
Matters............................. 101
Legal Matters......................... 102
Experts............................... 102
Index to Historical and Pro Forma
Consolidated Financial Statements... F-1
Opinions of Financial Advisors........ A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
441,600 SHARES
LEHMAN BROTHERS
HOLDINGS INC.
COMMON STOCK
---------------------------
PROSPECTUS
APRIL 29, 1994
---------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE> 147
ALTERNATE PAGE FOR DISTRIBUTION PROSPECTUS
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY COMMON
STOCK CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 11
The Offering and the Distribution..... 12
Recent Developments................... 17
Risk Factors.......................... 19
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Condensed Pro Forma Consolidated
Financial Statements................ 24
Selected Historical Consolidated
Financial Data...................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 43
Management............................ 62
Certain Transactions and Agreements
Between the Company and
American Express.................... 86
Certain Transactions and Agreements
Among Holdings, American Express and
Nippon Life......................... 92
Principal Stockholders................ 95
Description of Capital Stock.......... 96
Certain Corporate Governance
Matters............................. 101
Legal Matters......................... 102
Experts............................... 102
Index to Historical and Pro Forma
Consolidated Financial Statements... F-1
Opinions of Financial Advisors........ A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
98,254,243 SHARES
LEHMAN BROTHERS
HOLDINGS INC.
COMMON STOCK
---------------------------
PROSPECTUS
APRIL 29, 1994
---------------------------
------------------------------------------------------
------------------------------------------------------
<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses to be incurred and paid by the
Registrant in connection with the offering described in this Registration
Statement.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SEC registration fee........................................... $ 316
NASD and New York Stock Exchange Listing Fees.................. 200*
Legal fees and expenses........................................ 4,000*
Accounting fees and expenses................................... 300*
Fees and expenses of Transfer Agent and Distribution Agent..... 300*
Blue Sky qualification fees and expenses....................... 25*
Printing and engraving fees.................................... 1,625*
Miscellaneous.................................................. 475*
-------
Total................................................ $7,241*
-------
-------
</TABLE>
- ---------------
* Estimated and subject to future contingencies.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation of the Registrant requires the
Registrant to indemnify its directors and officers to the fullest extent
permitted by Delaware General Corporation Law. In addition, the directors of the
Registrant are insured under officers' and directors' liability insurance
policies purchased by the Company. The directors, officers and employees of the
Registrant are also insured against fiduciary liabilities under the Employee
Retirement Income Security Act of 1974.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The Exhibit Index beginning on page E-1 is hereby incorporated by
reference.
(b) Financial Statement Schedules
The following financial statement schedules not included in the Prospectus
appear on the following pages of this Registration Statement:
<TABLE>
<CAPTION>
SCHEDULE PAGE
---------------------------------------------------------------------- ----
<S> <C>
Schedule II -- Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other Than Related Parties.... S-1
Schedule III -- Condensed Financial Information of Registrant......... S-5
Schedule IX -- Short-Term Borrowings.................................. S-10
</TABLE>
II-1
<PAGE> 149
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 28th day of April, 1994.
LEHMAN BROTHERS HOLDINGS INC.
By /s/ KAREN M. MULLER
------------------------------------
Name: Karen M. Muller
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ * Chairman of the Board, April 28, 1994
- ---------------------------------------- Chief Executive Officer
Richard S. Fuld, Jr. and Director
(principal executive officer)
</TABLE>
<TABLE>
<S> <C> <C>
/s/ * Chief Financial Officer April 28, 1994
- ---------------------------------------- (principal financial officer)
Robert Matza
/s/ * (principal accounting officer) April 28, 1994
- ----------------------------------------
Stephen J. Bier
/s/ * Director April 28, 1994
- ----------------------------------------
Roger S. Berlind
/s/ * Director April 28, 1994
- ----------------------------------------
David M. Culver
/s/ * Director April 28, 1994
- ----------------------------------------
Katsumi Funaki
/s/ * Director April 28, 1994
- ----------------------------------------
Richard M. Furlaud
/s/ * Director April 28, 1994
- ----------------------------------------
Harvey Golub
</TABLE>
II-3
<PAGE> 151
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ * Director April 28, 1994
- ----------------------------------------
Sherman R. Lewis, Jr.
Director
- ----------------------------------------
Dina Merrill
/s/ * Director April 28, 1994
- ----------------------------------------
Roger S. Penske
/s/ * Director April 28, 1994
- ----------------------------------------
T. Christopher Pettit
/s/ * Director April 28, 1994
- ----------------------------------------
Masataka Shimasaki
/s/ * Director April 28, 1994
- ----------------------------------------
Malcolm Wilson
</TABLE>
*By /s/ KAREN MULLER
-----------------------------
Karen Muller
Attorney-in-Fact
II-4
<PAGE> 152
SCHEDULE II
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------------------
BALANCE AT
BEGINNING OF AMOUNT BALANCE AT
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED END OF PERIOD
- --------------------------------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Joel Butler............................ $ 1,087,556 $ 13,625 $ 1,073,931(a)
Michael J. Collins..................... 450,675 450,675(a)
Richard S. Collins..................... 220,600 220,600(b)
Joseph M. Grunfeld..................... 353,625 353,625(a)
Barry Hamerling........................ 400,805 400,805(b)
Ruggero Magnoni........................ 162,750 162,750(a)
Joel Margolies......................... 440,625 440,625(a)
William Taft........................... 782,863 782,863(a)
John Tuosto............................ 51,750 51,750(a)
Edward Bruksch......................... 120,000 30,000 90,000(c)
Fred Farina............................ 100,000 $ 160,000 260,000(d)
Peter Hunt............................. 100,000 100,000(e)
Todd C. Jorn........................... 105,000 105,000(f)
Adam Shafiroff......................... 72,582 22,582 50,000(g)
David Sitzer........................... 60,000 60,000
Kim Sullivan........................... 125,000 125,000
John Tuosto............................ 150,000 93,500 56,500(h)
Helen Van Eeden........................ 73,474 15,341 58,133(d)
Miriam Willard......................... 100,000 100,000(e)
Jacob Worenklein....................... 600,000 600,000(i)
Others................................. 38,697,408 74,160 31,217,866 7,553,702(j)
------------ ---------- ----------- -------------
$ 43,349,713 $1,139,160 $31,577,914 $ 12,910,959
------------ ---------- ----------- -------------
------------ ---------- ----------- -------------
</TABLE>
See notes to Schedule II on page S-4
S-1
<PAGE> 153
SCHEDULE II
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES -- (CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
------------------------------------------------------------
BALANCE AT
BEGINNING OF AMOUNT BALANCE AT
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED END OF PERIOD
- ---------------------------------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Joel Butler............................. $ 1,037,125 $ 119,293 $ 68,862 $ 1,087,556
Michael J. Collins...................... 450,675 450,675
Richard S. Collins...................... 220,600 220,600
Joseph M. Grunfeld...................... 353,625 353,625
Barry Hamerling......................... 400,805 400,805
Ruggero Magnoni......................... 162,750 162,750
Joel Margolies.......................... 440,625 440,625
James J. Stewart........................ 112,944 112,944
William Taft............................ 782,863 782,863
John Tuosto............................. 51,750 51,750
Edward Bruksch.......................... 150,000 30,000 120,000
James Carbone........................... 200,000 200,000
Brian Edmonds........................... 103,000 150,000 253,000
Fred Farina............................. 100,000 100,000
Joseph Gregory.......................... 225,000 225,000
La Brena Martin......................... 270,000 270,000
Gordon Paris............................ 250,000 250,000
Martin Randall.......................... 44,444 44,444
Craig Schiffer.......................... 150,000 150,000
Adam Shafiroff.......................... 145,000 72,418 72,582
David Sitzer............................ 180,000 120,000 60,000
Mark Stevenson.......................... 200,000 200,000
Kim Sullivan............................ 125,000 125,000
John Tuosto............................. 150,000 150,000
Helen Van Eeden......................... 115,000 16,267 57,793 73,474
Samuel Wasserman........................ 225,000 225,000
Richard Zielong......................... 90,000 90,000
Others.................................. 41,485,017 2,929,928 5,717,537 38,697,408
------------ ---------- ---------- -------------
$ 47,496,223 $3,940,488 $8,086,998 $ 43,349,713
------------ ---------- ---------- -------------
------------ ---------- ---------- -------------
</TABLE>
S-2
<PAGE> 154
SCHEDULE II
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES -- (CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1991
------------------------------------------------------------
BALANCE AT
BEGINNING OF AMOUNT BALANCE AT
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED END OF PERIOD
- ---------------------------------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Joel Butler............................. $ 1,037,125 $ 1,037,125
Michael J. Collins...................... 450,675 450,675
Richard S. Collins...................... 220,600 220,600
Joseph M. Grunfeld...................... 353,625 353,625
Barry Hamerling......................... 400,805 400,805
Theodore Krebsbach...................... 44,584 $ 44,584
Ruggero Magnoni......................... 162,750 162,750
Joel Margolies.......................... 440,625 440,625
James J. Stewart........................ 234,000 121,056 112,944
William Taft............................ 782,863 782,863
John Tuosto............................. 51,750 51,750
Edward Bruksch.......................... $ 150,000 150,000
James Carbone........................... 200,000 200,000
Brian Edmonds........................... 103,000 103,000
Joseph Gregory.......................... 225,000 225,000
La Brena Martin......................... 270,000 270,000
Gordon Paris............................ 250,000 250,000
Martin Randall.......................... 100,000 55,556 44,444
Adam Shafiroff.......................... 175,818 145,000 175,818 145,000
David Sitzer............................ 180,000 180,000
Helen Van Eeden......................... 120,000 15,000 20,000 115,000
Samuel Wasserman........................ 125,000 100,000 225,000
Richard Zielong......................... 120,000 30,000 90,000
Others.................................. 44,766,924 2,720,691 6,002,598 41,485,017
------------ ---------- ---------- -------------
$ 49,467,144 $4,478,691 $6,449,612 $ 47,496,223
------------ ---------- ---------- -------------
------------ ---------- ---------- -------------
</TABLE>
S-3
<PAGE> 155
SCHEDULE II
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES -- (CONTINUED)
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
NOTES TO PAGE S-1 OF SCHEDULE II
(a) The Executive Stock Loan Program provides low interest demand loans, on an
unsecured basis, to assist key employees in acquiring common stock through
open market purchases. Loans under this program bear interest at the lower
of the prime lending rate minus 2% or 11%. Such loans are payable on demand
and mature on December 31, 1996.
(b) American Express is purchasing the loans of Mr. Collins and Mr. Hamerling at
the Distribution Date.
(c) Note is payable by March 1994. Interest accrues at the Company's margin
rate.
(d) Notes are payable out of February 1994 bonus. Interest accrues at the
Company's margin rate.
(e) Note is payable out of February 1994 bonus. Interest accrues at the
Company's margin rate.
(f) Notes are payable out of February 1995 bonus. Interest accrues at the
Company's margin rate.
(g) Note is payable by payroll deductions of 10% of gross commissions up to
$50,000 and all net commissions over $50,000, plus deferred compensation
and investment banking fees. Interest accrues at the Company's margin rate.
(h) Note is payable by monthly payments of $1,000 plus 50% of any net bonus
payable February 1994. Interest accrues at the Company's margin rate.
(i) Note is payable from bonus to be paid in 1994. Note is noninterest bearing.
(j) Other includes employees who transferred to Smith Barney on July 31, 1993.
In connection with this transfer Smith Barney paid the Company $25,775,013
for loans related to these individuals. The balance in other also
represents loans to individuals who terminated employment and are
outstanding at December 31, 1993.
S-4
<PAGE> 156
SCHEDULE III
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
(PARENT COMPANY ONLY)
(IN MILLIONS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1992 1993
------- -------
<S> <C> <C>
Cash and cash equivalents................................................ $ 29 $ 29
Securities and other financial instruments owned......................... 75 287
Equity in net assets of subsidiaries and affiliates...................... 4,193 4,238
Accounts receivable and accrued interest................................. 371 1,843
Due from subsidiaries and affiliates..................................... 7,897 6,143
Other assets............................................................. 251 338
------- -------
$12,816 $12,878
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper and short-term debt..................................... $ 5,549 $ 3,835
Securities and other financial instruments sold but not yet purchased.... 142
Accrued liabilities, due to subsidiaries and other payables.............. 216 418
Senior notes............................................................. 4,540 6,281
Subordinated indebtedness................................................ 150 150
------- -------
Total liabilities.............................................. 10,455 10,826
------- -------
Stockholders' equity:
Preferred stock, $1 par value; 38,000,000 shares authorized:
5% Cumulative Convertible Voting, Series A, 13,000,000 shares
authorized, issued and outstanding; $39.10 liquidation preference
per share.......................................................... 508 508
Money Market Cumulative, 3,300 shares authorized;
250 shares issued and outstanding; $1,000,000 liquidation
preference per share............................................. 250 250
Common stock, $.10 par value; 300,000,000 shares authorized;
168,235,284 shares issued and outstanding in 1992 and 1993.......... 17 17
Additional paid-in capital............................................. 1,871 1,871
Net unrealized securities losses....................................... (13)
Foreign currency translation adjustment................................ (5) (12)
Accumulated deficit.................................................... (267) (582)
------- -------
Total stockholders' equity..................................... 2,361 2,052
------- -------
$12,816 $12,878
------- -------
------- -------
</TABLE>
See notes to condensed financial information of Registrant.
S-5
<PAGE> 157
SCHEDULE III
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
(PARENT COMPANY ONLY)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1991 1992 1993
------ ----- -----
<S> <C> <C> <C>
Revenues
Market making and principal transactions........................ $ (10) $ (4) $ 34
Investment banking.............................................. (12) (6) (31)
Interest and dividends.......................................... 544 375 381
Other........................................................... 3 15 13
------ ----- -----
Total revenues............................................... 525 380 397
Interest expense................................................ 642 549 592
------ ----- -----
Net revenues................................................. (117) (169) (195)
------ ----- -----
Non-interest expenses
Compensation and benefits....................................... 20 46 22
Other........................................................... 46 180 39
Computervision write-down....................................... 230
First Capital Holdings Corp. write-off.......................... 144
------ ----- -----
Total non-interest expenses.................................. 210 456 61
------ ----- -----
Income (loss) before taxes and cumulative effect of changes in
accounting principles........................................... (327) (625) (256)
Provision for (benefit from) income taxes......................... (189) (253) (85)
------ ----- -----
Income (loss) before cumulative effect of changes in accounting
principles...................................................... (138) (372) (171)
Cumulative effect of changes in accounting principles........... 28
------ ----- -----
Income (loss) before equity in net loss of subsidiaries and
affiliates...................................................... (138) (344) (171)
Equity in net income of subsidiaries and affiliates............. 345 221 69
------ ----- -----
Net income (loss)................................................. 207 (123) (102)
Preferred stock dividends......................................... 48 48 48
------ ----- -----
Net income (loss) applicable to Common Stock...................... $ 159 $(171) $(150)
------ ----- -----
------ ----- -----
</TABLE>
See notes to condensed financial information of Registrant.
S-6
<PAGE> 158
SCHEDULE III
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(PARENT COMPANY ONLY)
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1991 1992 1993
------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $ 207 $ (123) $ (102)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Cumulative effect of changes in accounting principles........ (28)
Equity in net income of subsidiaries......................... (345) (221) (69)
Computervision write-down.................................... 230
Provision for losses and other reserves...................... 131 13
First Capital Holdings Corp. write-off....................... 144
Other adjustments............................................ 70 26 5
Net change in securities owned, accounts receivable and accrued
interest, due from subsidiaries and affiliates and other
assets....................................................... 135 (3,714) (30)
Net change in accrued liabilities, due to subsidiaries and
other payables............................................... (51) (287) 343
Dividends and capital distributions received................... 87 228 587
------ ------- -------
Net cash provided by (used in) operating activities....... 247 (3,758) 747
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior notes......................... 1,658 3,187 2,827
Principal payments of senior notes............................. (940) (1,062) (1,090)
Proceeds from issuance of subordinated indebtedness............
Principal payments of subordinated indebtedness................ (100)
Increase (decrease) in commercial paper and short-term debt,
net.......................................................... (955) 1,669 (1,714)
Issuance of stock.............................................. 175
Dividends paid................................................. (48) (81) (213)
------ ------- -------
Net cash provided by (used in) financing activities....... (385) 3,888 (190)
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments in affiliates.......................... (254) (337) (545)
Proceeds from sale of Balcor loans............................. 500
Other.......................................................... 3 21 (12)
------ ------- -------
Net cash provided by (used in) investing activities....... 249 (316) (557)
------ ------- -------
Net change in cash and cash equivalents................... 111 (186)
Cash and cash equivalents at beginning of year................. 104 215 29
------ ------- -------
Cash and cash equivalents at end of year.................. $ 215 $ 29 $ 29
------ ------- -------
------ ------- -------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN MILLIONS)
Interest paid (net of amount capitalized) totaled $642 in 1991, $543 in
1992 and $1,105 in 1993. Income taxes paid (received) totaled $(47) in 1991, $86
in 1992 and $28 in 1993.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY
Holdings' noncash investing and financing activity for all periods
presented was insignificant.
See notes to condensed financial information of Registration.
S-7
<PAGE> 159
SCHEDULE III
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
1. SENIOR NOTES:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------
USD USD
DECEMBER 31, CONTRACTUAL CONTRACTUAL FOREIGN
1992 FIXED RATE FLOATING RATE CURRENCY TOTAL
------------ ----------- ------------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1993................................. $1,107
1994................................. 812 $ 382 $ 1,433 $ $1,815
1995................................. 222 383 405 6 794
1996................................. 533 505 460 90 1,055
1997................................. 476 525 131 9 665
1998................................. 296 759 10 89 858
1999 and Thereafter.................. 1,094 1,094 1,094
------------ ----------- ------------- -------- ------
$4,540 $ 3,648 $ 2,439 $194 $6,281
------------ ----------- ------------- -------- ------
------------ ----------- ------------- -------- ------
</TABLE>
As of December 31, 1993 Holdings had $3,648 million of U.S. dollar fixed
rate senior notes outstanding. Contractual interest rates on these notes ranged
from 3.69% to 10.80% as of December 31, 1993, with a contractual weighted
average interest rate of 7.45%.
Holdings entered into interest rate swap contracts which effectively
converted $243 million of its U.S. dollar fixed rate senior notes to floating
rates based on the London Interbank Offered Rate ("LIBOR"). Excluding this $243
million, but including the effect of $542 million of U.S. dollar floating rate
senior notes effectively converted to fixed rates through the use of interest
rate swap contracts and $60 million of fixed rate basis swaps, Holdings' U.S.
dollar fixed rate senior notes outstanding had an effective weighted average
interest rate of 7.65%.
As of December 31, 1993, Holdings had $2,439 million of U.S. dollar
floating rate senior notes outstanding, including $192 million of U.S. dollar
floating rate senior notes on which the interest and/or redemption values have
been linked to movements in various indices. Excluding this $192 million,
contractual rates on Holdings' U.S. dollar floating rate senior notes ranged
from 3.48% to 4.53% with a contractual weighted average interest rate of 3.84%.
Holdings entered into interest rate swap contracts which effectively
converted $542 million of its U.S. dollar floating rate senior notes to fixed
rates. Excluding this $542 million, but including the effect of $243 million of
U.S. dollar fixed rate senior notes converted to floating rates through the use
of interest rate swap contracts and $599 million of floating rate basis swaps,
Holdings' U.S. dollar floating rate senior notes outstanding had an effective
weighted average interest rate of 3.85%.
As of December 31, 1993 Holdings had the equivalent of $194 million of
foreign currency denominated senior notes outstanding, of which $45 million were
fixed rate and $149 million were floating rate. The contractual interest rate on
Holdings' fixed rate foreign currency denominated senior notes was 5.50% as of
December 31, 1993. Contractual interest rates on Holdings' floating rate foreign
currency denominated senior notes ranged from 2.62% to 10.06% as of December 31,
1993, with a contractual weighted average interest rate of 3.04%. Holdings
entered into cross currency swap contracts which effectively converted a portion
of its floating rate foreign currency denominated senior notes into U.S. dollar
obligations. Holdings' fixed and floating rate foreign currency senior notes not
converted to U.S. dollar obligations, totaling $164 million, were used to
finance foreign currency denominated assets.
Of Holdings' U.S. dollar fixed rate senior notes outstanding as of December
31, 1993, $80 million are repayable prior to maturity at the option of the
holder. These obligations are reflected in the above table as $25
S-8
<PAGE> 160
SCHEDULE III
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
million and $55 million maturing in 1996 and 1997, respectively, rather than at
their contractual maturities in 2003 and 2023, respectively. The holders of
these notes have the option to redeem them at par value.
As of December 31, 1993, the fair value of Holdings' senior notes were
approximately $6,513 million ($4,625 million in 1992) which exceeds the
aggregate carrying value of the notes outstanding by approximately $232 million
($85 million in 1992). For purposes of this fair value calculation the carrying
value of variable rate debt that reprices within a year and fixed rate debt
which matures in less than six months approximates fair value. For the remaining
portfolio, fair value was estimated using either quoted market prices or
discounted cash flow analyses based on Holdings' current borrowing rates for
similar types of borrowing arrangements. Unrecognized net losses on interest
rate swaps and other transactions used by Holdings to manage its interest rate
risk within the senior notes portfolio were $57 million and $20 million at
December 31, 1993 and 1992, respectively. The unrecognized net losses on these
transactions reflect the estimated amounts the Company would pay if the
agreements were terminated as calculated based upon market rates as of December
31, 1993 and 1992, respectively.
2. SUBORDINATED INDEBTEDNESS:
Subordinated indebtedness at December 31, 1993 consists of $150 million
Capital Notes due 1995 (the "Notes"), with interest based on an index of LIBOR.
The contractual interest rate on this debt was 4.25% as of December 31, 1993.
The Notes are redeemable, in whole or in part, at the option of Holdings on each
quarterly interest payment date from proceeds of previously designated equity
securities issuances.
3. DIVIDENDS:
Dividends and capital distributions declared to Holdings by its
subsidiaries and affiliates were $87 million in 1991, $228 million in 1992 and
$587 million in 1993.
S-9
<PAGE> 161
SCHEDULE IX
LEHMAN BROTHERS HOLDINGS INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
DECEMBER 31, 1993
Information pertaining to aggregate short-term borrowings during each of
the three years in the period ended December 31, 1993 was as follows (dollars in
billions):
<TABLE>
<CAPTION>
MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
WEIGHTED AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE INTEREST RATE AT DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS YEAR-END YEAR(A) YEAR(B) YEAR(C)
- ----------------------------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Commercial paper
1991.................... 5.6% $ 4.3 $ 3.4 6.3%
1992.................... 4.0% $ 6.8 $ 5.0 4.2%
1993.................... 3.6% $ 6.8 $ 4.8 3.5%
Short-term debt
1991.................... 5.4% $ 8.1 $ 6.8 7.1%
1992.................... 4.4% $ 7.6 $ 6.6 4.7%
1993.................... 4.3% $ 10.4 $ 8.3 4.0%
Securities sold under
agreements to repurchase
1991.................... 5.0% $ 34.1 $ 27.3 6.1%
1992.................... 4.0% $ 41.3 $ 34.0 4.2%
1993.................... 4.4% $ 51.4 $ 45.7 4.1%
</TABLE>
- ---------------
(a) The maximum amount outstanding was based on month end balances.
(b) The average borrowings were computed using the monthly amounts outstanding.
(c) Interest rates were determined by dividing the actual interest expense for
the year by the average monthly amounts outstanding.
S-10
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
3.1 Form of Restated Certificate of Incorporation of the Registrant.
3.2(a) Form of Amended Certificate of the Designation, Powers, Preferences and Rights
of the Cumulative Convertible Voting Preferred Stock, Series A, of the
Registrant dated August 10, 1990 (incorporated by reference to Exhibit 3.7 of
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1990).
</TABLE>
<TABLE>
<C> <S>
3.2(b) Form of Amended Certificate of the Designations, Powers, Preferences and Rights
of the Cumulative Voting Preferred Stock, Series A, of the Registrant, dated May
, 1994.
3.3 Form of Certificate of the Designation, Powers, Preferences and Rights of
Cumulative Voting Preferred Stock.
3.4 Form of Certificate of the Designation, Powers, Preferences and Rights of
Redeemable Voting Preferred Stock of the Registrant.
3.5 Restated By-Laws of the Registrant.
4.1 The instruments defining the rights of holders of the long-term debt securities
of the Registrant and its subsidiaries are omitted pursuant to section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Registrant hereby agrees to
furnish copies of these instruments to the Securities and Exchange Commission
upon request.
4.2 Specimen Common Stock Certificate.
5 Opinion of Thomas A. Russo, Esq.
7 Opinion of Skadden, Arps, Slate, Meagher & Flom.
8 Opinion of Skadden, Arps, Slate, Meagher & Flom.
10.1 Form of Amended and Restated Agreement of Tenants-In-Common by and among
American Express Company, American Express Bank Ltd., American Express Travel
Related Services Company, Inc., Lehman Brothers Inc., Lehman Government
Securities, Inc. and Lehman Commercial Paper Incorporated.
10.2 Form of Amended and Restated Tax Allocation Agreement between Lehman Brothers
Holdings Inc. and American Express Company.
10.3 Form of Amended and Restated Intercompany Agreement between American Express
Company and Lehman Brothers Holdings Inc.
10.4 Investment Agreement among American Express Company, Shearson Lehman Brothers
Holdings Inc. and Nippon Life Insurance Company (incorporated by reference to
Exhibit 10.21 of the Registrant's Registration Statement on Form S-1 (Reg. No.
33-12976)).
10.5 Registration Rights Agreement between Nippon Life Insurance Company and Shearson
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10.22 of the
Registrant's Registration Statement on Form S-1 (Reg. No. 33-12976)).
10.6 Business Association Agreement by and among American Express Company, Shearson
Lehman Brothers Holdings Inc. and Nippon Life Insurance Company (incorporated by
reference to Exhibit 10.23 of the Registrant's Registration Statement on Form
S-1 (Reg. No. 33-12976)).
10.7 Letter, dated March 23, 1987, from Nippon Life Insurance Company to American
Express Company and Shearson Lehman Brothers Holdings Inc. (incorporated by
reference to Exhibit 10.24 of the Registrant's Registration Statement on Form
S-1 (Reg. No. 33-12976)).
10.8 1990 Agreement, dated as of June 12, 1990, by and between American Express
Company and Nippon Life Insurance Company (incorporated by reference to Exhibit
10.25 of the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990).
</TABLE>
E-1
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------
<C> <S>
10.9 Letter, dated August 10, 1990, from Shearson Lehman Brothers Holdings Inc. to
Nippon Life Insurance Company and American Express Company (incorporated by
reference to Exhibit 10.26 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.10(a) Warrant, dated August 10, 1990, issued by Shearson Lehman Brothers Holdings Inc.
to Nippon Life Insurance Company (incorporated by reference to Exhibit 10.27 of
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1990).
10.10(b) Form of Warrant, amended and restated as of May , 1994, issued by the
Registrant to Nippon Life Insurance Company.
10.11 Stock Purchase Agreement, dated as of September 14, 1992, by and between Mellon
Bank Corporation and Shearson Lehman Brothers Inc. (Incorporated by reference to
Exhibit 10.15 of the Registrant's Annual Report on form 10-K for the year ended
December 31, 1992).
10.12 Asset Purchase Agreement, dated as of March 12, 1993, by and among Primerica
Corporation, Smith Barney, Harris Upham & Co. Incorporated and Shearson Lehman
Brothers Inc. (incorporated by reference to Exhibit 10.16 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.13 Amendment No. 1 dated as of July 31, 1993, to Asset Purchase Agreement dated
March 12, 1993, by and among Primerica Corporation, Smith Barney, Harris Upham &
Co. Incorporated and Shearson Lehman Brothers Inc. (incorporated by reference to
Exhibit 10.1 of Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
10.14 Amendment No. 2 dated as of July 31, 1993, to Asset Purchase Agreement dated
March 12, 1993, by and among Primerica Corporation, Smith Barney, Harris Upham &
Co. Incorporated and Shearson Lehman Brothers Inc. (incorporated by reference to
Exhibit 10.2 of Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
10.15 Clearing Agreement dated as of July 31, 1993, by and between Smith Barney,
Harris Upham & Co. Incorporated and Shearson Lehman Brothers Inc. (incorporated
by reference to Exhibit 10.3 of Holdings' Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
10.16 Lease dated as of October 13, 1993 between 101 Hudson Leasing Associates and
Lehman Brothers Holdings Inc. (incorporated by reference to Exhibit 10 of
Holdings' Quarterly Report on Form 10-Q for the quarter ended September 30,
1993) .
10.17 Lehman Brothers Holdings Inc. Voluntary Deferred Compensation Plan.
10.18 Lehman Brothers Inc. Executive and Select Employees Plan.
10.19 Lehman Brothers Holding Inc. Deferred Compensation Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-12976)).
10.20 Lehman Brothers Inc. -- The E.F. Hutton Partnership Award Plan (For Lehman
Brothers Vested Amounts as of July 31, 1993 and Lehman Brothers).
10.21 Amended and Restated Agreements of Limited Partnership of Shearson Lehman
Brothers Capital Partners I (incorporated by reference to Exhibit 10.47 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1988).
10.22 Amended and Restated Agreements of Limited Partnership of Shearson Lehman Hutton
Capital Partners II (incorporated by reference to Exhibit 10.48 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1988).
10.23 Lehman Brothers Inc. Employee Ownership Plan.
10.23(a) Amendment to the Lehman Brothers Inc. Employee Ownership Plan.
</TABLE>
E-2
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------------
<S> <C>
10.24 Lehman Brothers Holdings Inc. 1994 Management Ownership Plan.
10.25 Lehman Brothers Holdings Inc. 1994 Management Replacement Plan.
10.26 Lehman Brothers Holdings Inc. Short-Term Executive Compensation Plan.
10.27 Lehman Brothers Holdings Inc. 1994 Employee Stock Purchase Plan.
10.28 Lehman Brothers Inc. Participating Preferred Plan.
10.28(a) Amendment to the Lehman Brothers Inc. Participating Preferred Plan.
10.29 Form of Purchase and Exchange Agreement, dated May , 1994, between the
Registrant and American Express Company.
10.30 Form of Registration Rights Agreement, dated as of May , 1994, between
American Express Company and the Registrant.
10.31 Form of Option Agreement, dated May , 1994, by and among American Express
Company, American Express Bank Ltd., American Express Travel Related Services
Company, Inc., Lehman Brothers Inc., Lehman Government Securities, Inc. and
Lehman Commercial Paper Incorporated.
10.32 Form of 1994 Agreement, dated April 27, 1994, between the Registrant and Nippon
Life Insurance Company.
10.33 Lehman Brothers Inc. Voluntary Deferred Compensation Plan (For Select
Executives).
10.34 Lehman Brothers Inc. Voluntary Deferred Compensaton Plan (For Transferred
Participants' Vested Amounts as of July 31, 1993).
10.35 Lehman Brothers Inc. Executive and Select Employees Plan (For Transferred
Participants).
21 Subsidiaries of the Registrant.*
23.1 Consent of Ernst & Young.
23.2 Consent of Thomas A. Russo, Esq. (included within Exhibit 5).
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (included within Exhibit 7 and
Exhibit 8).
23.4 Consent of Lazard Freres & Co.
23.5 Consent of James D. Wolfensohn Incorporated.
24 Powers of Attorney.*
99.1 Consent of John D. Macomber to be named as a Director.*
99.2 Consent of John J. Byrne to be named as a Director.*
</TABLE>
- ---------------
* Previously filed.
E-3
<PAGE> 1
EXHIBIT 3.1
1
<PAGE> 2
draft
4/27/94
RESTATED CERTIFICATE OF INCORPORATION
OF
LEHMAN BROTHERS HOLDINGS INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
I, _____________, the _________________ of Lehman Brothers Holdings
Inc. (the "Corporation"), a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, do hereby
certify that the Certificate of Incorporation of Lehman Brothers Holdings Inc.
originally filed on December 29, 1983 under the name Shearson/American Express
Holdings Inc., as heretofore amended and restated, has been amended and
restated, in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware, as amended, and as so amended and restated, has
been duly adopted in accordance with Section 245 and is set forth in its
entirety as follows:
1. Name. The name of the corporation is Lehman Brothers Holdings Inc.
(the "Corporation").
2. Address. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The registered Agent at such address is The
Corporation Trust Company.
3. Purpose. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
4. Capital Stock.
4.01 Authorized Shares. The total number of shares of capital stock
which the Corporation shall have authority to issue is three hundred million
(300,000,000) shares of common stock with one vote per share, $0.10 par value
per share (the "Common Stock), and thirty eight thousand (38,000,000) shares of
preferred stock, $1.00 par value per share (the "Preferred Stock"). Shares of
Preferred Stock may be issued from time to time in one or more classes or
series, each of which class or series shall have such distinctive designation
or title as shall be fixed by the Board of Directors of the Corporation (the
"Board of Directors") or any committee thereof established by resolution of the
Board of Directors pursuant to the By-Laws prior to the issuance of any shares
thereof. Each such class or series of Preferred Stock shall
2
<PAGE> 3
have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issue of such class or series
of Preferred Stock as may be adopted from time to time by the Board of
Directors prior to the issuance of any shares thereof pursuant to the authority
hereby expressly vested in it, all in accordance with the laws of the State of
Delaware.
4.02 No Preemptive Rights. No shares of the capital stock of the
Corporation shall be entitled to preemptive rights.
4.03 Reverse Stock Split. Each share of Common Stock shall be
reclassified on the basis of [0.3179723] shares for each share and,
accordingly, each share of Common Stock, par value $0.10 per share, outstanding
on [May __, 1994] shall, without further action by the Corporation or any
stockholder, be deemed to represent [0.3179723] shares of Common Stock, par
value $0.10 per share. All fractional shares resulting from the foregoing
reclassification shall be eliminated and each holder thereof shall be entitiled
to receive a cash payment equal to such holder's fraction of a share of Common
Stock multiplied by [$25.53].
5. By-Laws. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter or
repeal the By-Laws of the Corporation.
6. Election of Directors.
6.1 Number, Election and Term. Except as otherwise fixed pursuant to
the provisions of Article 4 hereof relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed from
time to time by or pursuant to the By-Laws. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. Class I
directors shall be elected initially for a one-year term, Class II directors
initially for a two-year term and Class III directors initially for a
three-year term. At each succeeding annual meeting of stockholders beginning
in 1995, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
A director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, disability, resignation, retirement,
disqualification or removal
3
<PAGE> 4
from office. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
6.2 Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the authorized number of directors
and any vacancies on the Board of Directors resulting from death, disability,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the directors then in office, by a sole
remaining director or if there are no directors then in office, by the
stockholders.
7. Indemnification.
7.1 Right to Indemnification. The Corporation shall have the power
to indemnify to the fullest extent permitted, from time to time, by applicable
law any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative in nature by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or,
while a director, office, employee or agent of the Corporation, is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of or in any other capacity with another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines, penalties and
amounts paid in settlement in connection with such action, suit or proceeding.
The Corporation shall have the power to enter into agreements providing any
such indemnity.
7.2 Expenses. The Corporation shall have the power to advance to a
director, officer, employee or agent of the Corporation expenses incurred in
connection with defending any action, suit or proceeding referred to above or
in the By-Laws at any time before the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article 7
or as provided in the By-Laws. The Corporation shall have the power to enter
into agreements providing for such advancement of expenses.
7.3 Non-exclusivity. The indemnification and other rights provided
for in this Article 7 shall not be exclusive of any provision with respect to
indemnification or the payment of expenses in the By-Laws or any other contract
or agreement between the Corporation and any officer, director, employee or
agent of the Corporation or any other person.
7.4 Future Changes. Neither the amendment nor repeal of this Article
7, nor the adoption of any provision of this Restated Certificate of
Incorporation inconsistent with this Article 7, shall eliminate or reduce the
effect of such provisions in respect of any act or omission or any matter
occurring prior to such amendment, repeal or adoption of
4
<PAGE> 5
an inconsistent provision regardless of when any cause of action, suit or claim
relating to any such matter accrued or matured or was commenced, and such
provision shall continue to have effect in respect of such act, omission or
matter as if such provision had not been so amended or repealed or if a
provision inconsistent therewith had not been so adopted.
8. Compromise or Settlement Proposals. Whenever a compromise or
arrangement is proposed between this Corporation and its creditors or any class
of them and/or between this Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or off the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders of class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
9. Action of Stockholders. Any action required or permitted to be taken
by the holders of the Common Stock of the Corporation must be effected at a
duly called annual or special meeting of such holders and may not be taken by
written consent in lieu of a meeting.
10. Directors' Liability.
10.1 Limitation of Liability of Directors. A director shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided that this sentence shall
not eliminate or limit the liability of a director (i) for any breach of his
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the Director derives an improper personal benefit. If
the GCL is amended after the date this Restated Certificate of Incorporation
becomes effective to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended.
10.2. Future Changes. Neither the amendment nor repeal of this
Article 10, nor the
5
<PAGE> 6
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with Article 10 shall eliminate or reduce the effect of such
provisions, in respect of any matter occurring prior to such amendment, repeal
or adoption of an inconsistent provision or in respect of any act or omission
or any matter occurring prior to such amendment, repeal or adoption of an
inconsistent provision, regardless of when any cause of action, suit or claim
relating to any such matter accrued or matured or was commenced, and such
provision shall continue to have effect in respect of such act, omission or
matter as if such provision had not been so amended or repealed or if a
provision inconsistent therewith had not been so adopted.
11. Amendments. The affirmative vote of the holders of at least a
majority of shares of capital stock entitled to vote, voting together as a
single class, shall be required to amend or repeal any provision in this
Restated Certificate of Incorporation or adopt any provision inconsistent with
any such provision unless a higher percentage is specified herein, in which
case such higher percentage will be applicable.
IN WITNESS WHEREOF, the undersigned has hereunto signed her name and
affirms that the statements made in this Restated Certificate of Incorporation
are true under the penalties of perjury this ______ day of _____________, 1994.
[Corporate Seal]
---------------------------
Attest:
- -------------------------
6
<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
AMENDED
CERTIFICATE OF THE DESIGNATION, POWERS,
PREFERENCES AND RIGHTS OF THE
CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK, SERIES A
PAR VALUE $1.00 PER SHARE
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation having
its registered office at 1209 Orange Street, in the City of Wilmington, in the
County of New Castle (the "Corporation"), HEREBY CERTIFIES to the Secretary of
State of the State of Delaware that the Certificate of the Designation, Powers,
Preferences and Rights of the Cumulative Convertible Voting Preferred Stock,
Series A, of the Corporation has been amended as set forth herein, that the
following resolution was duly adopted by the Board of Directors of the
Corporation, pursuant to authority conferred upon the Board of Directors by the
provisions of the Restated Certificate of Incorporation, as amended, of the
Corporation and the amendments contained therein were duly adopted by the
stockholders of the Corporation:
"RESOLVED, that the Board of Directors hereby declares that
the following amendments to the Certificate of the Designation, Powers,
Preferences and Rights, filed on April 15, 1987 with the Secretary of State of
the State of Delaware (the "1987 Certificate of Designation"), as amended by
the Certificate of Designation, Powers, Preferences and Rights, filed on August
10, 1990 with the Secretary of State of the State of Delaware, providing for
the issuance of the Corporation's Cumulative Convertible Voting Preferred
Stock, Series A, par value $1.00 per share, are advisable, hereby ratifies any
prior reservation for issuance of, and further reserves for issuance, any
shares of common stock of the Corporation issuable upon conversion of such
preferred stock upon the terms and conditions set forth herein and hereby
amends the designation, powers, preferences and rights, and qualifications,
limitations and restrictions, of such preferred stock, in addition to those set
forth in the
<PAGE> 2
said Restated Certificate of Incorporation, to read in their entirety as
follows:
1. Designation. The designation of said series of the
preferred stock shall be Cumulative Convertible Voting Preferred Stock, Series
A (the "Series A Preferred Stock"). The Series A Preferred Stock shall be
perpetual and the authorized number of shares of Series A Preferred Stock shall
be thirteen million (13,000,000) shares (the "Series A Shares"). The par value
of the Series A Preferred Stock shall be $1.00 per share.
2. Definitions. Except as otherwise specified herein,
defined terms herein, which may be identified by the capitalization of the
first letter of each principal word thereof, have the meanings assigned to them
in the Investment Agreement, dated as of April 15, 1987, by and among American
Express Company ("Parent") and the Corporation, on the one hand, and Nippon
Life Insurance Company ("Nippon Life"), on the other hand, as such agreement
has been amended by (a) the 1990 Agreement, dated June 12, 1990, by and between
Parent and Nippon Life, as adopted by the Corporation in the Company Agreement,
dated as of August 10, 1990 (the 1990 Agreement, as adopted, the "1990
Agreement") and (b) the 1994 Agreement, dated _______ __, 1994, by and among
Parent, Nippon Life and the Corporation (the "1994 Agreement"), in each case as
in effect on the date hereof (as amended, the "Investment Agreement").
3. Dividends. (a) The shares of Series A Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors or
a duly authorized committee thereof, out of funds legally available for the
payment of dividends, cumulative dividends payable quarterly in cash on March
15, June 15, September 15 and December 15 (or, if any such day is not a
Business Day, then on the next succeeding Business Day) in each year (the
"Dividend Payment Dates") commencing on June 15, 1987, in preference to
dividends on shares of the common stock, $.10 per value per share, of the
Corporation (defined in the Investment Agreement as "Company Common Stock" and
defined herein as the "Common Stock"), or any other capital stock of the
Corporation ranking junior to the Series A Preferred Stock in payment of
dividends. The amount of cash dividends paid or payable on the Dividend
Payment Dates prior to June 15, 1990, shall be
2
<PAGE> 3
determined as set forth in the 1987 Certificate of Designation, and on or after
June 15, 1990, shall be determined as follows: The annual dividend rate per
Series A Share shall be in the an amount equal to $1.955 per share. The amount
of dividends payable on each Series A Share for each full quarterly dividend
period shall be computed by dividing by four such annual rate. Dividends
payable on the Series A Preferred Stock for any period less than a full
quarterly period shall be computed on the basis of a 360-day year consisting of
twelve 30-day months for the actual number of days involved. Dividends with
respect to any Series A Share shall accumulate from the date of issue thereof.
No cash dividends shall be declared and set apart for payment on any capital
stock ranking on a par with the Series A Preferred Stock in the payment of
dividends unless there shall likewise be or have been declared and set apart
for payment on all Series A Shares at the time outstanding full cumulative
dividends for all quarterly dividend periods ending on or before the dividend
payment date for such other stock. If and so long as any full cumulative
dividends payable on the Series A Shares in respect of all prior dividend
periods shall not have been paid or set apart for payment, the Corporation
shall not pay any dividends or make any distributions of assets (other than
dividends payable in shares of capital stock of the Corporation ranking junior
to the Series A Preferred Stock in payment of dividends) on or redeem, purchase
or otherwise acquire for consideration shares of capital stock of the
Corporation ranking junior to or on a par with the Series A Preferred Stock in
payment of dividends.
(b) Dividends on the Series A Preferred Stock shall
be paid to the holders of record of Series A Shares as they appear on the stock
register of the Corporation on such record date, not exceeding 40 days
preceding the payment date thereof, as shall be fixed by the Board of Directors
or by a duly authorized committee thereof. Dividends on account of arrears for
any past dividend periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on such date, not
exceeding 40 days preceding the payment date thereof, as may be fixed by the
Board of Directors or by a duly authorized committee thereof. Dividends shall
be paid to each holder of record in United States dollars by wire transfer of
immediately available funds to an account designated in
3
<PAGE> 4
writing by such holder not less than 10 days preceding the payment date
thereof. Notwithstanding the foregoing, from and after the time, if any, that
any shares of the Series A Preferred Stock are sold by Nippon Life pursuant to
an effective registration statement under the Securities Act of 1933, dividends
may be paid to each holder of record by check mailed to such holders at their
respective addresses appearing on the books of the Corporation.
4. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
before any distribution of the assets of the Corporation to holders of Common
Stock or any other capital stock of the Corporation ranking junior upon
liquidation, dissolution or winding up of the Corporation, the holders of the
Series A Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, an amount per Series A Share equal to $39.10 plus
an amount equal to all dividends (whether or not earned or declared)
accumulated and unpaid on such Series A Share as calculated in accordance with
Section 3 hereof to the date of final distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of Series A Shares or any
capital stock ranking on a par with the Series A Preferred Stock upon
liquidation, dissolution or winding up of the Corporation, shall be
insufficient to pay in full the preferential amounts to which such stock would
be entitled, then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective amounts which
would be payable on such shares if all amounts payable thereon were payable in
full. For the purposes hereof, neither a consolidation nor a merger of the
Corporation with one or more other corporations, nor a sale or a transfer of
all or substantially all of the assets of the Corporation, shall be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
5. Redemption. (a) The Series A Preferred Stock may not be
redeemed by the Corporation prior to June 15, 1994, except as otherwise
provided in the Investment Agreement. Thereafter, the Corporation may at its
option redeem outstanding Series A Shares on any
4
<PAGE> 5
Dividend Payment Date upon at least 30 days' and not more than 45 days' written
notice to the holders thereof, at $39.10 per share plus accumulated and unpaid
dividends (whether or not earned or declared) to the date fixed for redemption:
Number of Shares Subject
to Redemption
------------------------
to and including
June 15, 1995 . . . . . . . . . . . . . . up to 2,600,000 minus the
number of Series A Shares
converted into shares of
Corporation Common Stock
or exchanged for Parent
Common Shares or purchased by
the Corporation pursuant to
Section 7.4 of the 1990
Agreement prior to the date
fixed for redemption
thereafter to and including
June 15, 1996 . . . . . . . . . . . . . . . . up to 5,200,000 minus the
number of Series A Shares
converted into shares of
Corporation Common Stock
or redeemed or exchanged for
Parent Common Shares or
purchased by the Corporation
pursuant to Section 7.4 of
the 1990 Agreement prior to
the date fixed for redemption
thereafter to and including
June 15, 1997 . . . . . . . . . . . . . . . . up to 7,800,000 minus the
number of Series A Shares
converted into shares of
Corporation Common Stock
or redeemed or exchanged for
Parent Common Shares or
purchased by the Corporation
pursuant to Section
5
<PAGE> 6
7.4 of the 1990 Agreement
prior to the date fixed
for redemption
thereafter to and including
June 15, 1998 . . . . . . . . . . . . . . . . up to 10,400,000 minus the
number of Series A Shares
converted into shares of
Corporation Common Stock
or redeemed or exchanged for
Parent Common Shares or
purchased by the Corporation
pursuant to Section 7.4 of
the 1990 Agreement prior to
the date fixed for redemption
thereafter . . . . . . . . . . . . . . . . . up to 13,000,000 minus the
number of Series A Shares
converted into shares of
Corporation Common Stock
or redeemed or exchanged for
Parent Common Shares or
purchased by the Corporation
pursuant to Section 7.4 of
the 1990 Agreement prior to
the date fixed for redemption
provided, however, such Series A Shares shall not be redeemable by the
Corporation unless (i) there is Public Company Common Stock outstanding on the
dates upon which notice of redemption is first given and such redemption is
effected, and (ii) the Average Market Price of the Common Stock of the
Corporation on the date upon which notice of redemption is first given is above
the Conversion Price (as defined in Section 7 hereof) then in effect.
(b) Notice of any proposed redemption of shares of
Series A Preferred Stock shall be given by the Corporation by mailing a copy of
such notice to holders of record of the Series A Shares to be redeemed at their
respective addresses appearing on the books of the Corporation. Said notice
shall specify the shares called for
6
<PAGE> 7
redemption, the redemption price and the price at which and the date on which
the shares called for redemption will, upon presentation and surrender of the
certificates of stock evidencing such shares, be redeemed and the redemption
price therefor paid. From and after the date fixed in any such notice as the
date of redemption of shares of Series A Preferred Stock, unless default shall
be made by the Corporation in providing monies at the time and place specified
for the payment of the redemption price pursuant to said notice, all dividends
on the Series A Preferred Stock thereby called for redemption shall cease to
accrue and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price, shall cease and
terminate.
6. Shares to be Retired. All Series A Shares redeemed by the
Corporation shall be retired and cancelled and shall not thereafter be
reissued.
7. Conversion Rights. The Series A Shares shall be
convertible, in whole or in part, provided that at least 250,000 Series A
Shares (or such lesser number of Series A Shares as shall then be outstanding)
shall be converted at any one time, at the option of the holders thereof, into
shares of Common Stock of the Corporation subject to the following terms and
conditions:
(a) The Series A Shares shall be convertible at the office of
any Transfer Agent, and at such other office or offices, if any, as
the Board of Directors may designate, into fully paid and
nonassessable shares (calculated as to each conversion to the nearest
1/100 of a share) of Common Stock of the Corporation, at the
Conversion Price, determined as hereinafter provided, in effect at the
time of conversion, each Series A Share being taken by the Corporation
as having a value equal to $39.10 per share. The number of shares of
Common Stock into which each share of Series A Preferred Stock may be
converted at any time shall be calculated as $39.10 divided by the
Conversion Price in effect at the time of conversion. The price at
which shares of Common Stock shall be delivered upon conversion
(herein called the "Conversion Price") shall, effective as of the
Closing Date under
7
<PAGE> 8
the 1994 Agreement, be $[122.9666861]* per share. The Conversion
Price shall be adjusted in certain instances as provided in paragraphs
(c), (d), (e), (f), (g) and (i) below.
(b) In order to convert Series A Shares into Common Stock,
the holder thereof shall surrender at any office hereinabove mentioned
the certificate or certificates therefor, duly endorsed or assigned to
the Corporation or in blank, and give written notice to the
Corporation at such office that he elects to convert such shares.
Such notice shall be substantially in the following form:
"NOTICE TO EXERCISE CONVERSION RIGHT
The undersigned, being a holder of the Cumulative Convertible
Voting Preferred Stock, Series A ("Series A Shares") of Lehman
Brothers Holdings Inc., irrevocably exercises the right to convert
__________ out standing Series A Shares on ____ _____, 19__, into
shares of Common Stock of Lehman Brothers Holdings Inc. in accordance
with the terms of the Series A Shares, and directs that the shares
issuable and deliverable upon the conversion, together with any check
in payment for fractional shares, be issued and delivered in the
denominations indicated below to the registered holder hereof unless a
different name has been indicated below. If shares are to be issued
in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated: [On or before the date fixed for conversion]
__________________________________
* To be adjusted to equal $39.10 divided by the actual Reverse Split Ratio
to be determined as of the Record Date for the Distribution.
8
<PAGE> 9
Fill in for registration of
shares of Common Stock if
to be issued otherwise
than to the registered
holder:
- ----------------------------
Name
- ----------------------------
Address
- ---------------------------- ----------------------
(Please print name and (Signature)
address, including postal
code number)
Denominations:
----------------------------."
A payment or adjustment shall not be made by the Corporation
upon any conversion on account of any dividends accrued on the Series
A Shares surrendered for conversion or on account of any dividends on
the Common Stock issued upon conversion.
Series A Shares shall be deemed to have been converted
immediately prior to the close of business on the day of the surrender
of such shares for conversion in accordance with the foregoing
provisions, and the person or persons entitled to receive the Common
Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the conversion date, the
Corporation shall issue and shall deliver at such office a certificate
or certificates for the number of full shares of Common Stock issuable
upon such conversion, together with payment in lieu of any fraction of
a share, as hereinafter provided, to the person or per sons entitled
to receive the same. In case shares of Series A Preferred Stock are
called for redemption, the right to convert such shares shall cease
and terminate at the close of business on the date fixed for
redemption, unless default shall be made in payment of the redemption
price.
9
<PAGE> 10
(c) In case the Corporation shall pay or make a dividend or
other distribution on any class of capital stock of the Corporation in
Common Stock, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such reduction to become effective immediately
after the opening of business on the day following the date fixed for
such determination. In the event that such distribution is not so
made, (i) the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such date fixed for
the determination of stockholders entitled to receive such
distribution had not been fixed, and (ii) the holders shall have the
option of reversing any exercise of their conversion rights hereunder
made after such record date in contemplation of such distribution (and
thereby reestablishing such conversion rights to the extent so
exercised) by returning to the Corporation any Common Stock, cash and
other securities or property which had been received upon such
conversion; provided that the option set forth in this clause (ii)
shall be exercisable by a holder only prospectively by a written
instrument delivered to the Corporation at the time of such
conversion, which instrument shall state that such holder revokes such
conversion if such distribution is not so made. For the purposes of
this paragraph (c), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Corporation but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.
The Corporation will not pay any dividend or make any distribution in
shares of Common Stock held in the treasury of the Corporation.
(d) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than (i) if
the
10
<PAGE> 11
Corporation shall have outstanding at the time of such issuance, and
for a period of at least 30 trading days immediately prior to such
issuance, Public Company Stock, the Average Market Price of the Common
Stock or (ii) if otherwise, the Fair Market Value (as defined in
paragraph (p) below) per share of the Common Stock, on the date fixed
for the determination of stockholders entitled to receive such rights
or warrants, the Conversion Price in effect at the opening of business
on the day following the date fixed for such determination shall be
reduced by multiplying such Conversion Price by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at
such Average Market Price or Fair Market Value, as the case may be,
and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. In the event that such issuance is
not so made, (i) the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such date fixed
for the determination of stockholders entitled to receive such rights
or warrants had not been fixed, and the holders shall have the option
of reversing any exercise of their conversion rights hereunder made
after such record date in contemplation of such issuance (and thereby
re-establishing such conversion rights to the extent so exercised) by
returning to the Corporation any Common Stock, cash and other
securities or property which had been received upon such conversion;
provided that the option set forth in this clause (ii) shall be
exercisable by a holder only prospectively by a written instrument
delivered to the Corporation at the time of such conversion, which
instrument shall state that such holder revokes such conversion if
such distribution is not so made. For the purposes of this paragraph
(d), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of
11
<PAGE> 12
the Corporation but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.
The Corporation will not issue any rights or warrants in respect of
shares of Common Stock held in the treasury of the Corporation.
(e) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the date upon which such subdivision becomes effective shall
be proportionately reduced, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(f) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding (i) any
rights or warrants referred to in paragraph (d) above, (ii) any
dividend or distribution paid in cash or other property out of the
Adjusted Retained Earnings of the Corporation and (iii) any dividend
or distribution referred to in paragraph (c) above), then either (at
the option of the Corporation) (I) the Corporation shall elect to
include in such distribution the holders of shares of Series A
Preferred Stock in respect of the number of Series A Shares held by
such holders as of the record date for such distribution as if such
holders had converted such Series A Shares into Common Stock
immediately prior to such record date (such conversion assumed to be
made at the Conversion Price in effect without regard to the
adjustment provided in the following clause (II)), or (II) the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by
a frac-
12
<PAGE> 13
tion of which the numerator shall be the Fair Market Price per share
of the Common Stock on the date fixed for such determination less the
fair market value (as determined (A) if Nippon Life and its Affiliates
then own a majority of the Series A Shares then outstanding (i)
jointly by the Corporation and Nippon Life or (ii) if Nippon Life and
the Corporation cannot so agree, by an internationally recognized
investment banking firm selected by Nippon Life and the Corporation or
(B) if Nippon Life and its Affiliates do not then own a majority of
the Series A Shares then outstanding, by an independent,
internationally recognized investment banking firm selected by the
Corporation) on such date of the portion of the assets or evidences of
indebted ness so distributed applicable to one share of Common Stock
and the denominator shall be the Fair Market Price per share of the
Common Stock, such adjustment to become effective immediately prior to
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
In the event that such distribution is not so made, (i) the Conversion
Price shall again be adjusted to be the Conversion Price which would
then be in effect if such date fixed for the determination of
stockholders entitled to receive such distribution had not been fixed,
and (ii) the holders shall have the option of reversing any exercise
of their conversion rights hereunder made after such record date in
contemplation of such distribution (and thereby re-establishing such
conversion rights to the extent so exercised) by returning to the
Corporation any Common Stock, cash and other securities or property
which had been received upon such conversion; provided that the option
set forth in this clause (ii) shall be exercisable by a Holder only
prospectively by a written instrument delivered to the Corporation at
the time of such conversion, which instrument shall state that such
holder revokes such conversion if such distribution is not so made.
For purposes of this paragraph (f), "Adjusted Retained Earnings" shall
mean the retained earnings of the Corporation as of the date of such
dividend or distribution plus $500,000,000 plus any dividend paid
after August 10, 1990 (which has been debited against retained
earnings) on any Preferred Stock of the Corporation outstanding on
August 10, 1990. If the Corporation makes an election under clause
(I) of this paragraph (f)
13
<PAGE> 14
with respect to any such distribution payable on any Series A Share
(an "Elected Company Dividend"), the Corporation may in lieu of such
distribution elect to pay the fair market value (determined as
provided above) of such Elected Company Dividend in cash (the "Cash
Equivalent") or elect to defer payment of such Elected Company
Dividend or the Cash Equivalent to the holder of such Series A Share
and hold such amount (and any amounts subsequently paid or earned in
respect of such deferred Elected Company Dividend or Cash Equivalent)
in trust for the holder until the earlier to occur of (X) the
conversion of such Series A Share into Common Stock or (Y) the holder
of such Series A Share no longer having the right to exchange such
Series A Share for Parent Exchange Common Shares (otherwise than as a
result of an exchange for Parent Exchange Common Shares); provided,
that payment to the holder of such Series A Share shall be made
promptly after the earliest of such times; and provided, further,
that any such deferred Elected Company Dividend or Cash Equivalent
shall not be payable and shall be released to the Corporation and no
longer held in trust for the holder with respect to any Series A Share
that is exchanged for Parent Exchange Common Shares or is redeemed or
is otherwise purchased by the Corporation pursuant to Section 7.4 of
the 1990 Agreement. Any cash to be held in trust for the holder as a
deferred Elected Company Dividend or Cash Equivalent shall be invested
by the Corporation in U.S. government treasury bills.
(g) The reclassification (including any reclassification upon
a merger in which the Corporation is the continuing corporation, but
not including any transaction for which an adjustment is provided in
paragraph (h) below) of Common Stock into securities including other
than Common Stock shall be deemed to involve (i) a distribution of
such securities other than Common Stock to all holders of Common Stock
(and the effective date of such reclassification shall be deemed to be
"the date fixed for the determination of stockholders entitled to
receive such distribution" and "the date fixed for such determination"
within the meaning of paragraph (f) above), and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common
Stock outstanding immediately prior to such reclassification into the
number of
14
<PAGE> 15
shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day
upon which such subdivision becomes effective" or "the day upon which
such combination becomes effective," as the case may be, and "the day
upon which such subdivision or combination becomes effective" within
the meaning of paragraph (e) above).
(h) In case of any consolidation of the Corporation with, or
merger of the Corporation into, any other Person, any merger of
another Person into the Corporation (other than a merger which does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Corporation,
the Person formed by such consolidation or resulting from such merger
or which acquires such assets, as the case may be, shall execute and
deliver an assumption agreement satisfactory in form and substance to
a majority in interest of the holders, providing that the holders of
Series A Shares shall have the right thereafter, during the period
such Series A Shares shall be outstanding to convert such Series A
Shares only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer
by a holder of the number of shares of Common Stock into which such
Series A Shares might have been converted immediately prior to such
consolidation, merger, sale or transfer. If the holders of Common
Stock may elect from choices the kind or amount of securities, cash
and other property receivable in respect of any Series A Share upon
such consolidation, merger, sale or transfer, then for the purpose of
this Section 7 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer
shall be deemed to be the choice specified by the holder of such
Series A Share, which specification shall be made by such holder by
the later of (i) 20 Business Days after such holder is provided with a
final version of all information required by law or regulation to be
furnished to holders of Common Stock concerning such choice, or if no
such information is required, 20 Business Days after the Corporation
notifies such holder of all material facts concerning such
specification and (ii) the last time
15
<PAGE> 16
at which holders of Common Stock are permitted to make their
specification known to the Corporation. If such holder fails to make
any specification, such holder's choice shall be deemed to be whatever
choice is made by a plurality of holders of Common Stock not
affiliated with the Corporation or the other Person to the merger or
consolidation or, if no such holders exist, as specified by the Board
of Directors in good faith. Such assumption agreement shall provide
for adjustments which, for events subsequent to the effective date of
such written instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The
above provisions of this paragraph (h) shall similarly apply to
successive consolidations, mergers, sales or transfers.
(i) The Corporation may make such reductions in the
Conversion Price, in addition to those required by paragraphs (c),
(d), (e), (f) and (g) above, as it considers to be advisable in order
that any event treated for Federal income tax purposes as a dividend
of stock or stock rights shall not be taxable to the recipients.
(j) Whenever the Conversion Price is adjusted as herein
provided the Corporation shall compute the adjusted Conversion Price
in accordance with this Section 7 and shall prepare a certificate
signed by the Treasurer (or other responsible financial officer) of
the Corporation setting forth the adjusted Conversion Price and
showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed with the Transfer
Agent or Agents for the Series A Preferred Stock and a copy air mailed
as soon as practicable to the holders of record of the Series A
Shares.
(k) In case:
(i) the Corporation shall declare a dividend (or any
other distribution) on its Common Stock payable otherwise than in cash
out of its Adjusted Retained Earnings; or
(ii) the Corporation shall authorize the granting to
the holders of its Common Stock of rights or warrants to subscribe for
or pur-
16
<PAGE> 17
chase any shares of capital stock of any class or of any other rights;
or
(iii) of any reclassification of the capital stock
of the Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock), or of any consolidation or merger
to which the Corporation is a party and for which approval of common
stockholders of the Corporation is required, or of the sale or
transfer of all or substantially all of the assets of the Corporation;
or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then the corporation shall cause to be filed with the Transfer Agent
or Agents, if any, for the Series A Preferred Stock, and shall cause
to be air mailed to the holders of record of the outstanding shares of
Series A Preferred Stock, at least 30 days (or 15 days in any case
specified in clause (i) or (ii) above) prior to the applicable record
or effective date hereinafter specified, a notice stating (X) the date
on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined, or (Y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up.
(l) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but
unissued Common Stock, for the purpose of effective the conversion of
Series A
17
<PAGE> 18
Shares, the full number of shares of Common Stock then deliverable
upon the conversion of all Series A Shares then outstanding.
(m) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of
the market price per share of Common Stock (as determined in good
faith by the Board of Directors or in any manner prescribed by the
Board of Directors) at the close of business on the day of conversion.
(n) The Corporation will pay any and all stamp or other
similar taxes that may be payable in respect of the issue or delivery
of shares of Common Stock on conversion of Series A Shares pursuant
hereto. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that
in which the Series A Shares so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of any such tax, or
has established to the satisfaction of the Corporation that such tax
has been paid.
(o) In any case in which this Section 7 shall require that an
adjustment shall become effective immediately after a record date for
an event, the Corporation may defer until the occurrence of such event
(i) issuing to the holder of any Series A Shares converted after such
record date and before the occurrence of such event the additional
shares of Common Stock (and Elected Company Dividend or Cash
Equivalent, if any) issuable upon such conversion by reason of the
adjustment required by such event over and above the number of shares
of Common Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in
lieu of a fractional share of Common Stock pursuant to Section 7(m);
provided, that, upon the request of such holder, the Corporation shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's rights to receive such
18
<PAGE> 19
additional shares of Common Stock, and such cash, upon the occurrence
of the event requiring such adjustment.
(p) For the purpose of this Section 7:
(i) "Adjusted Retained Earnings" shall have the
meaning assigned in Section 7(f).
(ii) "Common Stock" shall include any stock of any
class of the Corporation which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
and which is not subject to redemption by the Corporation. However,
shares issuable on conversion of Series A Shares shall include only
shares of the class designated as Common Stock of the Corporation as
of the Closing Date, or shares of any class or classes resulting from
any reclassification or reclassifications thereof and which have no
preference in respect of dividends or of amounts payable in the event
of any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation and which are not subject to redemption by the
Corporation; provided that if at any time there shall be more than one
such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all
such reclassifications.
(iii) "Cash Equivalent" shall have the meaning
assigned in Section 7(f).
(iv) "Elected Company Dividend" shall have the
meaning assigned in Section 7(f).
(v) "Fair Market Value" per share of Common Stock on
any date means the fair market value thereof on the date in question,
which either (A) if Nippon Life and its Affiliates then own a majority
of the Series A Shares then outstanding (i) shall be determined
jointly by the Corporation and Nippon Life or (ii) if the Corpo-
19
<PAGE> 20
ration and Nippon Life cannot agree, shall be the value reasonably
determined in good faith by the Board of Directors of the Corporation
or (B) if Nippon Life and its Affiliates do not then own a majority of
the Series A Shares then outstanding, shall be the value reasonably
determined in good faith by the Board of Directors of the Corporation.
(vi) "Fair Market Price" per share of Common Stock
on any date means the fair market value thereof on the date in
question, determined (A) if Nippon Life and its Affiliates then own a
majority of the Series A Shares then outstanding (i) jointly by the
Corporation and Nippon Life or (ii) if the Corporation and Nippon Life
cannot so agree, by an independent internationally recognized
investment banking firm selected by the Corporation and Nippon Life or
(B) if Nippon Life and its Affiliates do not then own a majority of
the Series A Shares then outstanding, shall be determined by an
independent, internationally recognized investment banking firm
selected by the Corporation, which determination in any such case
shall include the value attributable to any assets or securities to be
distributed to the holders of Common Stock.
8. Voting Rights.
The holders of Series A Preferred Stock shall have the
following voting rights subject to the following terms and conditions:
(a) The holders of Series A Preferred Stock shall have voting
rights equal to the voting rights of holders of shares of Common Stock
and the Series A Shares shall vote together with the shares of Common
Stock (and of any other class or series which may similarly be
entitled to vote with the shares of Common Stock) as a single class
upon all matters upon which holders of Common Stock are entitled to
vote;
(b) So long as any of the Series A Shares remain outstanding,
the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the
affirmative vote at
20
<PAGE> 21
a meeting or the written consent with or without a meeting of the
holders of at least a majority of the Series A Shares then
outstanding, amend, alter or repeal any of the provisions of the
Certificate of Designation, Powers, Preferences and Rights of the
Series A Preferred Stock or the Restated Certificate of Incorporation
of the Corporation, or authorize any reclassification of the Series A
Preferred Stock, so as in any such case to affect adversely the
preferences, special rights or powers of the Series A Preferred Stock,
or authorize any capital stock of the Corporation ranking, either as
to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation, prior to the Series A Preferred Stock; and
(c) In exercising the voting rights set forth in this Section
8 or when otherwise granted voting rights by operation of law, each
share of Series A Preferred Stock shall be entitled to a number of
votes equal to the quotient obtained by dividing $39.10 by the
Conversion Price in effect at the time.
No consent of holders of the Series A Preferred Stock shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of capital stock
of the Corporation ranking junior or equal to the Series A Preferred Stock in
payment of dividends or upon liquidation, dissolution or winding up of the
Corporation.
9. Sinking Fund. The Series A Preferred Stock shall not be
subject to any right of mandatory payment or prepayment (except for
liquidation, dissolution or winding up of the Corporation) or to any sinking
fund.
10. Transfers. Unless held by American Express Company or
one or more of its Affiliates, the Series A Shares shall be subject to the
provisions of the Investment Agreement, as amended by the 1990 Agreement and
the 1994 Agreement, and may not be sold or transferred except in accordance
therewith.
11. Exchanges. Certificates representing Series A Shares
shall be exchangeable, at the option of the holder, for a new certificate or
certificates of the same or
21
<PAGE> 22
different denominations representing in the aggregate the same number of Series
A Shares.
12. Term. Subject to redemption as set forth in Section 5 or
to conversion as set forth in Section 7, the Series A Preferred Stock shall be
perpetual."
22
<PAGE> 23
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed on its behalf by its undersigned
_________________ and attested to by its Secretary this ____ day of May, 1994.
----------------------------
Name:
Title:
[Corporate Seal]
ATTEST:
- --------------------
Assistant Secretary
23
<PAGE> 1
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES AND RIGHTS
OF THE
CUMULATIVE VOTING PREFERRED STOCK
($25.00 liquidation preference per share)
OF
LEHMAN BROTHERS HOLDINGS INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
__________________________
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Lehman
Brothers Holdings Inc., a Delaware corporation (hereinafter called the
"Corporation"):
"RESOLVED that, pursuant to authority expressly granted to and
vested in the Board by provisions of the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"),
the issuance of a series of preferred stock, par value $1.00 per share,
which shall consist of 8,000,000 shares, is authorized, and the Board
hereby fixes the powers, designations, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of the shares of
such series of preferred stock (in addition to the powers,
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Certificate of Incorporation
which may be applicable to such series of preferred stock) as follows:
<PAGE> 2
1. Designation and Amount; Fractional Shares.
The designation for such series of preferred stock authorized
by this resolution shall be the "Cumulative Voting Preferred
Stock" (the "Cumulative Preferred Stock"). The maximum number
of shares of Cumulative Preferred Stock shall be 8,000,000.
The Cumulative Preferred Stock is issuable in whole shares
only.
2. Dividends. Holders of shares of Cumulative
Preferred Stock will be entitled to receive, when, as and if
declared by the Board or a duly authorized committee thereof
out of assets of the Corporation legally available for payment,
cash dividends payable quarterly at the Annual Dividend Rate
(as defined below) per annum. Dividends on the Cumulative
Preferred Stock will be payable quarterly on March 15, June 15,
September 15 and December 15 of each year, commencing June 15,
1994 (each a "dividend payment date"). Dividends on shares of
the Cumulative Preferred Stock will be cumulative from the date
of initial issuance of such shares of Cumulative Preferred
Stock. Dividends will be payable, in arrears, to holders of
record as they appear on the stock books of the Corporation on
such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the
Board. The amount of dividends payable for each full quarterly
dividend period in respect of each share of Cumulative
Preferred Stock shall be equal to the result obtained by
multiplying $6.25 by the Annual Dividend Rate. The amount of
dividends payable for the initial dividend period or any period
shorter than a full quarterly dividend period shall be
calculated on the basis of a 360-day year of twelve 30-day
months. As used herein, "Annual Dividend Rate" means the
arithmetic average of the yields, as of the close of business
on the business day immediately preceding the day on which the
shares of Cumulative Preferred Stock are initially issued, of
each of the issues of securities set forth on Schedule A hereto
and outstanding on such business day, as published
<PAGE> 3
in or quoted by a reputable source selected by the Corporation.
No dividends may be declared or paid or set apart for
payment on any Parity Preferred Stock (as defined in Paragraph
9(b) below) with regard to the payment of dividends unless
there shall also be or have been declared and paid or set apart
for payment on the Cumulative Preferred Stock, dividends for
all dividend payment periods of the Cumulative Preferred Stock
ending on or before the dividend payment date of such Parity
Preferred Stock, ratably in proportion to the respective
amounts of dividends (x) accumulated and unpaid or payable on
such Parity Preferred Stock, on the one hand, and (y)
accumulated and unpaid through the dividend payment period or
periods of the Cumulative Preferred Stock next preceding such
dividend payment date, on the other hand.
Except as set forth in the preceding sentence, unless
full cumulative dividends on the Cumulative Preferred Stock
have been paid through the most recently completed quarterly
dividend period for the Cumulative Preferred Stock, no
dividends (other than in common stock of the Corporation
("Common Stock")) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on
any other stock of the Corporation ranking junior to or on a
parity with the Cumulative Preferred Stock as to dividends, nor
may any Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Cumulative Preferred
Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration (or any payment be made to or
available for a sinking fund for the redemption of any shares
of such stock; provided, however, that any moneys theretofore
deposited in any sinking fund with respect to any preferred
stock of the Corporation in compliance with the provisions of
such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms
of such sinking fund,
3
<PAGE> 4
regardless of whether at the time of such application full
cumulative dividends upon shares of the Cumulative Preferred
Stock outstanding to the last dividend payment date shall have
been paid or declared and set apart for payment) by the
Corporation; provided that any such junior or parity stock or
Common Stock may be converted into or exchanged for stock of
the Corporation ranking junior to the Cumulative Preferred
Stock as to dividends.
3. Liquidation Preference. The shares of
Cumulative Preferred Stock shall rank, as to liquidation,
dissolution or winding up of the Corporation, prior to the
shares of Common Stock and any other stock of the Corporation
ranking junior to the Cumulative Preferred Stock as to rights
upon liquidation, dissolution or winding up of the Corporation,
so that in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the
holders of the Cumulative Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus
or earnings, before any distribution is made to holders of
shares of Common Stock or any other such junior stock, an
amount equal to $25.00 per share (the "Liquidation Preference"
of a share of Cumulative Preferred Stock) plus an amount equal
to all dividends (whether or not earned or declared) accrued
and accumulated and unpaid on the shares of Cumulative
Preferred Stock to the date of final distribution. The holders
of the Cumulative Preferred Stock will not be entitled to
receive the Liquidation Preference until the liquidation
preference of any other stock of the Corporation ranking senior
to the Cumulative Preferred Stock as to rights upon
liquidation, dissolution or winding up shall have been paid (or
a sum set aside therefor sufficient to provide for payment) in
full. After payment of the full amount of the Liquidation
Preference and such dividends, the holders of shares of
Cumulative Preferred Stock will not be entitled to any further
participation in any distribu-
4
<PAGE> 5
tion of assets by the Corporation. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the
holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be
distributable among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all
amounts payable thereon were paid in full. For the purposes
hereof, neither a consolidation or merger of the Corporation
with or into any other corporation, nor a merger of any other
corporation with or into the Corporation, nor a sale or
transfer of all or any part of the Corporation's assets shall
be considered a liquidation, dissolution or winding up of the
Corporation.
4. Conversion. The Cumulative Preferred Stock is
not convertible into shares of any other class or series of
stock of the Corporation.
5. Voting Rights. The holders of shares of
Cumulative Preferred Stock shall, in addition to any voting
rights to which they may be entitled under the laws of the
State of Delaware, have the right to vote in person or by proxy
on all matters voted on by the holders of Common Stock, voting
together with the holders of Common Stock as a class, with each
holder of Cumulative Preferred Stock entitled to cast thereon
0.25 votes per share of Cumulative Preferred Stock standing in
such holder's name.
In addition, whenever, at any time or times, dividends
payable on the shares of Cumulative Preferred Stock or on any
Parity Preferred Stock, shall be in arrears for an aggregate
number of days equal to six calendar quarters or more, whether
or not consecutive, the authorized number of directors of the
Corporation shall automatically be increased by two and the
holders of the outstanding shares of Cumulative Preferred Stock
shall have the
5
<PAGE> 6
right, with holders of shares of any one or more other class or
series of Parity Preferred Stock outstanding at the time upon
which like voting rights have been conferred and are
exercisable ("Voting Parity Stock") (voting together as a
class), to elect two directors to fill such newly created
directorships at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of
stockholders until such arrearages have been paid or set apart
for payment, at which time such right shall terminate, except
as herein or by law expressly provided, subject to revesting in
the event of each and every subsequent default of the character
above mentioned. Upon any termination of the right of the
holders of shares of Cumulative Preferred Stock and Parity
Voting Stock as a class to vote for directors as herein
provided, the term of office of all directors then in office so
elected shall terminate immediately and the authorized number
of directors shall be reduced by the number of directors
elected by the holders of the Cumulative Preferred Stock and
Voting Parity Stock pursuant to this paragraph.
Any director who shall have been so elected pursuant
to the preceding paragraph may be removed at any time, either
with or without cause. Any vacancy thereby created may be
filled only by the affirmative vote of the holders of shares of
Cumulative Preferred Stock voting separately as a class
(together with the holders of shares of Voting Parity Stock).
If the office of any director elected by the holders of shares
of Cumulative Preferred Stock voting as a class (together with
the holders of shares of Voting Parity Stock) becomes vacant
for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to the preceding paragraph
may choose a successor who shall hold office for the unexpired
term in respect of which such vacancy occurred. At elections
for such directors, each holder of shares of Cumulative
Preferred Stock shall be entitled to one vote for each share
held (the holders of shares of any other
6
<PAGE> 7
class or series of Voting Parity Stock being entitled to such
number of votes, if any, for each share of such stock held as
may be granted to them).
In addition, so long as any shares of Cumulative
Preferred Stock remain outstanding, the consent of the holders
of at least two-thirds of the shares of Cumulative Preferred
Stock outstanding at the time given in person or by proxy,
either in writing or at any meeting called for the purpose,
shall be necessary to permit, effect or validate any one or
more of the following:
(a) the issuance or increase of the
authorized amount of shares of any class or series of
stock ranking prior (as that term is defined in
Paragraph 9(a) hereof) to the Cumulative Preferred
Stock; or
(b) the amendment, alteration or repeal,
whether by merger, consolidation or otherwise, of any
of the provisions of the Certificate of Incorporation,
(including this resolution or any provision hereof)
that would materially and adversely affect any power,
preference, or special right of the shares of
Cumulative Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of
authorized Common Stock or authorized preferred stock
or any increase or decrease in the number of shares of
any series of preferred stock or the authorization,
creation and issuance of other classes or series of
Common Stock or other stock, in each case ranking on a
parity with or junior to the shares of Cumulative
Preferred Stock with respect to the payment of
dividends and the distribution of assets upon
liquidation, dissolution of winding up, shall not be
deemed to materially and adversely affect such powers,
preferences or special rights.
7
<PAGE> 8
The foregoing voting provisions shall not apply if, at
or prior to the time when the act with respect to which such
vote would otherwise be required or upon which the holders of
Cumulative Preferred Stock shall be entitled to vote shall be
effected, all outstanding shares of Cumulative Preferred Stock
shall have been redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect
such redemption.
6. Redemption. The shares of the Cumulative
Preferred Stock may be redeemed at the option of the
Corporation, as a whole, or from time to time in part, at any
time, upon not less than 30 days' prior notice mailed to the
holders of the shares to be redeemed at their addresses as
shown on the stock books of the Corporation; provided, however,
that shares of the Cumulative Preferred Stock shall not be
redeemable prior to June 1, 2001. Subject to the foregoing, on
or after such date, shares of the Cumulative Preferred Stock
are redeemable at a redemption price equal to $25.00 per share
together with an amount equal to all dividends (whether or not
earned or declared) accrued and accumulated and unpaid to, but
excluding, the date fixed for redemption.
If full cumulative dividends on the Cumulative
Preferred Stock have not been paid, the Cumulative Preferred
Stock may not be redeemed in part and the Corporation may not
purchase or acquire any shares of the Cumulative Preferred
Stock otherwise than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Cumulative
Preferred Stock. If fewer than all the outstanding shares of
Cumulative Preferred Stock are to be redeemed, the Corporation
will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to
this Paragraph 6 and if, on or before the date fixed for
redemption, the funds necessary for such redemption shall have
been set aside by the Corporation, separate and
8
<PAGE> 9
apart from its other funds, in trust for the pro rata benefit
of the holders of the shares of Cumulative Preferred Stock so
called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for
cancellation, on the redemption date dividends shall cease to
accrue on the shares to be redeemed, and at the close of
business on the redemption date the holders of such shares
shall cease to be stockholders with respect to such shares and
shall have no interest in or claims against the Corporation by
virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive the moneys
payable upon surrender (and endorsement, if required by the
Corporation) of their certificates, and the shares evidenced
thereby shall no longer be outstanding. Subject to applicable
escheat laws, any moneys so set aside by the Corporation and
unclaimed at the end of two years from the redemption date
shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for
redemption shall look only to the general funds of the
Corporation for the payment of the amounts payable upon such
redemption. Any interest accrued on funds so deposited shall
be paid to the Corporation from time to time.
7. Authorization and Issuance of Other
Securities. No consent of the holders of the Cumulative
Preferred Stock shall be required for (a) the creation of any
indebtedness of any kind of the Corporation, (b) the
authorization, creation, or increase or decrease in the amount,
of any class or series of stock of the Corporation not ranking
prior as to dividends or upon liquidation, dissolution or
winding up to the Cumulative Preferred Stock or (c) any
increase or decrease in the amount of authorized Common Stock
or any increase, decrease or change in the par value thereof or
in any other terms thereof.
8. Amendment of Resolution. The Board reserves
the right by subsequent amendment of
9
<PAGE> 10
this resolution from time to time to increase or decrease the
number of shares that constitute the Cumulative Preferred Stock
(but not below the number of shares thereof then outstanding)
and in other respects to amend this resolution within the
limitations provided by law, this resolution and the
Certificate of Incorporation.
9. Rank. For the purposes of this resolution,
any stock of any class or classes of the Corporation shall be
deemed to rank:
(a) prior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall be
entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of
shares of the Cumulative Preferred Stock;
(b) on a parity with shares of the
Cumulative Preferred Stock, either as to dividends or
upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share
thereof be different from those of the Cumulative
Preferred Stock, if the holders of stock of such class
or classes shall be entitled by the terms thereof to
the receipt of dividends or of amounts distributed
upon liquidation, dissolution or winding up, as the
case may be, in proportion to their respective
dividend rates or liquidation prices, without
preference or priority of one over the other as
between the holders of such stock and the holders of
shares of Cumulative Preferred Stock (the term "Parity
Preferred Stock" being used to refer to any stock on a
parity with the shares of Cumulative Preferred Stock,
either as to dividends or upon
10
<PAGE> 11
liquidation, dissolution or winding up, or both, as
the context may require); and
(c) junior to shares of the Cumulative
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
such class shall be Common Stock or if the holders of
the Cumulative Preferred Stock shall be entitled to
the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders
of stock of such class or classes.
The Cumulative Preferred Stock shall rank, as to
dividends and upon liquidation, dissolution or winding up, on a
parity with the Corporation's Redeemable Voting Preferred Stock
and the Corporation's Cumulative Convertible Voting Preferred
Stock, Series A."
11
<PAGE> 12
IN WITNESS WHEREOF, Lehman Brothers Holdings Inc. has
caused this Certificate to be made under the seal of the Corporation
and signed by ________________, its ____________, and attested by
____________________, its [Secretary] [Assistant Secretary], this ____
day of ______________, 1994.
LEHMAN BROTHERS HOLDINGS INC.
By: _________________________
Name:
Title:
[SEAL]
Attest:
_________________________________
[Secretary] [Assistant Secretary]
12
<PAGE> 1
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES AND RIGHTS
OF THE
REDEEMABLE VOTING PREFERRED STOCK
($1.00 liquidation preference per share)
OF
LEHMAN BROTHERS HOLDINGS INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
__________________________
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors (the "Board") of Lehman
Brothers Holdings Inc., a Delaware corporation (hereinafter called the
"Corporation"):
"RESOLVED that, pursuant to authority expressly granted to and
vested in the Board by provisions of the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"),
the issuance of a series of preferred stock, par value $1.00 per share,
which shall consist of 1,000 shares, is authorized, and the Board
hereby fixes the powers, designations, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of the shares of
such series of preferred stock (in addition to the powers,
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Certificate of Incorporation
which may be applicable to such series of preferred stock) as follows:
<PAGE> 2
1. Designation; Rank. The designation for such series of
preferred stock authorized by this resolution shall be the "Redeemable
Voting Preferred Stock" (the "Redeemable Preferred Stock"). The
maximum number of shares of Redeemable Preferred Stock shall be 1,000.
The Redeemable Preferred Stock is issuable in whole shares only.
For the purposes of this resolution, any stock of any class or
classes of the Corporation shall be deemed to rank:
(a) prior to shares of the Redeemable
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
the holders of stock of such class or classes shall be
entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of
shares of the Redeemable Preferred Stock;
(b) on a parity with shares of the
Redeemable Preferred Stock, either as to dividends or
upon liquidation, dissolution or winding up, or both,
whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share
thereof be different from those of the Redeemable
Preferred Stock, if the holders of stock of such class
or classes shall be entitled by the terms thereof to
the receipt of dividends or of amounts distributed
upon liquidation, dissolution or winding up, as the
case may be, in proportion to their respective
dividend rates or liquidation prices, without
preference or priority of one over the other as
between the holders of such stock and the holders of
shares of Redeemable Preferred Stock (the term "Parity
Preferred Stock" being used to refer to any stock on a
parity with the shares of Redeemable Preferred Stock,
either as to dividends or upon
<PAGE> 3
liquidation, dissolution or winding up, or both, as
the context may require); and
(c) junior to shares of the Redeemable
Preferred Stock, either as to dividends or upon
liquidation, dissolution or winding up, or both, if
such class shall be common stock of the Corporation
("Common Stock") or if the holders of the Redeemable
Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of
stock of such class or classes.
The Redeemable Preferred Stock shall rank, as to
dividends and upon liquidation, dissolution or winding up, on a
parity with the Corporation's Cumulative Voting Preferred Stock
and the Corporation's Cumulative Convertible Voting Preferred
Stock, Series A.
2. Certain Definitions. The following terms shall have
the meanings set forth below:
(a) "Accrued Interest" means, as of any date,
interest accrued up to and including such date on any Unpaid Amounts
(other than Unpaid Amounts referred to in the proviso to Paragraph
3(c)(i) hereof) in respect of all Dividends Periods ended on or prior
to such date.
(b) "Applicable Amount" means, with respect to any
Dividend Period, an amount equal to the result obtained by multiplying
$400,000,000 by the Applicable Percentage for such Dividend Period.
(c) "Applicable Percentage" means, with respect to
any Dividend Period, a fraction of which the numerator is the number of
calendar months in such Dividend Period and of which the denominator is
twelve (12).
(d) "Business Day" means any day other than
Saturday, Sunday or any other day on which the New York Stock Exchange
is closed.
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<PAGE> 4
(e) "Date of Original Issue" means the date on
which the Corporation initially issues the Redeemable Preferred Stock.
(f) "Default Rate" means (i) with respect to any
Unpaid Amount which shall have been unpaid for a period of one year or
less, a rate per annum equal to the sum of (A) the Treasury Rate and
(B) 0.50% and (ii) with respect to any Unpaid Amount which shall have
been unpaid for a period of more than one year, a rate per annum equal
to the sum of (A) the Two-Year Treasury Rate and (B) 1.50%.
(g) "Designated Event" means an event or series of
events as a result of which (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than a holder of
the Redeemable Preferred Stock, is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of shares
of Voting Stock representing more than 30% (or 34% in the case such
person is Nippon Life Insurance Company) of the combined voting power
of the then-outstanding Voting Stock; (ii) the Corporation consolidates
with or merges into any other corporation, or conveys, transfers or
leases all or substantially all of its assets to any person, or any
other corporation merges into the Corporation, and, in the case of any
such transaction, the outstanding Common Stock of the Corporation is
changed or exchanged as a result, unless the stockholders of the
Corporation immediately before such transaction own, directly or
indirectly, immediately following such transaction, at least 51% of the
combined voting power of the outstanding voting securities of the
corporation resulting from such transaction in substantially the same
proportion as their ownership of the Voting Stock immediately before
such transaction; (iii) the Corporation or any of its subsidiaries
consummates an acquisition (other than the acquisition, directly or
indirectly through any special purpose entity, of securities or other
inventory in the ordinary course of the Corporation's business)
involving aggregate consideration to the seller in an
4
<PAGE> 5
amount exceeding 30% of the Fair Market Value of the outstanding Common
Stock of the Corporation immediately prior to such transaction and
either (a) the ratio of consolidated indebtedness to consolidated
stockholders' equity of the Corporation as of the last day of the
calendar month immediately preceding the calendar month in which such
acquisition occurs or (b) the ratio of adjusted consolidated tangible
assets (total consolidated assets less goodwill) to consolidated
tangible net worth of the Corporation as of the last day of the
calendar month immediately preceding the calendar month in which such
acquisition occurs increases, on a pro forma basis as if such
acquisition occurred on such day, by more than 20% as a result of such
transaction; or (iv) on any day (a "Calculation Date") the Corporation
makes any distribution or distributions of cash, property or securities
(other than regular quarterly dividends, or a distribution in its
Common Stock, preferred stock which is substantially equivalent to
Common Stock or rights to acquire common stock or preferred stock which
is substantially equivalent to Common Stock) to holders of its Common
Stock, or the Corporation or any of its subsidiaries purchases or
otherwise acquires its Common Stock, and the sum of the fair market
value of such distribution or purchase on the Calculation Date, plus
the fair market value, when made, of all other such distributions and
purchases which have occurred during the twelve month period ending on
the Calculation Date, exceeds 30% of the aggregate Fair Market Value of
all of the shares of Common Stock outstanding at the close of business
on the last day prior to such twelve month period. Notwithstanding the
foregoing, a Designated Event shall not be deemed to occur solely
because any person (the "Subject Person") becomes the beneficial owner
of more than the permitted amounts of the outstanding Voting Stock as a
result of the acquisition of Voting Stock by the Corporation or any
subsidiary of the Corporation that, by reducing the number of shares of
Voting Stock outstanding, increases the proportional number of shares
beneficially
5
<PAGE> 6
owned by the Subject Person, provided that if a Designated Event would
occur (but for the operation of this sentence) as a result of the
acquisition of Voting Stock by the Corporation or any subsidiary of the
Corporation, and after such share acquisition, the Subject Person
becomes the beneficial owner of any additional Voting Stock that
increases the percentage of the then outstanding Voting Stock
beneficially owned by the Subject Person by more than 2%, then a
Designated Event shall occur.
(h) "Determination Date" means the last day of a
Dividend Period.
(i) "Dividend Payment Date" has the meaning specified
in Paragraph 3(b) hereof.
(j) "Dividend Period" means the Initial Dividend
Period or any Subsequent Dividend Period.
(k) "Earnings Release" has the meaning specified in
Paragraph 2(q) hereof.
(l) "Exchange Act" means the Securities Exchange Act
of 1934.
(m) "Failure Amount" means, as of any date, the
sum of the amount of dividends which were payable to the holders of
Redeemable Preferred Stock for any of the two Dividend Periods prior to
such date for which the amount of dividends payable was greater than
zero.
(n) "Fair Market Value" per share of capital stock
of the Corporation on any date means (i) if there is a public trading
market for such stock, the average of the daily closing prices for the
10 consecutive trading days selected by the Corporation commencing not
less than 20 days nor more than 30 trading days before such date or
(ii) if there is no trading market for such stock, the fair market
value thereof. For purposes of this definition, the closing price for
each day shall be the last reported sales price regular way or, the
average of the reported closing bid and asked pric-
6
<PAGE> 7
es regular way, in either case on the New York Stock Exchange or, if
the stock is not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the common stock is
listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, on the National Association of
Securities Dealers Automated Quotations National Market or, if not
listed or admitted to trading on any national securities exchange or
quoted on such National Market, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to time by the
Corporation for that purpose. For the purposes of this definition, the
term "trading day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday, other than any day on which securities are not traded on
such exchange or in such market.
(o) "GAAP" means generally accepted accounting
principles applicable to the period in question consistently applied
since the Date of Original Issue and throughout the period in question.
(p) "Initial Dividend Period" means the period
commencing on the first day of the calendar month immediately following
the calendar month in which the Date of Original Issue occurs and
ending on the earlier of (a) the day immediately preceding the first
day of the first full fiscal year of the Corporation commencing after
the Date of Original Issue and (b) the day immediately preceding the
first anniversary of the day on which the Initial Dividend Period
commenced.
(q) "Net Income" means, for any period, the aggregate
net income (or loss) of the Corporation for such period, determined on
a consolidated basis in accordance with GAAP and consistent with the
Corporation's past practice if not contrary to GAAP. Net Income with
respect to each Dividend Period shall be (i) based on consolidated
financial statements which have been prepared in compliance
7
<PAGE> 8
with Paragraph 3(e) hereof and (ii) calculated by a responsible
financial officer of the Corporation upon completion of each audit
referred to in Paragraph 3(e) hereof; provided that if such audited
financial statements are not available on or prior to the Dividend
Payment Date with respect to any Dividend Period, Net Income initially
shall be based on an earlier earnings release or other similar public
announcement or communication by the Corporation which sets forth an
estimate or other report of Net Income for such Dividend Period or, if
the Corporation is not subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act on such Dividend Payment Date, (and the
Corporation has not otherwise issued any such release, announcement or
communication) on an earlier estimate of Net Income for such Dividend
Period as set forth in a certificate signed by a responsible financial
officer of the Corporation (such release, communication or certificate
is referred to herein as an "Earnings Release"), which amount shall
thereafter be adjusted (upward or downward) upon the availability of
such audited financial statements.
(r) "Redeemable Stock" means any capital stock of
the Corporation that, by its terms or by the terms of any security into
which it is convertible or exchangeable, is, or upon the happening of
an event or passage of time would be, required to be redeemed or
repurchased, in whole or in part, including at the option of the holder
thereof.
(s) "Subsequent Dividend Period" means each period
of twelve (12) consecutive calendar months (or such shorter period
ending on the day referred to in the following proviso in the case of
the final Subsequent Dividend Period) commencing on the day immediately
following the last day of the Initial Dividend Period;provided however,
that the final Subsequent Dividend Period shall end on the last day of
the ninety-fifth (95th) calendar month following the calendar month in
which the Initial Dividend Period commenced.
(t) "Treasury Rate" means, with respect to any Unpaid
Amount, the yield, as of the Dividend
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<PAGE> 9
Payment Date in respect of which such Unpaid Amount was not paid, of
the issue of United States Treasury security (other than so-called
"treasury strips" or "stripped treasuries") outstanding on, and having
a maturity date closest to the first anniversary of, such Dividend
Payment Date (or if more than one such issue of security exists, the
arithmetic average of the yields of such securities, rounded to the
nearest one one-hundredth of one percent (.0001)), as published in The
Wall Street Journal, Eastern Edition, or, if not so published therein,
as published in or quoted by another reputable source selected by the
Corporation.
(u) "Two-Year Treasury Rate" means, with respect
to any Unpaid Amount, the yield, as of the Dividend Payment Date in
respect of which such Unpaid Amount was not paid, of the issue of
United States Treasury security (other than so-called "treasury strips"
or "stripped treasuries") outstanding on, and having a maturity date
closest to the second anniversary of, such Dividend Payment Date (or if
more than one such issue of security exists, the arithmetic average of
the yields of such securities, rounded to the nearest one one-hundredth
of one percent (.0001)), as published in The Wall Street Journal,
Eastern Edition, or, if not so published therein, as published in or
quoted by another reputable source selected by the Corporation.
(v) "Unpaid Amount" means, with respect to any
Dividend Period, the amount, if any, of the dividend due on the
Dividend Payment Date in respect of such Dividend Period which is not
paid in full on such date (whether due to the unavailability of audited
financial statements or otherwise), including, but not limited to, the
excess, if any, of a dividend calculated based on Net Income as set
forth in audited financial statements over a dividend calculated based
on Net Income as set forth in an Earnings Release.
(w) "Voting Stock" means all securities issued by
the Corporation having the ordinary power to vote in the election of
directors of the Corporation, other than securities hav-
9
<PAGE> 10
ing such power only upon the occurrence of a default or any other
extraordinary contingency.
3. Dividends; Priority; Certain Covenants. (a) Payments
of Dividends. The holders of shares of the Redeemable Preferred Stock
shall be entitled to receive dividends, when, as and if declared by the
Board or a duly authorized committee thereof, out of funds legally
available for the payment of dividends. The amount of dividends
payable in respect of each share of Redeemable Preferred Stock for any
Dividend Period shall be equal to the quotient obtained by dividing (a)
the lesser of (i) the result obtained by multiplying (A) 0.50 by (B)
the amount, if any, by which Net Income for such Dividend Period
exceeds the Applicable Amount for such Dividend Period or, if there is
no such excess, zero, and (ii) the result obtained by multiplying (A)
$50,000,000 by (B) the Applicable Percentage for such Dividend Period,
by (b) 1,000.
(b) Payment and Record Dates. Dividends on the
Redeemable Preferred Stock shall be payable on the 45th day following
the last day of each Dividend Period (each a "Dividend Payment Date");
provided, however, that if any such day is not a Business Day, the
applicable Dividend Payment Date shall be the next preceding day that
is a Business Day. Dividends will be payable to holders of record of
shares of Redeemable Preferred Stock as they appear on the stock books
of the Corporation at the close of business on the 15th day immediately
preceding the applicable Dividend Payment Date (or, if such day is not
a Business Day, the applicable record date shall be the next preceding
day that is a Business Day). Unpaid Amounts (including Accrued
Interest, if any) in respect of any Dividend Periods may be declared
and paid at any time to the holders of record as they appear on the
stock books of the Corporation on such record dates, not more than 60
days preceding the payment dates thereof, as shall be fixed by the
Board or a duly authorized committee thereof.
(c) Accrual of Dividends; Unpaid Amounts;
Interest; Excess Amounts. (i) Dividends on the Redeemable Preferred
Stock shall be fully cumulative
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<PAGE> 11
from the first day of the Initial Dividend Period. Unpaid Amounts
shall be payable together with Accrued Interest thereon to the date of
payment of such Unpaid Amounts at a per annum rate equal to the Default
Rate; provided that interest shall not accrue on any Unpaid Amount
which results from a difference between (A) a dividend paid on a
Dividend Payment Date and calculated based on the amount of Net Income
set forth in an Earnings Release made public or delivered to the
holders of the Redeemable Preferred Stock on or prior to such Dividend
Payment Date and (B) such dividend as recalculated based on the amount
of Net Income set forth in subsequently available audited financial
statements delivered to the holders of the Redeemable Preferred Stock
within 45 days following such Dividend Payment Date.
(ii) In the event that a dividend on the Redeemable
Preferred Stock for any Dividend Period was calculated and paid based
on Net Income as set forth in an Earnings Release and the amount of
such dividend is greater than the amount of dividend recalculated based
on Net Income as set forth in subsequently available audited financial
statements (such excess is hereinafter referred to as an "Excess
Dividend"), then promptly following receipt by the holders of the
Redeemable Preferred Stock to whom an Excess Dividend has been paid of
written notice from the Corporation, which notice sets forth in
reasonable detail the calculation of such Excess Dividend (including
per share amounts), each such holder shall repay to the Corporation
such holder's pro rata share of such Excess Dividend (without
interest).
(d) Priority as to Dividends; Restriction on
Redemption, etc. The Corporation shall not declare or pay or set apart
for payment any dividends or make any other distributions on, or
payment on account of the purchase, redemption or other retirement of
Common Stock or any other capital stock of the Corporation ranking
junior to the Redeemable Preferred Stock as to dividends or as to
distributions upon liquidation, dissolution or winding up of the
Corporation unless (i) full cumulative dividends (including Accrued
Interest, if any) on the shares of Redeemable Preferred Stock have been
paid for all
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<PAGE> 12
Dividend Periods ended on or prior to the date of such payment,
distribution, purchase, redemption or other retirement with respect to
such stock ranking junior to the Redeemable Preferred Stock, and (ii)
the Corporation is not in default with respect to any obligation
(including its obligations pursuant to Paragraphs 7(a) and 7(b) hereof)
to redeem or retire shares of the Redeemable Preferred Stock; provided,
however, that the foregoing shall not apply to (x) any dividend payable
solely in any shares of any stock ranking, as to dividends and as to
distributions in the event of a liquidation, dissolution or winding up
of the Corporation, junior to the Redeemable Preferred Stock or (y) the
acquisition of shares of any stock ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding up
of the Corporation, junior to the Redeemable Preferred Stock in
exchange solely for shares of any other stock ranking, as to dividends
and as to distributions in the event of a liquidation, dissolution or
winding up of the Corporation, junior to the Redeemable Preferred
Stock. When full cumulative dividends (including, in the case of the
Redeemable Preferred Stock, Accrued Interest, if any) are not paid in
full to the most recent dividend payment date upon the shares of
Redeemable Preferred Stock or any other class of stock of the
Corporation ranking on a parity as to dividends with shares of
Redeemable Preferred Stock, all dividends declared upon shares of
Redeemable Preferred Stock and any such other class of stock ranking on
a parity as to dividends with shares of Redeemable Preferred Stock
shall be declared pro rata so that the amount of dividends declared per
share on shares of Redeemable Preferred Stock and such other classes of
stock shall in all cases bear to each other the same ratio that accrued
and unpaid dividends (including, in the case of the Redeemable
Preferred Stock, Accrued Interest, if any) per share on the shares of
Redeemable Preferred Stock and such other classes of stock bear to each
other.
(e) Financial Statements. Promptly following the
end of each Dividend Period, but in no event later than 90 days
following the end of such Dividend Period, the Corporation shall
prepare, or
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<PAGE> 13
cause to be prepared, consolidated financial statements of the
Corporation as of the end of and for such period, audited by a
nationally recognized firm of independent public accountants.
(f) Financial Information. The Corporation will
provide to all holders of the Redeemable Preferred Stock, promptly
after the same become available, copies of all annual, quarterly,
current and other reports filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13 or 15(d) of the Exchange
Act. If the Corporation is not required to file such documents
pursuant to Section 13 or 15(d) of the Exchange Act, or, if the
Corporation is so required to file such reports pursuant to the
Exchange Act and the last day of a Dividend Period does not coincide
with the last day of the Corporation's fiscal year, the Corporation
will provide to all holders of the Redeemable Preferred Stock, promptly
after the same become available, consolidated financial statements of
the Corporation with respect to each Dividend Period, audited by a
nationally recognized firm of independent public accountants, together
with the accountants' report thereon and an officer's certificate which
sets forth in reasonable detail the calculation of the dividend on the
Redeemable Preferred Stock for such Dividend Period.
4. Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, before any distribution of the assets of the
Corporation to the holders of Common Stock or any other capital stock
of the Corporation ranking junior to the Redeemable Preferred Stock
upon liquidation, dissolution or winding up of the Corporation, the
holders of the Redeemable Preferred Stock shall be entitled to receive
out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, an amount per
share of Redeemable Preferred Stock equal to $1.00 plus an amount equal
to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid on such shares (including Accrued Interest, if
any) to the date of final distribution. If, upon any liquidation,
dissolution or
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<PAGE> 14
winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of Redeemable
Preferred Stock or any capital stock ranking on a parity with the
Redeemable Preferred Stock upon liquidation, dissolution or winding up
of the Corporation, shall be insufficient to pay in full the
preferential amounts to which such stock would be entitled, then such
assets, or the proceeds thereof, shall be distributable among such
holders ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were payable
in full. For the purposes hereof, neither a consolidation nor a merger
of the Corporation with one or more other corporations, nor a sale or a
transfer of all or substantially all of the assets of the Corporation,
shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Corporation.
5. Conversion. The Redeemable Preferred Stock is not
convertible into shares of any other class or series of stock of the
Corporation.
6. Voting Rights. The holders of shares of Redeemable
Preferred Stock shall, in addition to any voting rights to which they
may be entitled under the laws of the State of Delaware, have the right
to vote in person or by proxy on all matters voted on by the holders of
Common Stock, voting together with the holders of Common Stock as a
class, with each holder of Redeemable Preferred Stock entitled to cast
thereon 560 votes per share of Redeemable Preferred Stock standing in
such holder's name.
In addition, whenever, at any time or times, dividends payable
on the shares of Redeemable Preferred Stock or on any Parity Preferred
Stock, shall be in arrears for an aggregate number of days equal to six
calendar quarters or more, whether or not consecutive (which, in the
case of the Redeemable Preferred Stock shall be deemed to be an amount
of accumulated and unpaid dividends equal to the Failure Amount), the
authorized number of directors of the Corporation shall automatically
be increased by two and the holders of the outstanding shares of
Redeemable Preferred Stock shall have the right,
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<PAGE> 15
with holders of shares of any one or more other class or series of
Parity Preferred Stock outstanding at the time upon which like voting
rights have been conferred and are exercisable ("Voting Parity Stock")
(voting together as a class), to elect two directors to fill such newly
created directorships at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders
until such arrearages have been paid or set apart for payment, at which
time such right shall terminate, except as herein or by law expressly
provided, subject to revesting in the event of each and every
subsequent default of the character above mentioned. Upon any
termination of the right of the holders of shares of Redeemable
Preferred Stock and Voting Parity Stock as a class to vote for
directors as herein provided, the term of office of all directors then
in office so elected shall terminate immediately and the authorized
number of directors shall be reduced by the number of directors elected
by the holders of the Redeemable Preferred Stock and Voting Parity
Stock pursuant to this paragraph.
Any director who shall have been so elected pursuant to the
preceding paragraph may be removed at any time, either with or without
cause. Any vacancy thereby created may be filled only by the
affirmative vote of the holders of shares of Redeemable Preferred Stock
voting separately as a class (together with the holders of shares of
Voting Parity Stock). If the office of any director elected by the
holders of shares of Redeemable Preferred Stock voting as a class
(together with the holders of shares of Voting Parity Stock) becomes
vacant for any reason other than removal from office as aforesaid, the
remaining director elected pursuant to the preceding paragraph may
choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. At elections for such
directors, each holder of shares of Redeemable Preferred Stock shall be
entitled to 2,800 votes for each share held (the holders of shares of
any other class or series of Voting Parity Stock being entitled to such
number of votes, if any, for each share of such stock held as may be
granted to them).
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<PAGE> 16
So long as any shares of the Redeemable Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or
through merger or consolidation with any other corporation, without the
affirmative vote at a meeting or the written consent with or without a
meeting of the holders of at least two-thirds of the shares of
Redeemable Preferred Stock then outstanding, (a) authorize, create or
issue, or increase the authorized or issued amount, of any class or
series of stock ranking prior to the Redeemable Preferred Stock with
respect to payment of dividends or the distribution of assets on
liquidation, dissolution or winding up of the Corporation, or
reclassify any authorized stock of the Corporation into any such
shares, or create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such shares or
(b) amend, alter or repeal any of the provisions of the Certificate of
Designation, Powers, Preferences and Rights of the Redeemable Voting
Preferred Stock, so as in any such case to materially and adversely
affect the preferences, special rights or powers of the Redeemable
Preferred Stock;provided, however, that any increase in the amount of
authorized Common Stock or authorized preferred stock or any increase
or decrease in the number of shares of any series of preferred stock or
the authorization, creation and issuance of other classes or series of
Common Stock or other stock, in each case ranking on a parity with or
junior to the shares of Redeemable Preferred Stock with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution of winding up, shall not be deemed to materially and
adversely affect such preferences, special rights or powers.
7. Redemption. (a) Mandatory Redemption. Subject to
Paragraph 7(b), the shares of the Redeemable Preferred Stock may not be
redeemed by the Corporation prior to the Dividend Payment Date (the
"Final Payment Date") in respect of the final Subsequent Dividend
Period (as determined in accordance with the proviso to Paragraph 2(s)
hereof). On the Final Payment Date, the Corporation shall redeem, out
of funds legally available therefor, all of the
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then outstanding shares of Redeemable Preferred Stock. The redemption
pursuant to this Paragraph 7(a) shall be made upon not less than 30
days' prior notice (which notice shall comply with the provisions of
Paragraph 7(c) hereof) mailed to the holders of Redeemable Preferred
Stock at their respective addresses as shown on the stock books of the
Corporation; provided, however, that the Corporation's failure to give
such notice shall in no way affect its obligation to redeem the shares
of Redeemable Preferred Stock as provided in this Paragraph 7(a). The
redemption price for each share of Redeemable Preferred Stock redeemed
pursuant to this Paragraph 7(a) shall be equal to $1.00 per share
together with an amount equal to all dividends (whether or not earned
or declared) accrued and accumulated and unpaid on such shares
(including Accrued Interest, if any) to the Redemption Date (as defined
below).
(b) The Corporation shall deliver written notice
(an "Event Notice") to each holder of the Redeemable Preferred Stock at
their respective addresses as shown on the stock books of the
Corporation within 10 business days of the occurrence of a Designated
Event. If a Designated Event occurs, each record holder of shares of
Redeemable Preferred Stock, by written request (a "Request Notice")
delivered to the Corporation no later than 25 days following delivery
by the Corporation to such holder of an Event Notice in respect of such
Designated Event, may require the Corporation to redeem, out of funds
legally available therefor, any or all of the shares of Redeemable
Preferred Stock held by such holder at the redemption price set forth
below. Any redemption made pursuant to this Paragraph 7(b) shall be
made (i) upon not less than 15 days and not more than 30 days prior
notice (which notice shall (A) comply with the provisions of Paragraph
7(c) hereof and (B) shall not be delivered prior to the earlier of the
termination of the 25-day period referred to above and the request for
redemption pursuant to this Paragraph 7(b) by the holders of all of the
then outstanding shares of Redeemable Preferred Stock) mailed to each
holder requesting such redemption as shown on the stock books of the
Corporation,provided, howeve, that the
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Corporation's failure to give such notice, or an Event Notice, shall in
no way affect its obligation to redeem the shares of Redeemable
Preferred Stock as provided in this Paragraph 7(b), and (ii) not later
than 60 days (or such later time as determined pursuant to the
following paragraph) following receipt by the Corporation of the first
Request Notice in respect of the applicable Designated Event. With
respect to each occurrence of a Designated Event, the Corporation shall
call for redemption on one Redemption Date all of the shares (subject
to the availability of funds being legally available therefor) of
Redeemable Preferred Stock requested to be redeemed by each requesting
holder during the 25-day period referred to above.
The redemption price for each share of Redeemable Preferred
Stock redeemed pursuant to this Paragraph 7(b) shall be equal to the
quotient obtained by dividing (i) the result obtained by multiplying
(A) $50,000,000 by (B) 8 minus the number of Determination Dates which
have occurred prior to the date (the "Event Date") the Designated Event
occurs, by (ii) 1,000, together with (1) accrued interest, if any, on
such amount from the 1st day following the expiration of the 60 day
period referred to in clause (ii) of the preceding paragraph or the 90
day period referred to in the last sentence of this paragraph,
whichever is applicable, to the Redemption Date at the Default Rate
(such interest to be calculated assuming that, for purposes of the
definition of Default Rate and defined terms used in such definition,
that such amount is an "Unpaid Amount" and that such 61st day or 91st
day, as the case may be, is a "Dividend Payment Date") and (2) an
amount equal to all dividends (whether or not earned or declared)
accrued and accumulated and unpaid on such shares (including Accrued
Interest, if any) to the Redemption Date. If any redemption
obligations arise pursuant to this Paragraph 7(b) as a result of the
occurrence of a Designated Event of the type described under clause (i)
of Section 2(g), and any acquisition of Voting Stock by the applicable
person referred to therein had been made without approval of a majority
of the Board as constituted prior to the time such Designated Event
takes place (a "Hostile Event"), the Corporation shall pay the
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redemption price only with the proceeds of one or more sales of capital
stock of the Corporation, other than Redeemable Stock. In the event a
Hostile Event occurs and at such time the Corporation is not eligible
to use Form S-3 under the Securities Act for the registration of its
capital stock or the Corporation otherwise determines in good faith
that additional time is necessary to complete the financial statements
required to be included in a registration statement in respect of the
sale of its capital stock, then the redemption made pursuant to
Paragraph 7(b) shall be made within 90 days following receipt by the
Corporation of the first Request Notice in respect of such Hostile
Event.
(c) Redemption Notices. Notice of redemption (a
"Redemption Notice") of shares of Redeemable Preferred Stock pursuant
to Paragraphs 7(a), 7(b) or 7(d) shall be given by the Corporation by
mailing a copy of such notice to holders of record of the shares of
Redeemable Preferred Stock at their respective addresses appearing on
the books of the Corporation. Said notice shall specify the shares
called for redemption, the price at which and the date (the "Redemption
Date") on which the shares called for redemption will, upon
presentation and surrender of the certificates of stock evidencing such
shares, be redeemed. From and after the Redemption Date fixed in any
such notice, unless default shall be made by the Corporation in
providing monies at the time and place specified for the payment of the
redemption price pursuant to said notice, all dividends (including
Accrued Interest, if any) on the shares of Redeemable Preferred Stock
thereby called for redemption shall cease to accrue and all rights of
the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price (and such Accrued Interest, if
any), shall cease and terminate. In addition, all dividends (but not
Accrued Interest, if any) shall be deemed to have ceased accruing from
and after the Event Date in respect of any Designated Event on any
shares of Redeemable Preferred Stock called for redemption pursuant to
a Request Notice in respect of such Designated Event covering such
shares, unless default shall be made by the Corporation in providing
monies at the time and place specified for
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<PAGE> 20
the payment of the redemption price pursuant to the Redemption Notice
delivered in connection therewith. All shares of Redeemable Preferred
Stock redeemed by the Corporation shall be retired and cancelled and
shall not thereafter be reissued.
(d) Insufficient Funds for Redemption. If the
funds of the Corporation legally available for redemption of the
Redeemable Preferred Stock on a Redemption Date in respect of its
redemption obligations pursuant to Paragraphs 7(a) or 7(b) are
insufficient to redeem the number of shares of Redeemable Preferred
Stock to be so redeemed pursuant to Paragraphs 7(a) or 7(b), the
holders of the Redeemable Preferred Stock shall share ratably in any
funds legally available for redemption of such shares according to the
respective amounts which would be payable with respect to the number of
shares owned by them if the shares to be so redeemed on such Redemption
Date were redeemed in full. The shares of Redeemable Preferred Stock
not redeemed shall remain outstanding and entitled to all rights and
preferences provided herein. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of
such shares of Redeemable Preferred Stock, such funds will be used, as
soon as practicable but no later than the end of the next succeeding
fiscal quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available, on the basis set
forth above. If the Corporation is in default of its redemption
obligations pursuant to Paragraphs 7(a) or 7(b), in addition to the
restrictions set forth in Paragraph 3(d) hereof, the Corporation shall
not declare or pay or set apart for payment any dividends or make any
other distributions on, or payment on account of the purchase,
redemption or other retirement of any capital stock of the Corporation
ranking on a parity with the Redeemable Preferred Stock as to dividends
or as to distributions upon liquidation, dissolution or winding up of
the Corporation; provided, however, that the foregoing shall not apply
to (x) any dividend payable solely in any shares of any stock ranking,
as to dividends and as to distributions in the event of a liquidation,
dissolution or winding up of the Corporation, junior to the Redeemable
Preferred Stock or (y) the acquisition of shares of any stock ranking,
as to dividends or as to distribu-
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tions in the event of a liquidation, dissolution or winding up of the
Corporation, on a parity with the Redeemable Preferred Stock in
exchange solely for shares of any stock ranking, as to dividends and as
to distributions in the event of a liquidation, dissolution or winding
up of the Corporation, junior to the Redeemable Preferred Stock."
IN WITNESS WHEREOF, Lehman Brothers Holdings Inc. has caused
this Certificate to be made under the seal of the Corporation and signed by
________________, its ____________, and attested by ____________________, its
Assistant Secretary, this ____ day of ______________, 1994.
LEHMAN BROTHERS HOLDINGS INC.
By: _________________________
Name:
Title:
[SEAL]
Attest:
____________________________
Assistant Secretary
21
<PAGE> 1
EXHIBIT 3.5
<PAGE> 2
DRAFT 4/27/94
LEHMAN BROTHERS HOLDINGS INC.
Incorporated Under the Laws of the
State of Delaware
BY-LAWS
ARTICLE I
OFFICES
Lehman Brothers Holdings Inc. (the "Corporation") shall maintain a
registered office in the State of Delaware. The Corporation may also have
other offices at such places, either within or without the State of Delaware,
as the Board of Directors may from time to time designate or the business of
the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held on such date, at
such time and at such place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. The Annual Meeting of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact only such other business as is properly brought before the meeting
in accordance with these By-Laws. Written notice of the Annual Meeting stating
the place, date and hour of the meeting shall be given as permitted by law to
each stockholder entitled to vote at such meeting not less than ten (10) nor
more than sixty (60) days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or the
Restated Certificate of Incorporation (such Certificate, as amended from time
to time, including resolutions adopted from time to time by the Board of
Directors establishing the designation, rights, preferences and other terms of
any class or series of capital stock, the "Certificate of Incorporation")
special meetings of the stockholders may be called only by the Chairman of the
Board, the Chief Executive Officer, the President, the Secretary at the request
of the Board of Directors or any committee thereof or the holders of at least a
majority of the shares of capital stock issued and outstanding and entitled to
vote thereat ("Voting Stock"). Written notice of a Special Meeting stating the
place, date and hour of the meeting and the purpose or
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<PAGE> 3
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. Only such business as is
specified in the notice of special meeting shall come before such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the Voting Stock,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally noticed. If the adjournment
is for more than thirty (30) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder entitled to vote at the meeting. When a
quorum is once present, it is not broken by the subsequent withdrawal of any
stockholder.
Section 5. Appointment of Inspectors of Election. The Board of
Directors shall, in advance of sending to the stockholders any notice of a
meeting of the holders of any class of shares, appoint one or more inspectors
of election ("inspectors") to act at such meeting or any adjournment or
postponement thereof and make a written report thereof. The Board of
Directors may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is so appointed
or if no inspector or alternate is able to act, the Chairman of the Board shall
appoint one or more inspectors to act at such meeting. Each inspector, before
entering upon the discharge of such inspector's duties, shall take and sign an
oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of such inspector's ability. The inspectors shall not be
directors, officers or employees of the Corporation.
Section 6. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, each stockholder of record of any class or series
of stock having a preference over the Common Stock of the Corporation as to
dividends or upon liquidation shall be entitled on each matter submitted to a
vote at each meeting of stockholders to such number of votes for each share of
such stock as may be fixed in the Certificate of Incorporation, and each
stockholder of record of Common Stock shall be entitled at each meeting of
stockholders to one vote for each share of such stock, in each case, registered
in such stockholder's name on the books of the Corporation on the date fixed
pursuant to Section 5 of Article VI of these By-Laws as the record date for the
determination of stockholders entitled to notice of and to vote at such
meeting, or if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice of such meeting
is given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
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<PAGE> 4
Each stockholder entitled to vote at any meeting may vote either in
person or by proxy, duly appointed by an instrument in writing executed by such
stockholder and bearing a date not more than three years prior to said meeting,
unless said proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time designated
for holding such meeting, but in any event not later than the time designated
in the order of business for so delivering such proxies.
At all meetings of stockholders all matters, except as otherwise
provided by law, the Certificate of Incorporation, or these By-Laws shall, be
determined by a majority vote of the stockholders present in person or by proxy
and entitled to vote thereat, and where a separate vote by class is required, a
majority of the votes cast by the stockholders of such class present in person
or by proxy, shall be the act of such class.
The vote on any matter, including the election of directors, shall be
by written ballot. Each ballot shall be signed by the stockholder voting, or
by such stockholder's proxy, and shall state the number of shares voted. All
proxies, ballots and vote tabulations that identify the particular vote of a
stockholder shall be kept confidential, except that disclosure of the
particular vote may be made: (i) to allow the inspectors to certify the results
of the vote; (ii) as necessary under applicable legal requirements, including
the pursuit or defense of judicial actions; (iii) when such disclosure is
expressly requested by such stockholder; and (iv) except where such vote is
included in a comment written on a proxy, consent or ballot, and disclosure is
necessary, in the opinion of the inspector, for an understanding of the
comment.
Proxy cards shall be returned in envelopes addressed to the inspectors,
who shall receive, inspect and tabulate the proxies. Comments written on
proxies, consents or ballots shall be transcribed and provided to the Secretary
with the name and address of the stockholder.
Nothing in this Section 6 shall prohibit the inspector from making
available to the Corporation, during the period prior to any annual or special
meeting, information as to which stockholders have not voted and periodic
status reports on the aggregate vote.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
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Section 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Advance Notice of Stockholder-Proposed Business at Annual
Meeting. To be properly brought before the Annual Meeting, business must be
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
(c) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an Annual Meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive officers of the Corporation
not less than ninety (90) nor more than one hundred twenty (120) days prior to
the one year anniversary of the date of the Annual Meeting of the previous
year; provided, however, that in the event that the Annual Meeting is called
for a date that is not within thirty (30) days before or after such anniversary
date, notice by the stockholder in order to be timely must be so received not
earlier than one hundred twenty (120) days prior to such Annual Meeting and not
later than the close of business on the tenth (10th) day following the day on
which notice of the date of the Annual Meeting was mailed or public disclosure
of the date of the annual meeting was made, whichever first occurs. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the Annual Meeting (i) a brief description
of the business desired to be brought before the Annual Meeting and the reasons
for conducting such business at the Annual Meeting, (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation that are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information relating to the
person or the proposal that is required to be disclosed pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (or any successor
provision or law) or applicable law.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at an Annual Meeting except in accordance with the
procedures set forth in this Section 9; provided, however, that nothing in this
Section 9 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting. The Chairman of an Annual
Meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 9 and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 10. Nomination of Directors; Advance Notice of Stockholder
Nominations. Only persons who are nominated in accordance with the procedures
set forth in this Section 10 shall be eligible for election as directors.
Nominations of persons for election to the Board of
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Directors of the Corporation at the Annual Meeting or at any special meeting of
stockholders called in the manner set forth in Article II, Section 3 hereof
for the purpose of electing directors may be made at a meeting of stockholders
by or at the direction of the Board of Directors, by any nominating committee
or person appointed for such purpose by the Board of Directors, or by any
stockholder of the Corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section 10. Such nominations, other than those made by, or at the direction
of, or under the authority of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (a) in the case of an Annual
Meeting, not less than ninety (90) nor more than one hundred twenty (120) days
prior to the one year anniversary of the date of the Annual Meeting of the
previous year; provided, however, that in the event that the Annual Meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not earlier than one hundred twenty (120) days prior to such Annual
Meeting and not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the annual meeting was mailed
or public disclosure of the date of the Annual Meeting was made, whichever
first occurs; and (b) in the case of a special meeting of stockholders called
in the manner set forth in Article II, Section 3 hereof for the purpose of
electing directors, not earlier than one hundred twenty (120) days prior to
such special meeting and not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the special meeting
was mailed or public disclosure of the date of the special meeting was made,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class and number of shares of capital stock of the
Corporation, if any, which are beneficially owned by the person and (iv) any
other information relating to the person that is required to be disclosed in
solicitations for proxies for election of Directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (or any successor
provision or law) or applicable law; and (b) as to the stockholder giving the
notice (i) the name and record address of the stockholder and (ii) the class
and number of shares of capital stock of the Corporation which are beneficially
owned by the stockholder.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedures and, if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. Number; Resignation; Removal. Except as otherwise required
by the Certificate of Incorporation, the number of directors which shall
constitute the whole Board of
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Directors shall be fixed from time to time by resolution of the Board of
Directors, but shall not be less than six (6) nor more than twenty-four (24).
Except as provided in Section 2 of this Article III and in the Certificate of
Incorporation, directors shall be elected by a plurality of the votes cast at
the Annual Meeting of Stockholders. The directors shall be divided into three
classes, designated Class I, Class II and Class III, as provided in the
Certificate of Incorporation. A director may resign at any time upon notice to
the Corporation. A director may be removed only for cause.
Section 2. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the remaining directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so elected shall
hold office until the next election for such class and until their successors
are duly elected and qualified, or until their earlier resignation or removal.
If there are no directors in office, then an election of directors may be held
in the manner provided by the General Corporation Law of the State of Delaware.
No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
Section 3. Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done solely by the
stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the Chief Executive Officer, the President
or any director. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either (i) by mail or courier not less
than forty-eight (48) hours before the date of the meeting or (ii) by
telephone, telegram or facsimile transmission, not less than twenty-four (24)
hours before the time of the meeting or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances (provided that notice of any meeting need not be given to any
director who shall either, before or after such meeting, submit a signed waiver
of notice or attends the meeting without protesting, prior to its commencement,
the lack of notice).
Section 5. Quorum. Except as may be otherwise provided by law, the
Certificate of Incorporation or these By-Laws, a majority of the entire Board
of Directors shall be necessary to constitute a quorum for the transaction of
business, and the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. If a
quorum is not present at a meeting of the Board of Directors, a majority of the
directors present may adjourn the meeting to such time and place as they may
determine without notice other than an announcement at the meeting until enough
directors to constitute a
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quorum shall attend.
Section 6. Action Without A Meeting. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken by the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board of Directors or the committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the Board of
Directors or committee shall be filed with the minutes of the proceedings of
the Board of Directors or such committee.
Section 7. Participation By Telephone. Unless otherwise provided by
the Certificate of Incorporation or these By-Laws, any one or more members of
the Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other. Participation by such means shall constitute
presence in person at the meeting.
Section 8. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors or any committee
thereof and may be paid compensation as a director, committee member or
chairman of any committee and for attendance at each meeting of the Board of
Directors or committee thereof. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor or entering into transactions otherwise permitted by the Certificate
of Incorporation, these By-Laws or applicable law.
Section 9. Resignation. Any director may resign at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein, or, if no time be specified, at the time of its receipt by
the Chairman of the Board, or if none, by the Chief Executive Officer,
President or the Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
ARTICLE IV
COMMITTEES
Section 1. Committees. The Board of Directors, by resolution passed
by a majority of the entire Board of Directors, may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or member
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of any absent or
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disqualified member. Any committee, to the extent allowed by law and
provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, including the power
to adopt a certificate of ownership and merger pursuant to Section 253 of
Delaware General Corporation Law, the authority to issue shares and the
authority to declare a dividend, except as limited by Delaware General
Corporate law or other applicable law. All acts done by any committee within
the scope of its powers and duties pursuant to these By-Laws and the
resolutions adopted by the Board of Directors shall be deemed to be, and may be
certified as being, done or conferred under authority of the Board of
Directors. The Secretary or any Assistant Secretary is empowered to certify
that any resolution duly adopted by any such committee is binding upon the
Corporation and to execute and deliver such certifications from time to time as
may be necessary or proper to the conduct of the business of the Corporation.
Section 2. Resignation. Any member of a committee may resign at any
time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or, if no time be specified, at the time of its receipt
by the Chairman of the Board, or if none, by the Chief Executive Officer,
President or the Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
Section 3. Quorum. A majority of the members of a committee shall
constitute a quorum. The vote of a majority of the members of a committee
present at any meeting at which a quorum is present shall be the act of such
committee. thereof shall have no powers
Section 4. Record of Proceedings. Each committee shall keep a record
of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
Section 5. Organization, Meetings, Notices. A committee may hold its
meetings at the principal office of the Corporation, or at any other place upon
which a majority of the committee may at any time agree. Each committee may
make such rules as it may deem expedient for the regulation and carrying on of
its meetings and proceedings.
ARTICLE V
OFFICERS
Section 1. General. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a Chairman of the Board, Chief
Executive Officer, a President, a Chief Financial Officer, one or more Senior
Executive Vice Presidents, one or more Executive Vice Presidents, one or more
Senior Vice Presidents, one or more First Vice Presidents, one or more Vice
Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors,
in its discretion, may also elect and specifically identify as officers of the
Corporation one or more Vice Chairmen of the Board, one or more Assistant Vice
Presidents, one or more
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Assistant Secretaries, one or more Assistant Treasurers and one or more
Assistant Controllers as in its judgment may be necessary or desirable. Any
number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders or directors of the
Corporation.
Section 2. Election; Removal; Remuneration. The Board of Directors at
its first meeting held after each Annual Meeting of Stockholders shall elect
the officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors and may elect additional officers and
may fill vacancies among the officers previously elected at any subsequent
meeting of the Board of Directors; and all officers of the Corporation shall
hold office until their successors are chosen and qualified, or until their
earlier resignation or removal. Any officer elected by the Board of Directors
may be removed at any time, either for or without cause, by the affirmative
vote of a majority of the Board of Directors. The compensation of all officers
of the Corporation shall be fixed by the Board of Directors or a committee
thereof.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meetings, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the Chairman of the Board,
Chief Executive Officer, the President, Secretary or any Senior Executive Vice
President, Executive Vice President, Senior Vice President, First Vice
President, Vice President or Assistant Secretary and any such officer may, in
the name and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board. The Chairman of the Board may be,
but need not be, a person other than the Chief Executive Officer of the
Corporation. The Chairman of the Board may be, but need not be, an officer or
employee of the Corporation. The Chairman of the Board shall preside at
meetings of the Board of Directors and shall establish agendas for such
meetings. In addition, the Chairman of the Board shall assure that matters of
significant interest to stockholders and the investment community are addressed
by management. The Chairman of the Board shall be an ex-officio of each
standing committee of the Board to which the Board of Directors has not
specifically designated him as a member.
Section 5. Chief Executive Officer. The Chief Executive Officer
shall, subject to the direction of the Board of Directors, have general and
active control of the affairs and business of the Corporation and general
supervision of its officers, officials, employees and agents.
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The Chief Executive Officer shall preside at all meetings of the stockholders
and shall preside at all meetings of the Board of Directors and any committee
thereof of which he is a member, unless the Board of Directors or such
committee shall have chosen another chairman. The Chief Executive Officer
shall see that all orders and resolutions of the Board are carried into effect,
and in addition, the Chief Executive Officer shall have all the powers and
perform all the duties generally appertaining to the office of the chief
executive officer of a corporation. The Chief Executive Officer shall
designate the person or persons who shall exercise his powers and perform his
duties in his absence or disability and the absence or disability of the
President.
Section 6. President. The President shall have such powers and
perform such duties as are prescribed by the Chief Executive Officer or the
Board of Directors, and in the absence or disability of the Chief Executive
Officer, the President shall have the powers and perform the duties of the
Chief Executive Officer, except to the extent the Board of Directors shall have
otherwise provided. In addition, the President shall have such powers and
perform such duties generally appertaining to the office of the president of a
corporation, except to the extent the Chief Executive Officer or the Board of
Directors shall have otherwise provided.
Section 7. Vice Chairmen of the Board. The Vice Chairmen of the Board
shall be members of the Board of Directors and shall perform such duties and
have such powers as may be prescribed by the Board of Directors, by the
Chairman of the Board or these By-Laws.
Section 8. Senior Executive Vice Presidents. The Senior Executive Vice
Presidents of the Corporation shall perform such duties and have such powers as
may, from time to time, be assigned to them by these By-Laws, the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
Section 9. Executive Vice Presidents. The Executive Vice Presidents of
the Corporation shall perform such duties and have such powers as may, from
time to time, be assigned to them by these By-Laws, the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President or a Senior
Executive Vice President.
Section 10. First Vice Presidents. The First Vice Presidents of the
Corporation shall perform such duties and have such powers as may, from time to
time, be assigned to them by these By-Laws, the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President, a Senior
Executive Vice President or an Executive Vice President.
Section 11. Vice Presidents. The Vice Presidents of the Corporation
shall perform such duties and have such powers as may, from time to time, be
assigned to them by these By-Laws, the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the President, a Senior Executive Vice
President, an Executive Vice President or a First Vice President.
Section 12. Secretary. The Secretary shall attend all meetings of the
Board of
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Directors and of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose, and shall perform like
duties for any committee appointed by the Board of Directors. The Secretary
shall keep in safe custody the seal of the Corporation and affix it to any
instrument when so authorized by the Board of Directors. The Secretary shall
give or cause to be given, notice of all meetings of stockholders and special
meetings of the Board of Directors and shall perform generally all the duties
usually appertaining to the office of secretary of a corporation and shall
perform such other duties and have such other powers as may be prescribed by
the Board of Directors or these By-Laws. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature.
Section 13. Assistant Secretaries. The Assistant Secretaries shall be
empowered and authorized to perform all of the duties of the Secretary in the
absence or disability of the Secretary and shall perform such other duties and
have such other powers as may be prescribed by the Board of Directors, the
Secretary or these By-Laws.
Section 14. Chief Financial Officer. The Chief Financial Officer
shall have responsibility for the administration of the financial affairs of
the Corporation and shall exercise supervisory responsibility for the
performance of the duties of the Treasurer and the Controller. The Chief
Financial Officer shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all of the
transactions effected by the Treasurer and Controller and of the financial
condition of the Corporation. The Chief Financial Officer shall generally
perform all the duties usually appertaining to the affairs of a chief financial
officer of a corporation and shall perform such other duties and have such
other powers as may be prescribed by the Board of Directors or these By-Laws.
Section 15. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Corporation
and shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by persons
authorized by the Board of Directors. The Treasurer shall disburse the funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Chairman of the Board,
the President and the Directors whenever they may require it, an account of all
of the transactions effected by the Treasurer and of the financial condition of
the Corporation. The Treasurer may be required to give a bond for the faithful
discharge of his or her duties. The Treasurer shall generally perform all
duties appertaining to the office of treasurer of a corporation and shall
perform such other duties and have such other powers as may be prescribed by
the Board of Directors or these By-Laws.
Section 16. Assistant Treasurers. The Assistant Treasurers shall be
empowered and authorized to perform all the duties of the Treasurer in the
absence or disability of the Treasurer and shall perform such other duties and
have such other powers as may be prescribed by the Board of Directors, the
Treasurer or these By-Laws.
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Section 17. Controller. The Controller shall prepare and have the
care and custody of the books of account of the Corporation. The Controller
shall keep a full and accurate account of all moneys, received and paid on
account of the Corporation, and shall render a statement of the Controller's
accounts whenever the Board of Directors shall require. The Controller shall
generally perform all the duties usually appertaining to the affairs of the
controller of a corporation and shall perform such other duties and have such
other powers as may be prescribed by the Board of Directors, the Chief
Financial Officer or these By-Laws. The Controller may be required to give a
bond for the faithful discharge of his or her duties.
Section 18. Assistant Controllers. The Assistant Controllers shall in
the absence or disability of the Controller perform the duties and exercise the
powers of the Controller and shall perform such other duties and have such
other powers as may be prescribed by the Board of Directors, the Controller or
these By-Laws.
Section 19. Additional Powers and Duties. In addition to the
foregoing especially enumerated duties and powers, the several officers of the
Corporation shall perform such other duties and exercise such further powers as
the Board of Directors may, from time to time, determine, or as may be assigned
to them by any superior officer.
Section 20. Other Officers. The Board of Directors may designate such
other officers having such duties and powers as it may specify from time to
time.
ARTICLE VI
CAPITAL STOCK
Section 1. Form of Certificate. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President and (ii) by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, certifying the number of
shares owned by such holder in the Corporation.
Section 2. Signatures. Any signature required to be on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed
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certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the holder of record or by such
person's attorney duly authorized upon surrender and cancellation of
certificates for a like number of shares properly endorsed, and the payment of
all taxes due thereon.
Section 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of the person registered on its books as the
owner of a share to receive dividends and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
Section 7. Dividends. Subject to the provisions of the Certificate of
Incorporation or applicable law, dividends upon the capital stock of the
Corporation, if any, may be declared by the Board of Directors at any regular
or special meeting, and may be paid in cash, in property, or in shares of
capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available fore dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
ARTICLE VII
INDEMNIFICATION
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Section 1. Indemnification Respecting Third Party Claims. (a) The
Corporation, to the full extent and in a manner permitted by Delaware law as in
effect from time to time, shall indemnify, in accordance with the provisions of
this Article, any person (including the heirs, executors, administrators or
estate of any such person) who was or is made a party to or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(including any appeal thereof), whether civil, criminal, administrative,
regulatory or investigative in nature (other than an action by or in the right
of the Corporation), by reason of the fact that such person is or was a
director or officer of the Corporation, or, at a time when he was a director or
officer of the Corporation, is or was either serving at the request of the
Corporation as a director, officer, partner, trustee, fiduciary, employee or
agent (a "Subsidiary Officer") of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (an "Associated
Entity"), against expenses (including attorneys' fees and disbursements),
costs, judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; provided, however, that
(i) the Corporation shall not be obligated to indemnify a person who is or was
a director or officer of the Corporation against expenses incurred in
connection with an action, suit, proceeding or investigation to which such
person is threatened to be made a party but does not become a party unless the
incurring of such expenses was authorized by or under the authority of the
Board of Directors and (ii)athe Corporation shall not be obligated to indemnify
against any amount paid in settlement unless the Board of Directors has
consented to such settlement. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in the foregoing provisions of this
Section 1(a), a person shall not be entitled, as a matter of right, to
indemnification pursuant to this Section 1(a) against costs or expenses
incurred in connection with any action, suit or proceeding commenced by such
person against the Corporation or any Associated Entity or any person who is or
was a director, officer, fiduciary, employee or agent of the Corporation or a
Subsidiary Officer of any Associated Entity, but such indemnification may be
provided by the Corporation in a specific case as permitted by Section 6 below
in this Article.
(b) The Corporation may indemnify any employee or agent of the
Corporation in the manner and to the same extent as it is required to indemnify
any director or officer under Section 1(a) above in this Article.
Section 2. Indemnification Respecting Derivative Claims. (a) The
Corporation, to the full extent and in a manner permitted by Delaware law as in
effect from time to time, shall indemnify, in accordance with the provisions of
this Article, any person (including the heirs,
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executors, administrators or estate of any such person) who was or is made a
party to or is threatened to be made a party to any threatened, pending or
completed action or suit (including any appeal thereof) brought in the right of
the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation, or, at a
time when he was a director or officer of the Corporation, is or was serving at
the request of the Corporation as a Subsidiary Officer of an Associated Entity
against expenses (including attorneys' fees and disbursements) and costs
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless, and only to the extent that
the Board of Directors or a court having jurisdiction with respect shall
determine that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses and costs as the Board of Directors or such court
shall deem proper; provided, however, that the Corporation shall not be
obligated to indemnify a director or officer of the Corporation against
expenses incurred in connection with an action or suit to which such person is
threatened to be made a party but does not become a party unless the incurrence
of such expenses was authorized by or under the authority of the Board of
Directors. Notwithstanding anything to the contrary in the foregoing provisions
of this Section 2(a), a person shall not be entitled, as a matter of right, to
indemnification pursuant to this Section 2(a) against costs and expenses
incurred in connection with any action or suit in the right of the Corporation
commenced by such person, but such indemnification may be provided by the
Corporation in any specific case as permitted by Section 6 below in this
Article.
(b) The Corporation may indemnify any employee or agent of the
Corporation in the manner and to the same extent as it is required to indemnify
any director or officer under Section 2(a) above in this Article.
Section 3. Determination of Entitlement to Indemnification. Any
indemnification to be provided under any of Section 1(a), 1(b), 2(a) or 2(b)
above in this Article (unless ordered by a court of competent jurisdiction)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification is proper under the circumstances because
such person had met the applicable standard of conduct set forth in such
section of this Article. Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding in respect of which indemnification
is sought or by majority vote of the members of a committee of the Board of
Directors composed of at least two members each of whom is not a party to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable and/or
such a committee is not established or available, or, even if such a quorum is
obtainable or committee available, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by action
of the stockholders taken as permitted by law. In the event a request for
indemnification is made by any person referred to in paragraph 1(a) or 2(a)
above in this Article, the Corporation shall use its reasonable best efforts to
cause such determination
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to be made not later than 60 days after such request is made.
Section 4. Right to Indemnification upon Successful Defense and for
Service as a Witness. (a) Notwithstanding the other provisions of this
Article, to the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in any of Section 1(a), 1(b), 2(a) or
2(b) above in this Article, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees and disbursements) and costs actually and reasonably incurred
by such person in connection therewith.
(b) To the extent any person who is or was a director or officer of
the Corporation in office on the effective date of this Article or thereafter
has served or prepared to serve as a witness in, but is not a party to, any
action, suit or proceeding (whether civil, criminal, administrative, regulatory
or investigative in nature), including any investigation by any legislative
body or any securities or commodities exchange of which the Corporation or an
Associated Entity is a member or to the jurisdiction of which it is subject, by
reason of his or her services as a director or officer of the Corporation or
his or her service as a Subsidiary Officer of an Associated Entity at a time
when he was a director or officer of the Corporation (assuming such person is
or was, as evidenced by a writing to such effect, serving at the request of, or
to represent the interests of, the Corporation as a Subsidiary Officer of such
Associated Entity), the Corporation may indemnify such person against expenses
(including attorneys' fees and disbursements) and out-of-pocket costs actually
and reasonably incurred by such person in connection therewith and shall use
its reasonable best efforts to provide such indemnity within 60 days after
receipt by the Corporation from such person of a statement requesting such
indemnification, averring such service and reasonably evidencing such expenses
and costs; it being understood, however, that the Corporation shall have no
obligation under this Article to compensate such person for such person's time
or efforts so expended. The Corporation shall indemnify any employee or agent
of the Corporation in the manner and to the same extent as it is required to
indemnify any director or officer of the Corporation pursuant to the foregoing
sentence of this Section 4(b).
Section 5. Advance of Expenses. (a) Expenses and costs incurred by
any person referred to in Section 1(a) or 2(a) above in this Article in
defending a civil, criminal, administrative, regulatory or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking in writing by or on behalf of such person to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified in respect of such costs and expenses by the Corporation as
authorized by this Article.
(b) Expenses and costs incurred by any person referred to in Section
1(b) or 2(b) above in this Article in defending a civil, criminal,
administrative, regulatory or investigative action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by or under the authority of the Board of
Directors upon receipt of an undertaking in writing by or on behalf of such
person to repay
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such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation in respect of such costs
and expenses as authorized by this Article and subject to any limitations or
qualifications provided by or under the authority of the Board of Directors.
Section 6. Indemnification Not Exclusive. The provision of
indemnification to or the advancement of expenses and costs to any person under
this Article, or the entitlement of any person to indemnification or
advancement of expenses and costs under this Article, shall not limit or
restrict in any way the power of the Corporation to indemnify or advance
expenses and costs to such person in any other way permitted by law or be
deemed exclusive of, or invalidate, any right to which any person seeking
indemnification or advancement of expenses and costs may be entitled under any
law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's capacity as an officer, director, employee
or agent of the Corporation and as to action in any other capacity.
Section 7. Corporate Obligations; Reliance. The provisions of
Sections 1 through 6 above of this Article shall be deemed to create a binding
obligation on the part of the Corporation to the officers and directors of the
Corporation on the effective date of this Article and persons thereafter
elected as officers and directors (including persons who served as officers and
directors on or after such date but who are no longer officers and directors at
the time they present claims for advancement of expenses or indemnity), and
such persons in acting in their capacities as officers or directors of the
Corporation or Subsidiary Officers of any Associated Entity shall be entitled
to rely on such provisions of this Article, without giving notice thereof to
the Corporation.
Section 8. Successors. The right of any person who is or was a
director, officer, employee or agent of the Corporation to indemnification or
advancement of expenses under Sections 1 through 7 above in this Article shall
continue after he shall have ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, distributees, executors,
administrators and other legal representatives of such person.
Section 9. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of, or to
represent the interests of, the Corporation as a Subsidiary Officer of any
Associated Entity, against any liability asserted against such person and
incurred by such person in any capacity, or arising out of such person's status
as such, whether or not the Corporation would have the power to indemnify such
person against such liability under the provisions of this Article or
applicable law.
Section 10. Definitions of Certain Terms. (a) For purposes of this
Article, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed into the Corporation after the effective date of
this Article in a consolidation or merger if such corporation would have been
permitted (if its corporate existence had continued) under
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applicable law to indemnify its directors, officers, employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request, or to
represent the interests of, such constituent corporation as a director,
officer, employee or agent of any Associated Entity shall stand in the same
position under the provisions of Sections 1 through 9 above in this Article
with respect to the resulting or surviving corporation as such person would
have with respect to such constituent corporation if its separate existence had
continued; provided, however, that, no such person shall be entitled to
indemnity from the Corporation in respect of his service to such constituent
corporation, or at the request or to represent the interests of such
constituent corporation, pursuant to Section 1(a) or 2(a) above but may be
indemnified by the Corporation in respect thereof as permitted by Section 1(b)
or 2(b) above.
(b) For purposes of this Article, references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; references to "serving at the request of the Corporation" shall include
any service as a director, officer, trustee, fiduciary, employee or agent of
the Corporation or any Associated Entity which service imposes duties on, or
involves services by, such director, officer, trustee, fiduciary, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
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ARTICLE VIII
GENERAL
Section 1. Fiscal Year. The end of year fiscal year of the Corporation
shall be such date as shall be fixed by resolution of the Board of Directors
from time to time.
Section 2. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware" The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise upon any paper,
certificate or document.
Section 3. Disbursements. All checks, drafts or demands for money out
of the funds of the Corporation and all notes and other evidences of
indebtedness of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate.
Section 4. Amendments. These By-Laws may be altered amended or
repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors at any meeting thereof; provided,
however, that notice of such alteration, amendment, repeal or adoption of new
By-Laws shall be contained in the notice of such meeting of stockholders or in
a notice of such meeting of the Board of Directors, as the case may be. Unless
a higher percentage is required by the Certificate of Incorporation as to any
matter which is the subject of these By-Laws, all such amendments must be
approved by either the holders of at least a majority of the outstanding
capital stock entitled to vote thereon or by a majority of the entire Board of
Directors then in office.
Section 5. Definitions. As used in this Article and in these By-Laws
generally, the term "entire Board of Directors" means the total number of
directors which the Corporation would have if there were no vacancies.
20
<PAGE> 1
[FRONT SIDE OF STOCK CERTIFICATE]
COMMON STOCK [Picture of Commercial Street Scene] COMMON STOCK
NUMBER FOUNDED 1850 SHARES
MONTGOMERY, ALABAMA
LB
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERRABLE IN
OF THE STATE OF DELAWARE BOSTON, MA OR NEW YORK, NY
LEHMAN BROTHERS HOLDINGS INC.
THIS IS TO CERTIFY THAT CUSIP 524908 10 0
SEE REVERSE FOR
CERTAIN DEFINITIONS
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF
$1.00 EACH OF
Lehman Brothers Holdings, Inc., transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Corporation and the signatures of its duly
authorized Officers.
Dated COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT
AND REGISTRAR
Richard S. Fuld Jr. By
CHAIRMAN AND CHIEF EXECUTIVE OFFICER Authorized Signature
Karen C. Manson
ASSISTANT SECRETARY
[CORPORATE SEAL] ______________
[PICTURE OF OLDER GENTLEMAN] [PICTURE OF OLDER GENTLEMAN]
SECURITY COLUMBIAN UNITED STATES AMERICAN BANK NOTE COMPANY
BANKNOTE CORPORATION
<PAGE> 2
[REVERSE SIDE OF STOCK CERTIFICATE]
LEHMAN BROTHERS HOLDINGS INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof of the Corporation and the qualifications, limitations or
restrictions of such preferences and /or rights. Such request may be made to
the Corporation or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-______ Custodian _____
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform gifts to Minors
Act _______________
JT TEN - as joint tenants with (State)
right of survivorship
and not as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
__________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
share of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________ Attorney to transfer the
said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated_____________________
_______________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
2
<PAGE> 1
LEHMAN BROTHERS
April 28, 1994
Lehman Brothers Holding Inc.
3 World Financial Center
New York, NY 10285
Re: Lehman Brothers Holdings Inc.
Common Stock
Dear Sir or Madam:
I have acted as counsel to Lehman Brothers Holdings Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1993 (the "1933 Act"), of 98,695,843 shares of Common Stock
par value $.10 per share (the "Common Stock"), of which (i) 441,600 shares of
Common Stock will be sold by American Express Company ("American Express") to
executive officers of the Company (the "Employee Stock") and (ii) 98,254,243
shares of Common Stock (the "Distribution Stock") will be distributed to the
shareholders of record of American Express as of the Distribution Date as such
term is defined in the Company's Registration Statement on Form S-3 together
with the Exhibits thereto (File No. 33-52977) (the "Registration Statement").
The Employee Stock and Distribution Stock are collectively referred to herein
as the "Shares."
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K.
In connection with this opinion, I or members of my staff have examined
(i) the Registration Statement filed with the Securities and Exchange
Commission (the "Commission") on April 5, 1994 under the Securities Act of
1933, as amended (the"1933 Act") and Amendment No. 1 thereto filed with the
Commission on April 28, 1994 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"); (ii) the Certificate
of Incorporation and the Bylaws of the Company, in each case as amended to the
dated hereof, (iii) certain resolutions of the Board of Directors of the
Company relating to the issuance of the shares; (iv) a specimen certificate
evidencing the Common Stock; (v) the Purchase Agreement between American
Express and the Company dated as of April 28, 1994; and (vi) such other
documents as I have deemed necessary or appropriate as a basis for the opinions
set forth below.
<PAGE> 2
Lehman Brothers Holdings Inc.
April 28, 1994
Page Two
In such examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all the documents
submitted to me as original, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to the
opinions expressed herein which were not independently established or verified,
I have relied upon oral or written statements and representations of officers
and other representatives of the Company and others. I have also assumed that
the Restated Certificate of Incorporation of the Company in the form filed as
an exhibit to the Registration Statement will be filed with the Secretary of
State of the State of Delaware prior to the Distribution Date.
I am admitted to the Bar in the State of New York and I express no opinion
as to laws of any jurisdiction other than the laws of the State of New York
and the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, I am of the opinion that:
1. The issuance of the Employee Stock is duly authorized and the Employee
Stock is validly issued, fully paid and nonassessable.
2. The issuance of the Distribution Stock has been duly authorized and,
when the shares of Distribution Stock to be purchased prior to the Distribution
Date and paid for in accordance with the terms of the Purchase Agreement, all of
such Distribution Stock will be validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading "Legal
Matters" in each of the prospectuses which constitute a part of the
Registration Statement. In giving such consent, I do not thereby admit that I
am in the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Thomas A. Russo
Thomas A. Russo
Chief Legal Officer
<PAGE> 1
[SKADDEN, ARPS LETTERHEAD]
April 28, 1994
Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285
Gentlemen:
You have requested our opinions as to certain matters of Delaware law
relating to the Cumulative Convertible Voting Preferred Stock, Series A, par
value $1.00 per share (the "Series A Preferred Stock"), of Lehman Brothers
Holdings Inc., a Delaware corporation (the "Company"), and the 8 1/2%
Cumulative Voting Preferred Stock, par value $1.00 per share, of the Company
(the "Cumulative Preferred Stock" and, together with the Series A Preferred
Stock, the "Preferred Stock").
Specifically, you have asked us (i) whether there should be any
restriction upon the surplus of the Company available for payment of dividends
on any outstanding capital stock of the Company solely by reason of the fact
that the liquidation preference of the Preferred Stock exceeds the par value of
such shares and (ii) whether any remedy should be available to the holders of
Preferred Stock before or after payment of any dividend solely because such
dividend would reduce the surplus of the Company to an amount less than the
amount by which the liquidation preference of the Preferred Stock exceeds the
par value of such shares.
We have examined and are familiar with originals or copies, certified
or otherwise identified to our satisfaction, of (i) the Restated Certificate of
Incorporation of the Company, (ii) the Restated By-Laws of the Company, (iii)
the Certificate of Designation, Powers, Preferences and Rights of the Series A
Preferred Stock, as amended (the "Series A Preferred Stock Certificate of
<PAGE> 2
Lehman Brothers Holdings Inc.
April 28, 1994
Page 2
Designation), and (iv) the proposed form of Certificate of Designation, Powers,
Preferences and Rights of the Cumulative Preferred Stock to be filed with the
Secretary of State of the State of Delaware prior to the issuance and sale of
such stock (the "Cumulative Preferred Stock Certificate of Designation" and,
together with the Series A Preferred Stock Certificate of Designation, the
"Certificate of Designation").
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
oral or written statements and representations of officers and other
representatives of the Company and others. For purposes of this opinion, we
have assumed that the Cumulative Preferred Stock Certificate of Designation, in
substantially the form reviewed by us, will be duly adopted by the Board of
Directors of the Company and filed with the Secretary of State of the State of
Delaware prior to the issuance of such stock.
Members of this firm are admitted to the Bar of the State of Delaware,
and we express no opinion as to the laws of any other jurisdiction.
The Series A Preferred Stock Certificate of Designation provides that
in the event of a liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of the Series A Preferred Stock
shall be entitled to receive out of the assets of the Company available for
distribution to its stockholders, an amount equal to $39.10 per share plus all
accrued and unpaid dividends on such share before any distribution of assets to
the holders of the Company's common stock, par value $0.10 per share (the
"Common Stock"), or any other capital stock of the Company ranking junior upon
liquidation, dissolution or winding up of the Company.
<PAGE> 3
Lehman Brothers Holdings Inc.
April 28, 1994
Page 3
The Cumulative Preferred Stock Certificate of Designation provides
that in the event of a liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of the Cumulative Preferred Stock
shall be entitled to receive out of the assets of the Company available for
distribution to its stockholders, an amount equal to $25.00 per share plus all
accrued and unpaid dividends on such share before any distribution is made to
the holders of the Common Stock and any other stock of the Company ranking
junior as to rights upon liquidation, dissolution or winding up of the Company.
There is no provision in the Restated Certificate of Incorporation of
the Company or in the Certificates of Designation which purports to restrict
the surplus of the Company by reason of the excess of the liquidation
preference of the Preferred Stock over its par value. The applicable
provisions of the Delaware General Corporation Law, 8 Del. C. Sections 154 and
170(a), which define capital and surplus of a Delaware corporation available
for the payment of dividends, do not purport to restrict such surplus by reason
of any such excess. Moreover, we are not aware of any applicable provisions of
the Constitution of the State of Delaware nor any controlling Delaware case law
which would suggest that surplus would be restricted by the excess of the
liquidation preference over the par value of the Preferred Stock.
Accordingly, while there are no authorities specifically addressing
this issue, it is our opinion (i) that there should be no restriction upon the
surplus of the Company available for the payment of dividends on any
outstanding capital stock of the Company solely by reason of the fact that the
liquidation preference of the Preferred Stock exceeds the par value of such
shares and (ii) that no remedy should be available to the holders of the
Preferred Stock before or after payment of any dividend solely because such
dividend would reduced the surplus of the Company to an amount less than the
amount of such excess, assuming that the payment of such dividend is in
accordance with the provisions of the Delaware.
<PAGE> 4
Lehman Brothers Holdings Inc.
April 28, 1994
Page 4
General Corporation Law, the Restated Certificate of Incorporation of the
Company and the Certificates of Designation.
We hereby consent to the use of our name in the Registration Statement
on Form S-1 (Registration No. 33-52977) of the Company, as initially filed with
the Securities and Exchange Commission (the "Commission") on April 5, 1994 (the
"Registration Statement"), under the caption "Legal Matters" and to the filing
of this opinion as Exhibit 7 to the Registration Statement. In giving this
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher &
Flom
<PAGE> 1
Exhibit 8
[Letterhead
SKADDEN, ARPS, SLATE, MEAGHER & FLOM]
April 28, 1994
Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285
Dear Gentlemen:
You have requested our opinion regarding the discussion of certain
U.S. federal income tax consequences under the caption "The Offering and the
Distribution -- Federal Income Tax Consequences" in the Registration Statement
on Form S-1 (Registration No. 33-52977) of Lehman Brothers Holdings Inc., as
initially filed with the Securities and Exchange Commission (the "Commission")
on April 5, 1994 (the "Registration Statement").
In rendering our opinion, we have reviewed the Registration Statement
and such other materials as we have deemed necessary or appropriate as a basis
for our opinion. In addition, we have considered the applicable provisions of
the Internal Revenue Code of 1986, treasury regulations, pertinent judicial
authorities, rulings of the Internal Revenue Service, and such other
authorities as we have considered relevant.
Based upon the foregoing, it is our opinion that, under present law,
the discussion presented under the caption "The Offering and the Distribution
- -- Federal Income Tax Consequences" in the Registration Statement, although
general in nature, is an accurate summary of certain anticipated federal income
tax consequences of the Distribution (as defined therein). The federal income
tax consequences of the Distribution to a holder of the common shares of
American Express Company will depend upon that holder's particular situation,
and we express no opinion as to the completeness of the discussion set forth in
"The Offering and the Distribution --
<PAGE> 2
American Express Company
April 28, 1994
Page 2
Income Tax Consequences" as applied to any particular holder or other than as
set forth above. In addition, our opinion is premised on the accuracy of the
facts set forth in the Registration Statement and of the representations
referred to in the Registration Statement by representatives of American
Express Company and Lehman Brothers Holdings Inc.
This opinion is being furnished in connection with the Registration
Statement. You may rely upon and refer to the foregoing opinion in the
Registration Statement. Any variation or difference in the facts from those
set forth or assumed either herein or in the Registration Statement may affect
the conclusions stated herein.
We hereby consent to the use of our name under the captions "The
Offering and the Distribution -- Federal Income Tax Consequences" and "Legal
Matters" in the Registration Statement and to the filing of this opinion as
Exhibit 8 to the Registration Statement. In giving this consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Commission thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom
---------------------------------------
Skadden, Arps, Slate, Meagher & Flom
<PAGE> 1
FORM OF RESTATED AND AMENDED
AGREEMENT OF
TENANTS-IN-COMMON
BY AND AMONG
AMERICAN EXPRESS COMPANY,
AMERICAN EXPRESS BANK LTD.,
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.,
LEHMAN BROTHERS INC.,
LEHMAN GOVERNMENT SECURITIES, INC., AND
LEHMAN COMMERCIAL PAPER INCORPORATED
PREMISES
AMERICAN EXPRESS TOWER
BATTERY PARK CITY
WORLD FINANCIAL CENTER
NEW YORK, NEW YORK
SECTION: 1
BLOCK: 16
LOT: 140
DATED AS OF MAY 31, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS...............................................
DEFINITIONS............................................
ARTICLE
I. PURPOSES AND NATURE OF THIS AGREEMENT
1.01 Purposes of this Agreement....................
1.02 References to Co-Tenants; Designation
of Representatives............................
1.03 Interest and Space............................
1.04 Nature of this Agreement......................
II. MANAGEMENT OF THE PROPERTY
2.01 Managing Co-Tenant............................
2.02 Power and Authority Regarding Certain
Agreements....................................
2.03 Property Obligations..........................
2.04 Common Facilities.............................
2.05 Duties of Managing Co-Tenant; Co-Tenant's
Changes.......................................
2.06 Contracts.....................................
2.07 Management Company; Change of Managing
Co-Tenant.....................................
2.08 Building Security; Secure Areas...............
2.09 Debt Obligations..............................
2.10 Utilities; Utility Expenses; Utility
Facilities....................................
2.11 Use of Space..................................
2.12 Telecommunication Facilities and T.V.
Studio........................................
III. FINANCIAL MATTERS
3.01 Budgets.......................................
3.02 Payment of Utility Expenses and Property
Obligations...................................
3.03 Payment of Debt Obligations...................
3.04 Funds of Co-Tenants...........................
</TABLE>
<PAGE> 3
ARTICLE PAGE
- ------- ----
<TABLE>
<CAPTION>
<S> <C>
3.05 Excess Funds..................................
3.06 Periodic Statements...........................
3.07 Books and Records.............................
3.08 Final Accounting..............................
3.09 Failure to Pay................................
3.10 Insurance.....................................
IV. TRANSFERS
4.01 Consent Required..............................
4.02 Subletting Permitted..........................
4.03 Assignments...................................
4.04 Additional Restrictions.......................
4.05 Transferee Use of Utility Facilities and
Limited Common Facilities.....................
4.06 Partition.....................................
4.07 Right of First Offer..........................
4.08 Right of First Refusal........................
4.09 Required Transfers............................
4.10 Brokerage.....................................
4.11 Right of Disapproval..........................
4.12 Submission to Condominium Regime..............
V. GENERAL
5.01 Notices.......................................
5.02 Entire Agreement..............................
5.03 Governing Laws................................
5.04 Waiver........................................
5.05 Severability..................................
5.06 Benefit.......................................
5.07 Terminology...................................
5.08 Status Reports................................
5.09 No Recording of this Agreement................
5.10 Binding Agreement.............................
5.11 Liability of Co-Tenants/Indemnification.......
5.12 Claims........................................
5.13 Consent or Approval...........................
5.14 Term..........................................
5.15 Arbitration...................................
5.16 Consumer Price Index..........................
5.17 Affirmative Action Program....................
5.18 Signs; Name of Building.......................
5.19 Rules and Regulations.........................
5.20 Power of Attorney.............................
</TABLE>
<PAGE> 4
EXHIBIT A - Description of Parcel C
EXHIBIT B - Space Exhibit
EXHIBIT C - Common Facilities
EXHIBIT D - Employee Assistance Program Services
EXHIBIT E - Intentionally Deleted
EXHIBIT F - Secure Areas
EXHIBIT G - Form of Budget
EXHIBIT H - Fitness Center Services
EXHIBIT I - Medical Center Services
EXHIBIT J - Designated Locations for Lehman Messenger Center
and Lehman Incoming Delivery Station
<PAGE> 5
THIS SECOND RESTATED AND AMENDED AGREEMENT ("Agreement") made as of this
31st day of May, 1994, by and among AMERICAN EXPRESS COMPANY ("Amexco"), a New
York corporation, AMERICAN EXPRESS BANK LTD. ("AEBL"), a Connecticut
corporation formerly known as American Express International Banking
Corporation, AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC. ("TRSCO"),
a New York corporation, LEHMAN BROTHERS INC. ("Lehman"), a Delaware corporation
formerly known as Shearson Lehman Brothers Inc., Shearson/American Express Inc.
and/or Shearson Lehman/American Express Inc., LEHMAN GOVERNMENT SECURITIES,
INC. ("LGS"), a New York corporation formerly known as Shearson Lehman
Government Securities Inc., and LEHMAN COMMERCIAL PAPER INCORPORATED ("LCP"), a
New York corporation formerly known as Shearson Lehman Commercial Paper
Incorporated, each having an office at American Express Tower, Three World
Financial Center, New York, New York 10285.
RECITALS
A. Pursuant to a certain Agreement of Severance Lease dated as of June
15, 1983, by and between Battery Park City Authority ("BPCA"), a public benefit
corporation under the laws of the State of New York, as landlord, and Olympia &
York Battery Park Company ("O&Y"), a New York partnership, as tenant (as the
same may have been or as the same may hereafter be modified, amended, extended,
renewed or assigned, the "Lease"), a memorandum of which Lease was recorded in
the Office of the Register of the City of New York,
<PAGE> 6
County of New York, in reel 696, page 472, O&Y became the owner of a leasehold
interest in certain real property commonly known as Parcel C at the Battery
Park City Commercial Center (also known as the World Financial Center),
together with certain easements and other rights in and to real property
appurtenant thereto, in the borough of Manhattan, City, County and State of New
York, all as more particularly described in Exhibit A annexed hereto and made a
part hereof.
B. By a certain Assignment of Severance Lease with Assumption, dated as
of June 15, 1983, and recorded in the Office of the Register of the City of New
York, County of New York, in reel 696, page 582, O&Y assigned to Amexco, AEBL,
TRSCO and Lehman, collectively, O&Y's interest as tenant under the Lease (the
"Leasehold"), and the obligations of tenant under the Lease were jointly and
severally assumed by Amexco, AEBL, TRSCO and Lehman.
C. BPCA, O&Y, and Amexco, AEBL, TRSCO and Lehman, collectively, executed
a Project Operating Agreement dated as of June 15, 1983 (as the same may have
been or as the same may hereafter be modified, amended, extended, renewed or
assigned, the "Project Operating Agreement"), relating to operation of the
Common Areas (as such term is defined in the Project Operating Agreement) of
the World Financial Center, and the rights and obligations of the parties with
respect thereto.
2
<PAGE> 7
D. Thereafter, a 51-story office building commonly known as the American
Express Tower located at Three World Financial Center, New York, New York, and
certain other improvements were constructed on Parcel C (collectively, "WFC" or
the "Building"). The Leasehold and the Building are sometimes collectively
referred to hereinafter as the "Property".
E. By separate instruments of assignment and assumption, each dated as of
May 30, 1985, Amexco, AEBL, TRSCO and Lehman, collectively as assignor,
assigned all of said assignor's right, title and interest in, to and under the
Lease and the Project Operating Agreement to Amexco, AEBL, TRSCO, Lehman, LGS
and LCP, collectively as assignee, and said assignee accepted such assign-
ments and assumed all of said assignor's obligations thereunder.
F. (1) Pursuant to a certain Indenture dated as of December 1, 1985 (the
"ABC Indenture") by and among the Tenants (hereinafter defined), as issuers,
Amexco, as guarantor, and Bankers Trust Company, as trustee (the "ABC
Trustee"), the Co-Tenants severally issued certain notes referred to as Series
A Guaranteed Notes Due 1989, Series B Guaranteed Notes Due 1992 and Series C
Guaranteed Notes Due 1997 in the aggregate principal amount of $272,690,000
(said notes, including any notes issued in exchange, substitution or
replacement thereof are hereinafter collectively referred to as the "ABC
Notes").
3
<PAGE> 8
(2) Pursuant to a certain Indenture dated as of June 1, 1985 (the "D
Indenture") by and among the Co-Tenants, as issuers, Amexco, as guarantor, and
Manufacturers Hanover Trust Company, as trustee (Bankers Trust Company having
assumed the obligations under said Indenture of Manufacturers Hanover Trust
Company, is hereinafter referred to as the "D Trustee"), the Co-Tenants
severally issued certain notes referred to as 11-5/8% Guaranteed Notes Due 2000
in the aggregate principal amount of $151,679,000 (said notes, including any
notes issued in exchange, substitution or replacement thereof are hereinafter
collectively referred to as the "D Notes").
(3) Pursuant to a certain Indenture dated as of June 1, 1985 (the "Z
Indenture") by and among the Co-Tenants, as issuers, Amexco, as guarantor, and
Chemical Bank, as trustee (the "Z Trustee"), the Co-Tenants severally issued
certain notes referred to as Zero Coupon Notes Due 2000 in the aggregate
original principal amount of $84,895,200 ($450,000,000 face amount payable at
maturity) (said notes, including any notes issued in exchange, substitution or
replacement thereof are hereinafter collectively referred to as the "Z Notes").
(4) Pursuant to a Note Purchase Agreement dated July 29, 1986 (the
"7.319% Purchase Agreement"), by and among the Co-Tenants, as issuers, Lehman
Special Securities Incorporated and Sumitomo Life Insurance Company, the
Co-Tenants severally issued certain notes guaranteed by Amexco referred to as
7.319% Guaranteed Notes Due 1996
4
<PAGE> 9
in an aggregate principal amount of $30,000,000 (said notes, including any
notes issued in exchange, substitution or replacement thereof are hereinafter
collectively referred to as the "7.319% Notes").
(5) Pursuant to a Note Purchase Agreement dated August 26, 1986 (the
"7.187% Purchase Agreement"), by and among the Co-Tenants, as issuers, and
Lehman Special Securities Incorporated, the Co-Tenants severally issued certain
notes guaranteed by Amexco referred to as 7.187% Guaranteed Notes Due 1996 in
an aggregate principal amount of $40,000,000 (said notes, including any notes
issued in exchange, substitution or replacement thereof are hereinafter
collectively referred to as the "7.187% Notes").
(6) Pursuant to a Loan Agreement dated July 29, 1986 (the "July Yen
Loan Agreement"), by and among the Co-Tenants, Amexco, as guarantor, Sumitomo
Life Insurance Company and The Long-Term Credit Bank of Japan, Limited, the
Co-Tenants borrowed on a several basis the aggregate principal amount of Yen
4,700,000,000, and the Co-Tenants entered into a related Currency Exchange
Agreement, dated July 29, 1986 (said loan, and the obligations under said
Currency Exchange Agreement, including any loans or exchange agreements made in
exchange, substitution or replacement thereof are hereinafter collectively
referred to as the "July Yen Loan").
(7) Pursuant to a Loan Agreement dated August 27, 1986 (the "August
Yen Loan Agreement"), by and among the Co-Tenants,
5
<PAGE> 10
Amexco, as guarantor, The Dai-Ichi Mutual Life Insurance Company and The
Long-Term Credit Bank of Japan, Limited, the Co-Tenants borrowed on a several
basis the aggregate principal amount of Yen 6,100,000,000, and the Co-Tenants
entered into a related Currency Exchange Agreement dated August 27, 1986 (said
loan, and the obligations under said Currency Exchange Agreement, including any
loans or exchange agreements made in exchange, substitution or replacement
thereof are hereinafter collectively referred to as the "August Yen Loan").
(8) Pursuant to a certain Indenture dated as of December 28, 1984 (the
"11.95% Indenture"), by and between American Express Company, as issuer, and
Morgan Guaranty Trust Company of New York, as Trustee (the "11.95% Trustee"),
Amexco issued its 11.95% Notes Due January 15, 1995 in the original aggregate
principal amount of $175,000,000 (said notes, including any notes issued in
exchange, substitution or replacement thereof are hereinafter collectively
referred to as the "11.95% Notes").
(9) The ABC Indenture, D Indenture, Z Indenture, 7.319% Purchase
Agreement, 7.187% Purchase Agreement, July Yen Loan Agreement, August Yen Loan
Agreement, 11.95% Indenture are collectively referred to hereinafter as the
"Existing Indentures". The Existing Indentures and any other indenture,
agreement or instrument under which the Co-Tenants or any of them shall issue
obligations the repayment of which may or shall from time to time be secured by
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instruments which encumber the Property or the proceeds of which shall be used
in connection with the Property, other than with respect solely to a
Co-Tenant's Space (hereinafter defined), are collectively referred to
hereinafter as the "Indentures". The ABC Notes, D Notes, Z Notes, 7.319%
Notes, 7.187% Notes, July Yen Loan, August Yen Loan and 11.95% Notes are
collectively referred to hereinafter as the "Existing Notes". The Existing
Notes and any other notes, exchange agreements or other instruments of the
Co-Tenants or any of them, the repayment of which may or shall from time to
time be secured by instruments which encumber the Property or the proceeds of
which shall be used in connection with the Property are collectively referred
to hereinafter as the "Notes".
G. (1) By a mortgage dated as of March 19, 1987 (the "Superior
Mortgage"), the Co-Tenants, as mortgagors, granted a leasehold mortgage in the
Property to the Z Trustee, as trustee, in order to secure the payment of the Z
Notes.
(2) By a mortgage dated as of March 19, 1987 (the "Subordinate
Mortgage"), the Co-Tenants, as mortgagors, granted a leasehold mortgage in the
Property to the ABC Trustee and the D Trustee, as trustees, in order to secure
the payment of the ABC and D Notes.
(3) The Superior Mortgage and the Subordinate Mortgage are
collectively referred to hereinafter as the "Existing Leasehold Mortgages".
The Existing Leasehold Mortgages and any other
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mortgages, deeds of trust or security agreements which may from time to time
encumber the Property are collectively referred to hereinafter as the
"Leasehold Mortgages".
H. By a certain agreement dated May 30, 1985 (the "American Express Tower
Operating Agreement"), the Co-Tenants set forth their agreement as to the
enforcement and discharge of certain of their respective rights and obligations
(i) as tenants-in-common of the Property, (ii) with respect to the operation of
the Building, and (iii) as parties to the Project Operating Agreement.
I. By agreement dated as of May 6, 1987 (the "Agreement of
Tenants-In-Common"), the Co-Tenants amended and restated in its entirety the
American Express Tower Operating Agreement in all respects.
J. It is the intention of the Co-Tenants that this Agreement further
amend and restate in its entirety the Agreement of Tenants-In-Common in all
respects, and that this Agreement shall supersede the Agreement of
Tenants-In-Common and the American Express Tower Operating Agreement.
K. Each Co-Tenant acknowledges and agrees that the Building is unique as
the headquarters facility of several major financial institutions and,
accordingly, there are significant security and business confidentiality
requirements and other concerns with respect to the occupants and owners
thereof in keeping with the desired character of the Building, as hereinafter
provided.
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Accordingly, the parties have agreed herein to many special and unique
restrictions on their rights to sell, assign, mortgage or sublet their
interests and space in the Building, which they specifically acknowledge they
believe to be reasonable under the circumstances.
DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings ascribed to such terms below (all other initially
capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Intercompany Agreement, dated as of the date
hereof, between Holdings (as defined herein) and Amexco):
"Distribution Date" shall mean the effective date of the distribution
to holders of common shares of Amexco of all outstanding shares of common stock
of Lehman Brothers Holdings Inc., a Delaware corporation ("Holdings") held by
Amexco.
"Employee Assistance Program Services" and "EAP Services" shall mean
(subject to modification pursuant to Section 2.04 II) the employee assistance
programs and services listed on Exhibit D hereto, it being understood that
Exhibit D is intended to describe the scope and level of services currently
being provided by Amexco to Lehman Co-Tenants' employees (including those
special services which are provided on an as-needed basis).
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"Fitness Center Services" shall mean (subject to modification pursuant
to Section 2.04 (III)) the fitness center services listed on Exhibit H hereto,
it being understood that Exhibit H is intended to describe the scope and level
of services currently being provided by Amexco to Lehman Co-Tenants' employees
(including those special services which are provided on an as-needed basis).
"Losses" shall mean, collectively, any and all costs and expenses
arising out of any claim or action (including, without limitation, attorneys'
fees, interest, penalties and costs of investigation or preparation for
defense), judgments, fines, losses, claims, damages, liabilities, demands,
assessments and amounts paid in settlement.
"Medical Center Services" shall mean (subject to modification pursuant
to Section 2.04 (IV)) the medical center services listed on Exhibit I hereto,
it being understood that Exhibit I is intended to describe the scope and level
of services currently being provided by Amexco to Lehman Co-Tenants' employees
(including those special services which are provided on an as-needed basis).
"Non-discriminatory Basis" shall mean with respect to any
modification, elimination or reduction in any benefits or services granted or
provided to Lehman Co-Tenants' employees and Amexco Co-Tenants' employees, a
basis for such modification, elimination or reduction which treats as one group
Lehman Co-Tenants' employees and Amexco Co-Tenants' employees.
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"Pre-Distribution Basis" shall mean with respect to any services, a
basis for the determination and allocation of the costs and expenses incurred
in providing such services which is substantially the same as that used by the
parties hereto in connection with the same or substantially similar services
immediately prior to the Distribution Date.
"WFC Indebtedness" shall mean, collectively, all of the Indentures,
Notes, and Leasehold Mortgages (as the same are referenced and defined in the
Recitals hereof).
ARTICLE I
PURPOSES AND NATURE OF THIS AGREEMENT
1.01. PURPOSES OF THIS AGREEMENT
Amexco, AEBL, TRSCO, Lehman, LGS and LCP hereby enter into this
Agreement (i) to amend and restate in its entirety the Agreement of
Tenants-In-Common in all respects, (ii) to set forth their respective rights,
obligations and interests as tenants-in- -common with respect to the Property,
(iii) to ensure their collective compliance with the terms, covenants and
conditions of the Lease, the Project Operating Agreement and the Leasehold
Mortgages, and (iv) to set forth their respective ongoing rights, obligations
and interests following the distribution to holders of common shares of Amexco
of all outstanding shares of common stock of Holdings held by Amexco.
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1.02. REFERENCES TO CO-TENANTS; DESIGNATION OF REPRESENTATIVES
(a) Amexco, AEBL, TRSCO, Lehman, LGS and LCP (and their respective
successors and assigns) are sometimes hereinafter referred to collectively as
the "Co-Tenants" and individually as a "Co-Tenant". Amexco, AEBL, TRSCO,
Lehman, LGS and LCP are sometimes hereinafter referred to collectively as the
"Initial Co-Tenants" and individually as an "Initial Co-Tenant".
(b) Amexco, AEBL and TRSCO (and their respective successors and
assigns) are sometimes hereinafter referred to collectively as the "AMEX
Co-Tenants". Lehman, LGS and LCP (and their respective successors and assigns)
are sometimes hereinafter referred to collectively as the "Lehman Co-Tenants".
(c) For themselves, their respective successors and assigns, the AMEX
Co-Tenants hereby designate and appoint Amexco, and the Lehman Co-Tenants
hereby designate and appoint Lehman, to be their sole representative in all
respects for any required or desired communications, notices, consents,
approvals, demands, or any other actions, in connection with or with respect to
this Agreement and all other activities of the Co-Tenants as tenants-in-common
of the Property. The within designation and appointment shall continue in
existence until such time as each of the AMEX Co-Tenants on one hand, or each
of the Lehman Co-Tenants on the other hand, shall designate and appoint another
Co-Tenant as their representative. The Co-Tenants may rely upon the actions of
Amexco
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with respect to the AMEX Co-Tenants, and Lehman with respect to the Lehman
Co-Tenants, as being binding, conclusive and duly authorized. Lehman and
Amexco, in their capacities as aforesaid, are sometimes hereinafter referred to
individually as a "Designated Co-Tenant" and jointly as the "Designated
Co-Tenants". The Designated Co-Tenant which is not then the Managing Co-
Tenant is sometimes hereinafter referred to as the "Non-Managing Designated
Co-Tenant".
1.03. INTEREST AND SPACE
(a) (i) Each Co-Tenant owns, as a tenant-in-common, an undivided
leasehold interest in the Property and said interest is hereinafter referred to
as the "Interest" of a Co-Tenant or as the "Interests" when referring to more
than one Co-Tenant.
(ii) Effective on the date of the transfer of the five floors by
the Amex Co-Tenants to the Lehman Co-Tenants as contemplated under that certain
Intercompany Agreement (the "Intercompany Agreement"), dated as of the date
hereof, between Holdings and Amexco, the aggregate Interests of the AMEX
Co-Tenants and the Lehman Co-Tenants in the Property will be as follows:
(1) AMEX Co-Tenants............. 48.53%
(2) Lehman Co-Tenants........... 51.47%
(b) Each of the Co-Tenants shall have (i) the exclusive right to
occupy a certain portion of space in the Property, subject to the easements
granted to the Managing Co-Tenant (as hereinafter defined) in Section 1.03(c)
and Section 2.10(b) hereof and any
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access by the Managing Co-Tenant required for the performance of its duties
hereunder (subject to the provisions of this Agreement) and (ii) the
non-exclusive use and benefit, along with the other Co-Tenants, of the Common
Facilities (as defined in Section 2.04 hereof), subject to the provisions of
Section 4.05 with respect to Special Common Facilities (as defined in Section
2.04 hereof). That portion of the Property so occupied by each Co-Tenant shall
be hereinafter referred to with respect to each Co-Tenant as that Co-Tenant's
"Space". As of the date hereof, the Space occupied by the AMEX Co-Tenants and
the Lehman Co-Tenants is as set forth in Exhibit B annexed hereto and made a
part hereof. For purposes hereof, the term "Affiliate" shall mean a person
that directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, an Initial Co-Tenant.
(c) The AMEX Co-Tenants and the Lehman Co-Tenants each hereby grant
to the Managing Co-Tenant an easement to enter upon their respective Spaces in
connection with the performance of all of the Managing Co-Tenant's duties
hereunder, subject, however, to the right, to be reasonably exercised, of any
Co-Tenant to condition access by the Managing Co-Tenant as to certain Secure
Areas (as defined in Section 2.08).
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1.04. NATURE OF THIS AGREEMENT
(a) This Agreement shall not constitute the Co-Tenants as, and the
Co-Tenants do not intend to be, partners or joint venturers with respect to the
Property or otherwise. Except as herein expressly and specifically provided,
this Agreement shall not (i) constitute any Co-Tenant the agent of any other
Co-Tenant, (ii) permit any Co-Tenant to have any authority to act for or to
assume any obligations or responsibilities on behalf of any other Co-Tenant,
(iii) in any manner limit or restrict the Co-Tenants in carrying on their
respective separate businesses or activities, (iv) impose upon either party any
fiduciary duty by reason of its carrying on its separate business or activity,
or (v) impose upon any Co-Tenant any liability or obligation.
(b) The Co-Tenants acknowledge that they have been informed that each
of the Co-Tenants is or may hereafter be a stockholder or affiliate of
corporations or a partner or co-venturer in partnerships and joint ventures
owning or operating real property, or is or may hereafter be an owner,
operator, or co-owner of real property. The Co-Tenants agree that the same
shall not be deemed a breach of duty on the part of a Co-Tenant to the other
Co-Tenants and shall not impose any greater or future obligation upon it.
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ARTICLE II
MANAGEMENT OF THE PROPERTY
2.01. MANAGING CO-TENANT
Subject to the terms and conditions of Section 2.02(c) hereof, AEBL,
TRSCO, Lehman, LGS and LCP hereby appoint Amexco to serve as the managing
Co-Tenant (the "Managing Co-Tenant") and to act as the agent on behalf of the
other Co-Tenants to supervise the operation of, and manage, the Property, in
accordance with the terms of this Agreement.
2.02. POWER AND AUTHORITY REGARDING CERTAIN AGREEMENTS
(a) Except as specifically provided in Section 2.02(b) hereof, each of the
Co-Tenants hereby grants to the Managing Co-Tenant full power and authority,
(i) with respect to the Project Operating Agreement, to serve as the
Co-Tenants' representative or representatives on the Management Committee (as
defined in the Project Operating Agreement) and, in connection therewith,
interact and negotiate with any of the parties to the Project Operating
Agreement on behalf of the Co-Tenants, and, further, to make decisions on
behalf of and to bind the Co-Tenants;
(ii) with respect to the Lease,
(A) to represent the Co-Tenants in all dealings with the landlord
under the Lease and to undertake all steps and procedures which Managing
Co-Tenant shall deem necessary or
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desirable to protect the Co-Tenants' interest as tenant under the Lease, and,
further, to satisfy the obligations of and covenants by (and thereafter obtain
reimbursement from the other Co-Tenants pursuant to this Agreement), and to
enforce the rights and privileges of, the Co-Tenants under the Lease,
including, without limitation, by means of contesting and settling the
computation of any Rental (as defined in the Lease) due under the Lease;
(B) to represent the Co-Tenants in all dealings with any current
or future subtenants or other occupants occupying the Retail (as defined in the
Lease) space in the Building, including, without limitation, the negotiation,
amendment, renewal and termination of leases for the Retail space, the
collection of all rent due from said subtenants or occupants of said Retail
space, and the use of the same in accordance with the terms hereof, and to take
all steps and procedures which Managing Co-Tenant shall deem necessary or
desirable to protect the Co-Tenants' interest as sublandlord under any sublease
or occupancy agreements respecting said Retail space, and, further, to enforce
all the rights and privileges of the Co-Tenants under any such agreements;
(iii) with respect to the Affirmative Action Program Agreement (to
which reference is made in Section 5.19 hereof), to serve as the Operator (as
defined in the Affirmative Action Program Agreement) thereunder with respect to
the Property and to ensure
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that all the terms, covenants and conditions thereof are observed, performed
and/or complied with, as the case may be;
(iv) with respect to the Leasehold Mortgages (other than the Existing
Leasehold Mortgages), the Indentures (other than the Existing Indentures) and
the Notes (other than the Existing Notes), to represent the Co-Tenants in all
dealings with any trustees, holders or mortgagees thereof (and any
successors-in-interest to such entities), as well as all other parties to said
documents or entities or persons having any connection, interaction or dealings
with the parties thereto and, further, to undertake all steps and procedures
which Managing Co-Tenant shall deem necessary or desirable to ensure that at
all times the Co-Tenants are in full compliance with all of the terms,
covenants and conditions of each of the Leasehold Mortgages, the Indentures,
and the Notes and to enforce all of the rights and privileges of the Co-Tenants
thereunder;
(v) with respect to contracts, agreements or any other arrangements
which one or more Co-Tenants may now have, or in the future may have, with any
entity or person respecting the construction, alteration, or repair of any
portion of the Property to represent the Co-Tenants with respect to all matters
concerning the same (except as otherwise provided herein), including, without
limitation, the enforcement of the Co-Tenants' rights and privileges
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thereunder, and the objection to, negotiation and settlement of, all claims and
disputes arising therefrom;
(vi) with respect to any liens against the Leasehold, the Building,
and/or the Improvements which are not Permitted Exceptions (as such terms are
defined in the Superior Mortgage and the Subordinate Mortgage), take any
remedial measures; and
(vii) to contest and settle any real estate and commercial rent or
occupancy tax proceedings and assessments relating to the Property; provided,
however, that with respect to any such proceedings or assessments affecting or
arising out of a Co-Tenant's Space (including any such proceedings or
assessments relating to the Property as a whole), if Managing Co-Tenant shall
notify a Co-Tenant of its decision not to handle any such proceeding or
assessment (which notification Managing Co-Tenant shall endeavor to make as
early as reasonably practical so as to avoid prejudicing the rights of the
Co-Tenant of said Space), then said Co-Tenant shall have the right to contest
and settle same (it being understood that said Co-Tenant shall not permit or
allow such proceeding or assessment to become a lien upon the Property or any
portion thereof).
(b) With respect to the performance of its duties under this Agreement,
Managing Co-Tenant shall from time to time (but not less frequently than on a
quarterly basis) consult and meet with a soon to be formed advisory property
management committee (the "Management Committee") in order to be aware of the
needs and desires of the Co-
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Tenants. The Management Committee shall act strictly in an advisory capacity
(until such time as the conditions set forth in Section 2.02(c) are met) and
shall have three (3) representatives designated by the Lehman Co-Tenants and
three (3) representatives designated by the AMEX Co-Tenants. Nothing in this
Paragraph (b) shall be construed in any way to reduce, limit or modify the
final decision-making authority of the Managing Co-Tenant with respect to the
operation and management of the Property. Notwithstanding anything to the
contrary contained herein, without the prior approval of the Non-Managing
Designated Co-Tenant, which approval shall not be unreasonably withheld or
delayed, Managing Co-Tenant shall not, except as required by the Lease, the
Project Operating Agreement, any Leasehold Mortgage or any Legal Requirements
(as hereinafter defined):
(i) make any expenditures or incur any obligation with respect to
which the Lehman Co-Tenants, if Amexco is the Managing Co-Tenant (or the AMEX
Co-Tenants, if Lehman is the Managing Co-Tenant) shall have any obligation to
pay for hereunder with respect to any capital improvement to the Property the
total cost of which, whether performed in one or several phases, exceeds
$6,000,000, adjusted annually to reflect any increases in the Consumer Price
Index (hereinafter defined);
(ii) perform or cause to be performed any act which (other than on a
temporary basis consistent with past practices and
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procedures which shall include reasonable coordination with the Non-Managing
Designated Co-Tenant) materially and adversely affects the use or operation of
data processing or communications equipment or services of any of the
Co-Tenants in the Building (including, without limitation, the supply of
utilities and chilled or condenser water);
(iii) change the name of the Building, except as otherwise permitted
in Section 5.20.
(c) Notwithstanding anything to the contrary contained herein, (i) prior
to the satisfaction of the WFC Indebtedness, Amexco shall be the Managing
Co-Tenant and shall be permitted to assign its rights thereunder to any
Affiliate or assignee without the consent of any Co-Tenant; (ii) after the
satisfaction of the WFC Indebtedness, (q) if the aggregate Interests and
occupancy level of the AMEX Co-Tenant is 40% or greater, then the Amex
Co-Tenant shall be the Managing Co-Tenant and shall also have the right to
transfer its interest (or a portion thereof 40% or greater) as Managing
Co-Tenant to a single entity; (r) if either the aggregate Interest or the
occupancy level of the Amex Co-Tenant is less than 40% but greater than 25%, or
if the Amex Managing Co-Tenant has transferred its Interest (or a portion
thereof 40% or greater) to an assignee, then either the Amex Co-Tenant or such
assignee, as the case may be, shall serve as Co-Managing Co-Tenant and provided
a Lehman Co-Tenant's aggregate Interest and occupancy level is greater than 40%
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than Lehman shall also serve as a Co-Managing Co-Tenant hereunder; (s) if
either the assignee of the Amex Co-Tenant's or the Lehman Co-Tenant's aggregate
Interests or occupancy levels falls below 25%, and the other Co-Tenant's
aggregate Interest and occupancy level remains above 25% then the Co-Managing
Co-Tenant falling below 25%, shall lose it's Co-Managing Co-Tenant status and
the other Co-Managing Co-Tenant shall become Managing Co-Tenant provided its
aggregate Interest and occupancy level remain above 25%; (t) if both the Amex
Co-Tenant and its assignee and the Lehman Co-Tenant and its assignee aggregate
Interest or occupancy level remain below 25% than both the Amex Co-Tenant and
the Lehman Co-Tenant shall be Co-Managing Co-Tenants; (u) provided a Lehman
Co-Tenant has an aggregate Interest and occupancy level above 40% than the
Lehman Co-Tenant shall also have the same right as set forth above in
sub-clause ( ) to assign to its assignee its rights as a Co-Managing
Co-Tenant; and (v) if either the Amex Co-Tenant or its assignee's or the
Lehman Co-Tenant's or its assignee's, as the case may be, aggregate Interest or
occupancy level falls below 25% and the other's Interest and occupancy level is
between 25% and 40%, then the Managing Co-Tenant whose Interest and occupancy
level that is between 25% and 40% shall become the Managing Co-Tenant.
If the Management Committee is deadlocked over the selection of the
Managing Co-Tenant or any direction to be given to the Managing Co-Tenant with
respect to the management of the
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Property (except in the event of an emergency in which case the Managing
Co-Tenant shall act in a reasonable and prudent manner) or any other matter to
be determined by the Managing Co-Tenant pursuant to this Agreement, such
determination shall be jointly made by the respective Chief Financial Officers
of the Designated Co-Tenants. If the matter is still unresolved after ten (10)
days, then either Designated Co-Tenant shall have the right to submit the
matter to arbitration in accordance with Section 5.16 hereof. In the event
that at any time the party that is the Managing Co-Tenant files a voluntary
bankruptcy petition or has an involuntary bankruptcy petition the filed against
it, then the Non-Managing Designated Co-Tenant shall immediately upon such
filing become the Managing Co-Tenant.
(d) With respect to the Existing Leasehold Mortgages, the Existing
Indentures and the Existing Notes, Amexco shall represent the Co-Tenants in all
dealings with (i) any trustees, holders or mortgagees thereof (and any
successors-in-interest to such entities), (ii) any rating agencies (only with
respect to the rating of the Existing Notes), and (iii) all other parties to
said documents or entities or persons having any connection, interaction or
dealings with the parties thereto. Further, Amexco shall undertake all steps
and procedures which it shall deem necessary or desirable to ensure that at all
times the Co-Tenants are in full compliance with all of the terms, covenants
and conditions of each of the
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Existing Leasehold Mortgages, the Existing Indentures, and the Existing Notes
and to enforce all of the rights and privileges of the Co-Tenants thereunder.
To the extent Amexco is required under the Existing Leasehold Mortgages or the
Existing Indentures, the Lehman Co-Tenants shall deliver any back-up
certificates or notices requested by Amexco at least three (3) business days
prior to the date such back-up certificates or notices are due.
2.03. PROPERTY OBLIGATIONS
(a) Each of the Co-Tenants shall be obligated, in accordance with the
terms of this Agreement, to bear and pay their proportionate share of all
Property Obligations (hereinafter defined). Except as hereinafter provided,
the AMEX Co-Tenants' and Lehman Co-Tenants' proportionate shares of Property
Obligations shall be equal to their respective Interests.
(b) The term "Property Obligations" shall mean all (i) Rental, (ii)
Common Area Charges (as such term is defined in the Project Operating
Agreement) [except for Utility Expenses (hereinafter defined) with respect to
the Co-Tenants' respective Spaces which are to be paid as set forth in Section
2.10 hereof], (iii) insurance premiums relating to the Property [except (A) for
premiums attributable solely to insurance on a Co-Tenant's installations and/or
improvements located within its Space or which relate to insurance obtained at
the request, and for the exclusive benefit, of a Co-Tenant, in each such case
the cost of which premiums shall be
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borne solely by said Co-Tenant, (B) that the cost of insurance to each
Co-Tenant shall be equitably adjusted to reflect the loss experience of each
Co-Tenant if premiums fluctuate as a direct result of insured losses of one or
more Co-Tenants, and (C) that with the prior consent of the Managing Co-Tenant
a Co-Tenant may provide its equitable share of any insurance required under the
Lease and any Leasehold Mortgage], (iv) Utility Expenses with respect to those
portions of the Property other than the Spaces of the Co-Tenants, (v) costs and
expenses reasonably incurred and equitably determined by Managing Co-Tenant in
performing its duties hereunder, including, without limitation, bookkeeping,
accounting and legal fees and expenses (whether performed by independent
contractors or employees of Managing Co-Tenant), and (vi) all other costs and
expenses with respect to the shell, core and central systems of the Building
and the Common Facilities.
(c) Prior to the execution of this Agreement, various payments with
respect to Property Obligations, Debt Obligations (as hereinafter defined) and
Utility Expenses were made based upon estimated amounts. Accordingly, if and
to the extent the estimated payments made prior to the execution of this
Agreement by the Co-Tenants on account of Property Obligations, Debt
Obligations and Utility Expenses differ from the payments based on final
figures when available, there shall be appropriate adjustments, equitably
determined by the Managing Co-Tenant, and each Co-Tenant shall pay
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its proper share of such adjustments (with interest to be applied at the
Federal funds rate).
2.04. COMMON FACILITIES
I. Common Facilities in General.
(a) The term "Common Facilities" (which term shall include those
Common Facilities designated on Exhibit C as "Special Common Facilities") shall
mean those areas of the Property (i) not included within the Space of any
Co-Tenant and (ii) intended by the Co-Tenants for the joint and common use of
each of the Co-Tenants. Certain of the areas of the Property constituting
Common Facilities as of the date hereof are indicated on Exhibit C annexed
hereto and made a part hereof.
(b) The Property Obligations for any Common Facility shall be
comprised of the applicable (i) Maintenance Costs (hereinafter defined), and
(ii) Usage Costs (hereinafter defined).
(c) The term "Maintenance Costs" shall mean those costs attributable
to the construction, installation, decoration, alteration, maintenance,
operation and repair of a Common Facility, but shall not include any Usage
Costs for that Common Facility. The Maintenance Cost for any Common Facility
shall be borne by each of the Co-Tenants in accordance with its respective
Interest, except as provided herein.
(d) The term "Usage Costs" shall mean those costs attributable to a
Co-Tenant's use of a Common Facility, or the use
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thereof by a permitted subtenant or assignee of a Co-Tenant. The Usage Costs
for a Co-Tenant for any Common Facility shall be determined on the basis of any
of:
(i) the cost incurred as a result of actual usage by a Co-Tenant
(such Common Facilities being hereinafter referred to as "Cost-Based Common
Facilities");
(ii) the product of (A) the total Usage Costs for such Common
Facility and (B) the fraction, the numerator of which shall be equal to the
population of the Co-Tenant in the Building and the denominator of which shall
be equal to the total popula- tion of the Building; (such Common Facilities
being hereinafter referred to as "Population-Based Common Facilities");
(iii) the product of (A) the total Usage Costs for such Common
Facility and (B) the Interest of the Co-Tenant (such Common Facilities being
hereinafter referred to as "Interest-Based Common Facilities"); or
(iv) with respect to the Building's Retail space, cashiers and
credit union area, telecommunication facilities (the "Telecommunication
Facilities") and the television studio located at the +12.5 foot level of the
Building (the "T.V. Studio"), the Usage Costs shall be determined as provided
in Exhibit C hereof.
(e) From time to time, the Managing Co-Tenant shall reasonably and
equitably determine (i) the Maintenance Costs and Usage Costs for all Common
Facilities (other than the Usage Costs
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for the T.V. Studio and the Telecommunication Facilities), and (ii) which
Common Facilities shall constitute Cost-Based Common Facilities,
Population-Based Common Facilities and Interest-Based Common Facilities. As of
the date hereof, the Cost-Based Common Facilities, Population-Based Common
Facilities and Interest-Based Common Facilities are as indicated on Exhibit C.
(f) Managing Co-Tenant shall have the right to segregate any Common
Facility in the Building, including, without limitation, mail services,
shipping and receiving facilities, elevators and utilities, such that one or
more Co-Tenants shall have the exclusive use of all or a portion of such
segregated facilities (the "Segregated Facilities"), provided that no Co-Tenant
shall be excluded from the benefit or use of any Segregated Facility unless and
until a suitable substitute for such facility is provided. Any Co-Tenant or
Co-Tenants benefitting from a Segregated Facility to the exclusion of any other
Co-Tenants shall bear an equitable portion of the Property Obligations in
respect thereof and with respect to any substitute therefor.
(g) The Managing Co-Tenant may, from time to time, upon not less than
twenty (20) days notice to the Non-Managing Designated Co-Tenant (the "Notice
Period"), convert a Common Facility (or portion thereof) to office space (a
"Proposed Converted Common Facility"), provided that the same is done in
compliance with all applicable laws and regulations, the terms and provisions
of the
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Lease and any Leasehold Mortgages. The Proposed Converted Common Facility may
be occupied either by means of reallocation of Interests or by means of a
sublease executed by the Managing Co-Tenant on behalf of the Co-Tenants.
Notwithstanding the foregoing, the Non-Managing Designated Co-Tenant shall have
the right at any time prior to the expiration of the Notice Period to give
notice (the "Election Notice") to the Managing Co-Tenant pursuant to which the
Non-Managing Designated Co-Tenant agrees to assume for its own use, and, at its
option, the use of certain of the other Co-Tenants, the operation and cost of
the Proposed Converted Common Facility (in either its entirety or as reduced
pursuant to the terms below) including, without limitation, all Rental (as such
term is defined in the Lease), Maintenance Obligations and Utility Expenses
attributable to the Proposed Converted Common Facility as well as all costs and
expenses under all service provider and vendor contracts related thereto. In
the Election Notice, the Non- Managing Designated Co-Tenant shall also state
whether it desires to reduce the size of the Proposed Converted Common Facility
and, if so, the amount of space which it desires to reduce (the "Space
Reduction"). If the Non-Managing Designated Co-Tenant elects a Space
Reduction, then the Managing Co-Tenant, working together with the Non-Managing
Designated Co-Tenant, shall prepare or cause to be prepared plans and
specifications for the Space Reduction and arrange for the necessary work, all
of which
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shall be at the sole cost and expense of the Non-Managing Designated Co-Tenant.
If Managing Co-Tenant, in its reasonable discretion, determines that the Space
Reduction cannot be accomplished, in whole or in part, then the Non-Managing
Designated Co- Tenant shall accept the Proposed Converted Common Facility in
its present or partially reduced size and with respect to the amount of space
that cannot be eliminated through the Space Reduction, the Non-Managing
Designated Co-Tenant shall not be required to pay the Rental with respect
thereto other than as a Co-Tenant hereunder. The Non-Managing Designated
Co-Tenant shall accept the proposed Converted Common Facility (together with
its trade fixtures and equipment in "as is" condition) and assume control and
operation of the Proposed Converted Common Facility on the date which is the
later of (i) sixty (60) days after giving the Election Notice, and (ii) ten
(10) days after Managing Co-Tenant completes the alterations referred to above.
In connection therewith, the Managing Co-Tenant shall work in close cooperation
with the Non-Managing Designated Co-Tenant to ensure a smooth and orderly
transition. Notwithstanding the foregoing, except as otherwise required by the
Lease, Project Operating Agreement, any Leasehold Mortgage or any Legal
Requirements, the Managing Co-Tenant shall not convert the lobby areas on the
street and mezzanine levels of the Building to office space if (i) such
conversion will materially reduce the fair market value of the Property, or
(ii) the size of the lobby area, as reduced, will
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not be consistent with other first class office buildings in the New York City
area.
(h) Except as otherwise provided herein, Managing Co-Tenant shall (i)
make the Common Facilities available to all Co-Tenants on a reasonable and
equitable basis, and (ii) control all Building systems and utilities in order
to maintain the Building in the manner contemplated by this Agreement;
provided, however, that no assignee, transferee or subtenant of a Lehman Co-
Tenant shall have any right to the use or service of the Employee Assistance
Programs, the Fitness Center or the Medical Center (as such terms are defined
herein) but shall be entitled to use all other Common Facilities in accordance
with the terms hereof. Notwithstanding the foregoing, any assignee, transferee
or subtenant that is an Affiliate of a Lehman Co-Tenant shall have the right to
use all of the Common Facilities in accordance with the terms hereof.
II. Employee Assistance Programs.
(a) On and after the Distribution Date, Managing Co-Tenant shall
provide EAP Services to Lehman Co-Tenants' employees. The costs and expenses
of providing such EAP Services shall be determined and allocated on a
Pre-Distribution Basis in good faith by Managing Co-Tenant after consultation
with Lehman. AMEX Co-Tenants or Lehman Co-Tenants may at any time propose
changes to the EAP Services being provided.
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(b) Notwithstanding Section (a) above, following the Distribution
Date, Managing Co-Tenant may make changes in the scope and level of EAP
Services it provides to Lehman Co-Tenants employees so long as any such change
is made on a Non-discriminatory Basis; provided, however, that (i) Managing
Co-Tenant shall notify Lehman in writing of any such proposed change which is
reasonably likely to materially adversely affect Lehman Co-Tenants' employees
(and its good faith estimate of the cost and expense implications thereof) at
least 90 days prior to such change being implemented and (ii) Managing
Co-Tenant shall continue to provide the then- existing level of the applicable
service (or such other level as the parties hereto may then agree) to Lehman
Co-Tenants employees if Lehman (A) so requests in writing and (B) agrees to pay
to Managing Co-Tenant an amount equal to all of Managing Co-Tenant's
incremental costs for providing such services. In the event that Managing
Co-Tenant proposes to cease providing all or substantially all EAP Services,
the rights granted to Lehman pursuant to clause (ii) above shall not be
available to Lehman Co- Tenants. Should Managing Co-Tenant propose to cease
providing all EAP Services, Lehman Co-Tenants shall have the option to (A)
occupy and use in connection with its provision of such services to Lehman
Co-Tenants' employees the Space Managing Co-Tenant theretofore occupied in
connection with Managing Co-Tenant's provision of such services, such Space
shall be treated as a Proposed Converted Common Facility pursuant to Section
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2.04(I)(g), and (B) offer continued employment to the EAP Services staff,
without interference by Amexco, in connection with the provision by Lehman of
such services to Lehman Co-Tenants employees. Lehman shall offer to the Amex
Co-Tenants EAP Services on the same basis as made available to the Lehman
Co-Tenants.
(c) Lehman may, upon 180 days' written notice to Managing Co-Tenant,
request that Managing Co-Tenant provide to Lehman Co-Tenants' employees a
reduced level of EAP Services and following such 180 day notice period,
Managing Co-Tenant shall provide to Lehman Co-Tenants' employees such reduced
level of services and will adjust charges to Lehman if reduced services
decrease operating costs as reasonably determined by Managing Co-Tenant,
provided, however, that Lehman cannot provide such reduced level of EAP
Services within the Building.
(d) Lehman may, upon 180 days' written notice to Managing Co-Tenant,
request that Managing Co-Tenant cease providing any EAP Services to Lehman
Co-Tenants' employees and not later than the last day of such notice period
Managing Co-Tenant shall cease providing such services to Lehman Co-Tenants'
employees.
(e) Consistent with past practices, Managing Co-Tenant shall use its
reasonable efforts to provide to Lehman, at Lehman's request, information
regarding services provided by competitors which are similar to EAP Services.
If Lehman determines for reasons of cost to replace Managing Co-Tenant as its
EAP Services provider,
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in whole or in part, Managing Co-Tenant shall have the right, for a period of
90 days following written notice by Lehman of its proposed change, to match the
level and cost of services to which Lehman proposes to change.
(f) Managing Co-Tenant shall prepare and deliver to Lehman, on or
prior to June 30 of each year, unless otherwise agreed to by both parties, a
proposed operating budget for EAP Services. Each such budget (other than the
budget for 1994) shall contain estimated staff bonuses as an item thereof.
Each operating budget, and any changes made thereto made during any budgeted
year, shall be prepared in good faith by Managing Co-Tenant, in consultation
with Lehman. Lehman shall give Managing Co-Tenant at least 180 days' prior
notice of any proposed change that is reasonably likely to materially increase
or decrease the number of employees needed to provide EAP Services.
(g) Lehman shall have the right to participate in and make
recommendations with respect to the performance appraisal process and
compensation review process, including bonus recommendations, for all EAP
Services staff and the right to participate in the hiring process for new
[exempt] staff. Lehman shall also have the right to review and approve all
written communications to Lehman Co-Tenants' employees concerning EAP Services.
(h) Managing Co-Tenant shall cause the EAP Services staff to, on
substantially the same basis as prior to the Distribution
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Date, maintain in a reasonably confidential manner all records and files
relating to Lehman Co-Tenants' employees. Managing Co- Tenant shall cause to
be continually maintained, in a manner consistent with past practices and
procedures intended to ensure that any information relating to the businesses
or activities of Lehman Co-Tenants obtained from any Lehman Co-Tenants'
employee in connection with such employee's participation in EAP Services shall
not be disclosed to any representative of AMEX Co-Tenants or any other party
(other than EAP Services staff, or Medical Services staff on an as-needed
basis), except as required by law as may be interpreted in good faith by
Amexco.
(i) Notwithstanding the Managing Co-Tenant's obligation contained in
this Article II, Lehman hereby agrees and acknowledges that Managing Co-Tenant
may engage any third party to provide all or any EAP Services, subject to the
provisions of this Article II. Lehman shall have the right to participate in
and make recommendations prior to Managing Co-Tenant's engagement of a third
party.
(j) Notwithstanding anything to the contrary contained in (f), (g)
and (i) above, Managing Co-Tenant shall have the right to make any final
decisions with respect thereto, except with respect to the scope and level of
services provided to the Lehman Co- Tenants.
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III. Fitness Centers.
(a) On and after the Distribution Date, Managing Co-Tenant shall
provide Fitness Center Services with respect to the fitness centers on the
fourth and forty-fourth floors of the Building (collectively, the "Fitness
Center") to AMEX Co-Tenants' and Lehman Co-Tenants' employees. The costs and
expenses of providing such Fitness Center Services shall be determined and
allocated on a Predistribution Basis in good faith by Managing Co-Tenant after
consultation with Lehman. Amexco or Lehman may at any time propose changes to
the Fitness Center Services being provided.
(b) Notwithstanding Section (a) above, following the Distribution
Date, Managing Co-Tenant may make changes in the scope and level of Fitness
Center Services it provides to Lehman Co-Tenants' employees so long as any such
change is made on a Non- discriminatory Basis; provided, however, that (i)
Managing Co-Tenant shall notify Lehman in writing of any such proposed change
which is reasonably likely to materially adversely affect Lehman Co-Tenants'
employees (and its good faith estimate of the cost and expense implications
thereof) at least 90 days prior to such change being implemented and (ii)
Managing Co-Tenant shall continue to provide the then-existing level of the
applicable service (or such other level as the parties hereto may then agree)
to Lehman Co-Tenants' employees if Lehman (A) so requests in writing
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and (B) agrees to pay to Managing Co-Tenant an amount equal to all the
incremental costs incurred for providing such services. In the event that
Managing Co-Tenant proposes to cease providing all or substantially all Fitness
Center Services, the rights granted to Lehman pursuant to clause (ii) above
shall not be available to Lehman. Should Managing co-Tenant propose to cease
providing all Fitness Center Services, Lehman Co-Tenants shall have the option
to (A) occupy and use in connection with its provision of such services to
Lehman Co-Tenants' employees the Space Managing Co-Tenant theretofore occupied
in connection with Managing Co-Tenant's provision of such services, such Space
shall be treated as a Proposed Converted Common Facility pursuant to Section
2.04(I)(g), and (B) offer continued employment to the Fitness Center Services
staff, without interference by Amexco, in connection with the provision by
Lehman of such services to Lehman Co-Tenants' employees. Lehman shall offer to
the Amex Co-Tenants the Fitness Center services on the same basis as made
available to the Lehman Co-Tenants.
(c) Lehman may, upon 180 days' written notice to Managing Co-Tenant,
request that Managing Co-Tenant provide to Lehman Co-Tenants' employees a
reduced level of Fitness Center Services and following such 180 day notice
period, Managing Co-Tenant shall provide to Lehman Co-Tenants' employees such
reduced level of services and will adjust the charges to Lehman if such
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reduced services decrease operating costs as reasonably determined by Managing
Co-Tenant, provided, however, that Lehman cannot provide such reduced Fitness
Center services within the Building.
(d) Lehman may, upon 180 days' written notice to Managing Co-Tenant,
request that Managing Co-Tenant cease providing any Fitness Center Services to
Lehman Co-Tenants' employees and not later than the last day of such notice
period Managing Co-Tenant shall cease providing such services to Lehman
Co-Tenants' employees.
(e) Consistent with past practices, Managing Co-Tenant shall use its
reasonable efforts to provide to Lehman, at Lehman's request, information
regarding services provided by competitors which are similar to Fitness Center
Services. If Lehman determines for reasons of cost to replace Managing
Co-Tenant as its EAP Services provider, in whole or in part, Managing Co-Tenant
shall have the right, for a period of 90 days following written notice by
Lehman of its proposed change, to match the level and cost of services to which
Lehman proposes to change.
(f) Managing Co-Tenant shall prepare and deliver to Lehman
Co-Tenants, on or prior to June 30 of each year unless otherwise agreed by both
parties, a proposed operating budget for Fitness Center Services. Each such
budget (other than the budget for 1994) shall contain estimated staff bonuses
as an item thereof. Each operating budget, and any changes made thereto during
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any budgeted year, shall be prepared in good faith by Managing Co-Agent, in
consultation with Lehman. Lehman shall give Managing Co-Tenant at least 180
days prior notice of any proposed change that is reasonably likely to
materially increase or decrease the number of employees needed to provide
Fitness Center Services.
(g) Lehman shall have the right to participate in the performance
appraisal process and compensation review process, including bonus
recommendations, for all Fitness Center Services staff and the right to
participate in the hiring process for new [exempt] staff. Lehman shall also
have the right to review and approve all written communications to Lehman
Co-Tenants' employees concerning Fitness Center Services.
(h) Upon the Distribution Date, the fitness center on the fourth
floor will be renamed the "WFC Fitness Center".
(i) Six months after the Distribution Date (which period is subject
to reasonable extension to be mutually agreed upon by the parties), if Lehman
so chooses, it may expand the WFC Fitness Center to accommodate an additional
Three Hundred (300) Lehman Co- Tenants' members thereof. In connection
therewith, Lehman will pay the construction expense thereof and the expense of
the purchase of new equipment.
(j) After the Distribution Date, Managing Co-Tenant will replace all
the shirts (the "Shirts") currently used at the Fitness Center with two
thousand (2,000) new shirts reflecting the
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new name "WFC Fitness Center". Managing Co-Tenant will also replace all the
forms (the "Forms") currently used at the Fitness Center to reflect the new
name (including enrollment forms, risk check forms, letterhead and envelopes,
and laminated clothing center cards). The 1994 WFC Health and Fitness Center
operating budget has been approved by Amexco and Lehman to include an
allocation covering 100% of the replacement costs of the Forms and 50% of the
replacement costs of the Shirts. Lehman will pay the remaining 50% of the
replacement costs of the Shirts.
(k) Managing Co-Tenant shall cause the Fitness Center Services staff
to, on substantially the same basis as prior to the Distribution Date, maintain
in a reasonably confidential manner all records and files relating to Lehman
Co-Tenants' employees.
(l) Lehman Co-Tenants shall be entitled to have 59% of the membership
of the WFC Fitness Center if and when the WFC Fitness Center expansion occurs
pursuant to paragraph (h). Until such expansion occurs, the membership shall
be populational based.
(m) Lehman shall have the right to participate in the performance
appraisal process and compensation review process, including bonus
recommendations, for all Fitness Center staff and the right to participate in
the hiring process for new [exempt] staff. Lehman shall also have the right to
review all written communications to members and potential members of the
Fitness Center.
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(n) Upon request and at no additional cost, the Fitness Center
Services staff will provide advice and oversight to Lehman about the
establishment and operation of a fitness center, at 101 Hudson Street, Jersey
City, New Jersey, and/or other locations within New York/New Jersey
Metropolitan area (each an "Additional Fitness Center") and advise and consult
about the establishment and operation of a fitness center in locations
throughout the domestic United States.
(o) Upon request and on such terms and conditions, including
additional fees, as the parties may mutually agree, the Fitness Center Services
staff will supervise and manage the operation of one or more Additional Fitness
Centers.
(p) Lehman hereby agrees and acknowledges that in connection with
Managing Co-Tenant's obligations contained in this Article III, Managing
Co-Tenant may, consistent with past practice and procedures, at its sole
discretion, engage any third party to provide all or any Fitness Center
Services subject to the provisions of this Article III.
(q) Notwithstanding anything to the contrary contained in Section
2.04(III), Managing Co-Tenant shall have the right to make any final decisions
with respect thereto, except with respect to the scope and level of services
provided to the Lehman Co-Tenants.
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IV. Medical Center.
(a) On and after the Distribution Date, Managing Co-Tenant shall
provide Medical Center Services in the medical center of the Building ("Medical
Center") to all AMEX Co-Tenants' and Lehman Co-Tenants' employees. The costs
and expenses of providing such Medical Center Services shall be determined and
allocated on a Pre-Distribution Basis. Amexco or Lehman may at any time
propose changes to the Medical Center Services being provided.
(b) Notwithstanding Section (a) above, following the Distribution
Date, Managing Co-Tenant may make changes in the scope and level of services it
provides to Lehman Co-Tenants' employees so long as any such change is made on
a Non-discriminatory Basis; provided, however, that (i) Managing Co-Tenant
shall notify Lehman in writing of any such proposed change which is reasonably
likely to materially adversely affect Lehman Co-Tenants' employees (and its
good faith estimate of the cost and expense implications thereof) at least 90
days prior to such change being implemented and (ii) Managing Co-Tenant shall
continue to provide the then- existing level of the applicable service (or such
other level as the parties hereto may then agree) to Lehman Co-Tenants'
employees if Lehman (A) so requests in writing and (B) agrees to pay to
Managing Co-Tenant an amount equal to all the incremental costs incurred for
providing such services. In the event that Managing Co-Tenant proposes to
cease providing all Medical Center
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Services, the rights granted to Lehman pursuant to clause (ii) above shall not
be available to Lehman. Should Managing Co-Tenant propose to cease providing
all Medical Center Services, Lehman Co-Tenants shall have the option to (A)
occupy and use in connection with its provision of such services to Lehman
Co-Tenants's employees the Space Managing Co-Tenant theretofore occupied in
connection with Managing Co-Tenant's provision of such services, to the extent
such Space is reasonably divisible from Space occupied by AMEX Co-Tenants in
connection with functions unrelated to such services, such Space shall be
treated as a Proposed Converted Common Facility pursuant to Section 2.04(I)(g),
and (B) offer continued employment to the Medical Center Services staff,
without interference by Amexco, in connection with the provision by Lehman of
such services to Lehman Co-Tenants' employees. Lehman shall offer to the Amex
Co-Tenants the Medical Center Services on the same basis as made available to
the Lehman Co-Tenants.
(c) Lehman may, upon 180 days' written notice to Managing Co-Tenant,
request that Managing Co-Tenant provide to Lehman Co-Tenants' employees a
reduced level of Medical Center Services and following such 180 day notice
period, Managing Co-Tenant shall either provide to Lehman Co-Tenants' employees
such reduced level of services and will adjust charges to Lehman if reduced
services decrease operating costs as reasonably determined
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by Managing Co-Tenant, provided, however, that Lehman cannot provide such
reduced Medical Services within the Building.
(d) Lehman may, upon 180 days' written notice to Managing Co-Tenant,
request that Managing Co-Tenant, cease providing any Medical Center Services to
Lehman Co-Tenants employees and not later than the last day of such notice
period Managing Co-Tenant shall cease providing such services to Lehman
Co-Tenants' employees.
(e) Consistent with past practices, Managing Co-Tenant shall use its
reasonable efforts to provide to Lehman, at Lehman's request, information
regarding services provided by competitors which are similar to Medical Center
Services. If Lehman determines for reasons of cost to replace Managing
Co-Tenant as its EAP Services provider, in whole or in part, Managing Co-Tenant
shall have the right, for a period of 90 days following written notice by
Lehman of its proposed change, to match the level and cost of services to which
Lehman proposes to change.
(f) Managing Co-Tenant shall prepare and deliver to Lehman
Co-Tenants, on or prior to June 30 of each year, a proposed operating budget
for Medical Center Services. Each such budget (other than the budget for 1994)
shall contain estimated staff bonuses as an item thereof. Each operating
budget, and any changes thereto during any budgeted year, shall be prepared in
good faith by Managing Co-Agent, in consultation with Lehman.
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Lehman shall give Managing Co-Tenant at least 180 days prior notice of any
proposed change that is reasonably likely to materially increase or decrease
the number of employees needed to provide Medical Center Services.
(g) Lehman shall have the right to participate in the performance
appraisal process and compensation review process, including bonus
recommendations, for all Medical Center Services staff and the right to
participate in the hiring process for new [exempt] staff. Lehman shall also
have the right to review and approve all written communications to Lehman
Co-Tenants employees concerning Medical Center Services.
(h) Upon the Distribution Date, the Medical Center will be renamed
the "WFC Medical Department".
(i) Managing Co-Tenant shall cause the Medical Center Services staff
to, on substantially the same basis as prior to the Distribution Date, maintain
in a reasonably confidential manner all records and files relating to Lehman
Co-Tenants employees.
(j) Upon request and at no additional cost, the Medical Center
Services staff will provide advice and oversight to Lehman about the
establishment and operation of a medical center located within the New York/New
Jersey Metropolitan area (each an "Additional Medical Center") and shall
provide advice and consultation with respect to the establishment and operation
of medical centers to be located within the domestic United States.
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(k) Lehman hereby agrees and acknowledges that in connection with
Managing Co-Tenant's obligations contained in this Article IV, Managing
Co-Tenant may, consistent with past practice, at its sole discretion, engage
any third party to provide all or any Medical Center Services subject to the
provisions of this Article IV.
(l) Notwithstanding anything herein to the contrary, Managing
Co-Tenant shall not be required to provide any Medical Center Services which
would subject the Managing Co-Tenant, in its good faith judgment, to an
unacceptable risk of [significant] liability.
V. Parking Facilities.
(a) The parking spaces located within the Building (except for the
P-3 parking spaces currently used for storage and the seven (7) spaces on P-4
and P-3 levels of the Building that are considered unusable for parking) shall
be considered to be Common Facilities and shall be allocated by the Managing
Co-Tenant in accordance with each Co-Tenant Interest. The cost of any parking
spaces allocated to a Co-Tenant shall be borne by such Co-Tenant as a
Cost-Based Common Facility. The cost of all other parking spaces shall be
borne by the Co-Tenants as an Interest-Based Common Facility.
(b) In the event that in the future (i) any of the parking spaces
currently located within the Building become
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available, or (ii) the number of available parking spaces is decreased ,
Managing Co-Tenant shall allocate the available parking spaces among the
Co-Tenants, in accordance with each Co-Tenant's Interest, on a basis consistent
with that used immediately prior to the Distribution Date.
VI. Conference Center Services.
On and after the Distribution Date, Lehman shall have the right to use
the WFC Conference Center on the 26th Floor of the Building, the costs and
expenses of which use shall be determined and allocated on a Pre-Distribution
Basis. All conference rooms and the auditorium will, consistent with past
practice, be reserved and used on a first-come-first serve basis, except that
(i) two large conference rooms shall be permanently designated as Lehman rooms
and not be used by anyone other than Lehman without Lehman's prior consent and
(ii) two large conference rooms shall be permanently designated Amexco rooms
and not be used by anyone other than Amexco without Amexco's prior consent.
Any Co-Tenant may use the WFC Conference Center after normal business hours,
the costs and expenses of which use shall be reasonably determined by the
Managing Co-Tenant and borne exclusively by the Co-Tenant using the WFC
Conference Center during such period.
VII. Food Service.
On and after the Distribution Date, Lehman shall have the right to
continue using the contracted food services for the
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Building, including the WFC Cafeteria, the WFC Trader Food Services, Marcellus
Berry, the 19th Floor Executive Food Services and the WFC Conference Catering
(but specifically excluding executive dining services on the 50th Floor of the
WFC) on the same basis as it was permitted to use such services and facilities
prior to the Distribution Date. Amexco and Lehman shall jointly review all
contracted food services on a quarterly basis, provided that Amexco shall have
the right to make all final decisions with respect to contracted food services
subject to the terms and conditions contained herein.
VIII. Lehman Library.
On and after the Distribution Date, Amexco employees shall have the
right to continue to use the Lehman Library located on the __ floor of the
Building on the same basis as was permitted immediately prior to the
Distribution Date. Notwithstanding the foregoing, upon 60 days notice, Lehman
shall retain the right to discontinue operation of the Lehman Library provided
such discontinuance is made on a non-discriminatory basis.
IX. Mail, Messengers and Delivery Services.
(a) On an after the Distribution Date, Amexco shall no longer provide
to Lehman at the WFC any package or courier acceptance or delivery services and
Amexco messengers will no longer be permitted on Lehman floors at the WFC
without permission. On an after the Distribution Date, Lehman shall have the
right to
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establish and operate a Lehman messenger center in a designated portion of the
existing Amexco Messenger Center in the WFC Lobby and to establish and operate
a Lehman incoming delivery station at the WFC loading dock, each such location
as further described in Exhibit J hereto. On and after the Distribution Date,
all small packages delivered to Lehman by the United States Postal Service
shall be delivered via the internal conveyor system in the Building. At the
request of Lehman, Amexco shall provide courier services and for the acceptance
and delivery of packages at a cost to Lehman of Two Dollars and Sixty Cents
($2.60) per piece [subject to CPI Increase] for inbound delivery service [and
at its cost for outbound service.] Any adjustment to such prices must be
pre-approved by Amexco and Lehman.
(b) On and after the Distribution Date, Amexco shall provide Lehman
with outgoing domestic and international courier mail services at the WFC
substantially similar to those provided immediately prior to the Distribution
Date. Amexco will charge Lehman a handling charge for such courier services at
the rate of $2.35 per piece during 1994; thereafter such price may be adjusted
on an annual basis, the determination and allocation of costs and expenses
being made on Pre-Distribution Basis (unless otherwise determined by both
Amexco and Lehman). Lehman will continue to be responsible for all direct
courier mail charges. Amexco will use only couriers [for Lehman] which have
been pre-approved by Lehman.
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Lehman has the right at any time on reasonable notice to Amexco to discontinue
using such Amexco outgoing courier mail service and to establish and operate
its own outgoing courier mail services at the Building either in the Space of
any Lehman Co-Tenant or in an area reasonably designated by Amexco (i.e., not
in the Space of any Amex Co-Tenant).
(c) On and after the Distribution Date, Lehman shall have a right to
establish and maintain a presence on the WFC loading dock (not to exceed one
Lehman employee), which in addition to providing any services referred to in
section (a) and (b) above, shall have the right to direct all incoming and
outgoing Lehman parcels, records and equipment.
(d) On and after the Distribution Date, Amexco will continue to sort
and distribute all incoming domestic and inter- national Lehman mail on the
same basis as immediately prior to the Distribution Date, except that it will
deliver research mail to Lehman three (3) times a day. The costs and expenses
of providing such services shall be determined and allocated on a Pre-
Distribution Basis. For the duration of 1994, Lehman shall pay to Amexco a fee
for such services in the annual amount of Two Hundred and Seventy Six Thousand
Dollars ($276,000) (to be billed at Twenty-Three Thousand Dollars ($23,000)
monthly). Any adjustments to such rate shall be pre-approved by Amexco and
Lehman and shall
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reasonably account for substantial increases or decreases in volume of Lehman
Co-Tenants.
(e) On and after the Distribution Date, Amexco will continue to pick
up and deliver Lehman records to and from the warehouse in Piscataway, New
Jersey and to and from Lehman offices in New York City [and 101 Hudson] on the
same basis as immediately prior to the Distribution Date. The costs and
expenses of providing such services [is included in the Two Hundred and Seventy
Six Thousand Dollars ($276,000) referenced above]. Lehman may at any time on
reasonable notice to Amexco discontinue utilization of such services.
X. Communication Bins and Other Communications
on Shared Floors.
(a) On and after the Distribution Date, all of the Lehman and Amexco
discount flyers located in the front two lobby bins of WFC shall be available
to all Co-Tenants' employees. The bins shall be clearly identified as
containing the information of either Amexco or Lehman.
(b) On and after the Distribution Date, the present job posting
window and retail merchandise windows shall remain under the exclusive control
of Amexco.
(c) On and after the Distribution Date, Amexco shall continue to
maintain the posting of any required governmental communications in the windows
located on the third floor of WFC.
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Upon request, Lehman shall have the use of such windows on an as needed basis
for the purpose of posting required notices.
(d) On and after the Distribution Date, both Amexco and Lehman shall
obtain the pre-approval of the other for the use of the employee cafeteria in
WFC for events to occur during the cafeteria's regular hours of operation,
including, without limitation, events where either Amexco or Lehman is a
co-sponsor.
(e) On and after the Distribution Date, both Amexco and Lehman shall
notify the other in advance of posting or distributing of any business
announcements including, without limitation, announcements with regard to new
clients, (i) in the public areas of WFC, (ii) in the lobby area of WFC, (iii)
at the bottom of escalators in WFC, or (iv) in any Common Facility. Should a
possible conflict of business interest exist, both Amexco and Lehman shall
obtain the pre-approval of the other in advance of such postings.
(f) On and after the Distribution Date, Amexco shall turn off all
television monitors on the floors occupied by Lehman Co-Tenants until Lehman
is able to determine whether each Lehman Co-Tenant can use the monitors for its
own communication messages.
(g) On and after the Distribution Date, Amexco and Lehman shall
advise each other in advance of, and assume coordinating responsibility of,
participating in the use of any area outside of the security turnstiles of the
Amexco lobby in WFC.
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Should a possible conflict of business interest exist, Amexco and Lehman shall
obtain from the other pre-approval for such use.
(h) On and after the Distribution Date, the Co-Tenants shall
determine the costs for programming television monitors to broadcast programs
of Lehman and the "stock crawl" to floors occupied by Lehman Co-Tenants.
Should Amexco and Lehman mutually approve of such costs, they will subsequently
implement the broadcast of such programs.
2.05. DUTIES OF MANAGING CO-TENANT; CO-TENANT'S CHANGES
(a) Managing Co-Tenant shall, as agent for and at the expense of the
Co-Tenants and subject to and in accordance with the terms and provisions of
this Agreement, the Lease, the Project Operating Agreement, any Leasehold
Mortgages and the Affirmative Action Program Agreement, (i) make or cause to be
made all necessary or desirable repairs and improvements to the shell, core and
central systems of the Building and the Common Facilities, (ii) purchase needed
materials and supplies with respect thereto or otherwise in accordance with the
provisions of this Agreement, (iii) satisfy, in a timely manner, the Property
Obligations and the Debt Obligations (as hereinafter defined), and (iv) make
all other necessary and ordinary expenditures in connection with the operation,
repair, improvement and maintenance of the shell, core and central systems of
the Building and the Common Facilities, each as Managing Co-Tenant shall
reasonably deem advisable or
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necessary in the performance of its duties hereunder. In performing its duties
under (i) above, the Managing Co-Tenant shall act in a reasonable and prudent
manner so as not to unduly disrupt the Co-Tenant's business.
(b) Managing Co-Tenant shall have the authority to hire, discharge
and supervise independent contractors and all operating, service and
maintenance personnel, service contractors, architects, space planners,
attorneys and other consultants engaged in furnishing services in the
performance of Managing Co-Tenant's duties hereunder.
(c) Upon obtaining knowledge thereof, each Co-Tenant shall promptly
notify Managing Co-Tenant of any violation, order, rule or determination of any
Federal, State or municipal authority affecting the Property. Managing
Co-Tenant shall diligently attempt to obtain, renew and extend as and when
necessary, all permits, licenses and other governmental authorizations
necessary to operate the Building and/or the Leasehold and any cost or expense
incurred in connection therewith shall be considered a Property Obligation,
except for the cost and expense of any such item required with respect to a
Co-Tenant's Space, which shall be borne by such Co-Tenant.
(d) (i) Each Co-Tenant may make any proposed alterations, repairs,
additions or improvements (collectively, "Co-Tenant's Changes") to its Space,
provided that any such Co-Tenant's
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Changes are performed in compliance with the provisions of this Agreement.
Prior to the performance of any Co-Tenant's Change, the Co-Tenant in whose
Space the Co-Tenant's Change is proposed to be made shall deliver to Managing
Co-Tenant (1) the identity of the architect(s) and engineer(s) preparing plans
and specifications relating to such proposed Co-Tenant's Change, (2) complete
plans and specifications (including layout, architectural, mechanical and
structural drawings and specifications) relating to such proposed Co-Tenant's
Change, and (3) any additional information which may be required by the Lease
or any Leasehold Mortgage with respect to such proposed Co-Tenant's Change.
Upon receipt of the materials listed in (1) through (3) above, Managing
Co-Tenant shall with all reasonable diligence (but in no event later than ten
(10) days after receipt thereof) review such materials and advise the
submitting Co-Tenant of those additional materials, if any, which are required
for submission to the landlord under the Lease and/or the holders of any
Leasehold Mortgage, and/or, if applicable, any objections by any of the parties
required to give consent under clause (d)(ii) below. When all such materials
have been provided to Managing Co-Tenant, Managing Co-Tenant shall promptly
submit such materials to the landlord under the Lease and the holders of any
Leasehold Mortgage for any required consent to the performance of the proposed
Co-Tenant's Change. Thereafter, Managing Co-Tenant shall, using reasonable
commercial efforts,
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pursue any such required consent and shall transmit to the submitting Co-Tenant
any requests or comments made by the landlord under the Lease or the holders of
any Leasehold Mortgage with respect to the proposed Co-Tenant's Change.
(ii) No Co-Tenant's Change shall be performed unless and until
the landlord under the Lease and the holders of any Leasehold Mortgages have
consented to the proposed Co-Tenant's Change, or Managing Co-Tenant has
determined that no such consent is required (which determination shall be
diligently made). All Co-Tenant's Changes:
(A) shall be made solely at the expense of the
Co-Tenant in whose Space said Co-Tenant's Change is proposed to be made;
(B) shall be performed in accordance with all laws,
orders and regulations of all state, federal, municipal and local governments,
departments, commissions and boards and all applicable requirements of
insurance bodies having jurisdiction over the Property (collectively, "Legal
Requirements") [and there shall be delivered to Managing Co-Tenant prior to the
performance of any work, if practical (or as soon thereafter as possible),
copies of any plans and specifications and applications made with respect to
any required building permits and copies of any building permits received with
respect to the proposed Co-Tenant's Change];
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(C) shall not result in an adverse effect on the
basic structure of the Building or any Building systems (including without
limitation any of the Building's security systems), Utility Facilities
(hereinafter defined) or services to other Co-Tenants or other occupants of the
Property;
(D) shall be made in compliance with the practices
of Managing Co-Tenant then in effect regarding the use of unions and union
employees; and
(E) shall be made only if permitted under, and are
to be performed in accordance with, the provisions of the Lease, the
Affirmative Action Program Agreement and any Leasehold Mortgages.
(iii) All Co-Tenant's Changes shall be performed by and all
materials used in connection therewith supplied by contractors, subcontractors
and materialmen approved by the Managing Co-Tenant (collectively, the "Approved
Contractors"). If a Co-Tenant shall desire to have a Co-Tenant's Change
performed by a contractor or subcontractor, or have materials used in
connection therewith supplied by a materialman, which is not an Approved
Contractor, said Co-Tenant shall furnish the name thereof to Managing Co-Tenant
and Managing Co-Tenant shall issue its consent or disapproval of such
contractor, subcontractor and/or materialman within five (5) business days of
its receipt of request therefor.
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(iv) All Co-Tenant's Changes are to be performed at such times
and in such a manner as to minimize interference with the use and enjoyment of
the Building by the other Co-Tenants. With reasonable diligence following the
completion of any Co-Tenant's Changes, the Co-Tenant in whose Space a
Co-Tenant's Change was made shall cause to be prepared and delivered to
Managing Co-Tenant, at said Co-Tenant's sole cost and expense, such "as-built
plans", equipment manuals, licenses and such other documents as may be required
under the Lease. Such Co-Tenant shall also pay the expenses of incorporating
such as-built plans into any electronic data base maintained by the Managing
Co-Tenant. Prior to the performance of any Co-Tenant's Changes, Managing
Co-Tenant may require from the Co-Tenant for whom the Co-Tenant's Change is
being made (a) waivers of liens (if then obtainable) from all contractors,
subcontractors and materialmen performing work or supplying materials in
connection with such Co-Tenant's Changes and (b) evidence that all such
contractors, subcontractors and materialmen will be paid in full, which
evidence may include, without limitation, payment and performance bonds.
(e) The quantity and quality of services which Managing Co-Tenant
shall provide hereunder to the Co-Tenants shall be of the quantity and quality
which Managing Co-Tenant shall deem necessary or appropriate for the
maintenance of the Property reasonably consistent with current levels and
practices as of the
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date hereof. If at any time a Co-Tenant should determine that it needs or
requires services (other than utility services) which are in excess of the
quantity and/or quality of services then being supplied to it by Managing
Co-Tenant (the "Additional Services"), the Co-Tenant shall request such
Additional Services from Managing Co-Tenant only, and, if reasonably
practicable, Managing Co-Tenant shall cause such Additional Services to be
furnished to the Co-Tenant, at that Co-Tenant's sole cost and expense. With
respect to utility services, the Co-Tenants acknowledge that the Lehman
Co-Tenants presently utilize a percentage of the base building infrastructure
capacity which is greater than their aggregate Interests. The Co-Tenants
hereby consent to the usage levels existing as of the date hereof for the
Lehman Co-Tenants so long as, and to the extent, Lehman's trading floor and
electronic data processing operations as presently constituted continue.
However, if at any time, such trading floor or electronic data processing
operations shall be discontinued or curtailed then said usage levels shall be
adjusted accordingly. Further, if the Lehman Co-Tenants or the AMEX
Co-Tenants, as the case may be, (each, a "Requesting Co-Tenant") should
determine that they need or require additional base building infrastructure
capacity (for example, additional kilowatt hours or tonnage of chilled water)
in excess of that being furnished or made available to them as of the date
hereof ("Additional Capacity"), the Requesting Co-Tenant shall
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request in writing such Additional Capacity from the Managing Co-Tenant. The
Managing Co-Tenant shall cause such Additional Capacity to be furnished or made
available to the Requesting Co-Tenant, at its sole cost and expense, if (i)
reasonably practicable in the opinion of the Managing Co-Tenant, and (ii) the
amount of the Additional Capacity does not exceed the Requesting Co-Tenant's
"fair share" (as measured by their then aggregate Interest) of the available
system capacity as measured from the date hereof.
(f) Managing Co-Tenant shall have no liability to the other
Co-Tenants by reason of any inconvenience, annoyance, interruption or injury to
business arising from Managing Co-Tenant's making any repairs or changes which
Managing Co-Tenant is required or permitted by this Agreement, or required by
law, to make in or to any portion of the Property or in or to the fixtures,
equipment or appurtenances of the Property. Further, Managing Co-Tenant
reserves the right, without any liability to Tenant, to stop service of any of
the heating, ventilating, air conditioning, electric, sanitary, elevator or
other primary or secondary systems serving the Property, or the rendition of
any of the other services required of Managing Co-Tenant under this Agreement,
whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes or the making of repairs or
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changes which Managing Co-Tenant is required or permitted to make pursuant to
this Agreement.
2.06. CONTRACTS
Subject to and in accordance with the provisions of this Agreement,
Managing Co-Tenant is authorized in the name and at the expense of the
Co-Tenants, to make contracts for electricity, gas, steam, telephone, cleaning
services, vermin extermination, and other materials, supplies and services as
Managing Co-Tenant shall reasonably deem advisable. Managing Co-Tenant shall
not be required to obtain competitive bids for any such contracts.
2.07. MANAGEMENT COMPANY; CHANGE OF MANAGING CO-TENANT
Managing Co-Tenant may at any time retain any reputable management
company to perform all or a portion of the responsibilities and obligations
of Managing Co-Tenant under this Agreement, and the fees and expenses paid to
such management company shall be considered a Property Obligation.
2.08. BUILDING SECURITY; SECURE AREAS
(a) Managing Co-Tenant shall provide such security services and
security systems for the Building as it shall deem necessary and/or desirable,
subject to any restrictions set forth in the Lease or the Project Operating
Agreement (the "Security Services"). The Security Services shall include,
without limitation, (i) placing security personnel at the lobby entrances and
parking garage of the Building and the Building's lobby elevator
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and stairway entrances and (ii) having security personnel patrol the public
areas, elevators and stairways of the Building; in each case 24 hours a day,
365 days a year.
(b) (i) Each Co-Tenant shall be permitted to install security systems
and security devices other than those furnished as part of the Security
Services (the "Additional Security Services"), provided that (A) Managing
Co-Tenant shall have determined to consent to the installation and/or provision
of such Additional Security Services, which determination managing Co-Tenant
shall make in good faith, (B) the Co-Tenant in whose Space such Additional
Security Services will be provided shall bear the sole cost of the
installation, maintenance and repair of the same, as well as any increase in
costs of the provision of Security Services to the other Co-Tenants resulting
from the provision of Additional Security Services to the requesting Co-Tenant,
and (C) the Additional Security Services shall not violate any laws, orders or
regulations or any provision contained in the Lease or the Project Operating
Agreement.
(c) Each Co-Tenant shall use its best efforts to preserve the
security and safety of other occupants of the Building and in the event
Managing Co-Tenant receives any complaints from other tenants or occupants at
the Building with respect to breaches of security or safety arising out of, or
any nuisance with respect to the conduct of a Co-Tenant's employees, agents,
con-
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tractors or invitees, said Co-Tenant shall immediately take whatever measures
as shall be reasonably necessary or as Managing Co-Tenant shall reasonably
direct to remedy any such complaint. No Co-Tenant shall perform any action
(including installation of electronic equipment) which may adversely affect the
Building's security systems.
(d) (i) Each Co-Tenant may, fifteen (15) days after having given
notice to Managing Co-Tenant (or sooner, in the event of compelling business
reasons) designate and establish certain discrete enclosed portions of its
Space, as to which it has strict security requirements (the "Secure Areas").
Additionally, those portions of the Building as to which Co-Tenants have strict
security requirements as of the date hereof shall constitute Secure Areas, and
are identified on Exhibit F annexed hereto and made a part hereof.
(ii) Managing Co-Tenant shall have such access to any Secure Area
as may reasonably be required to perform its obligations hereunder, to assure
compliance with the Lease or the Leasehold Mortgages, or to maintain, repair,
install or otherwise service, or to gain access to, any Utility Facility,
Common Facility or Building system, provided that Managing Co-Tenant shall be
accompanied by a representative of the Co-Tenant in whose Space the Secure Area
is located and in compliance with such other reasonable restrictions as said
Co-Tenant may establish.
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(iii) Unless Managing Co-Tenant shall have such access as it
reasonably deems necessary to secure, maintain or operate any Secure Area,
Managing Co-Tenant shall have no obligations, responsibilities or liability
with respect to the security, maintenance or operation thereof and the
Co-Tenant in whose Space a Secure Area is located shall provide all such
services with respect thereto in accordance with the provisions of this
Agreement and consistent with the level of such services then being provided to
the balance of Space. The Co-Tenant in whose Space a Secure Area is located
shall have the option of permitting Managing Co-Tenant to have access to said
Secure Area in order to furnish cleaning, security, maintenance and other
services with respect thereto. If there shall be any additional expenses in
furnishing such services to any Secure Area, the Co-Tenant in whose Space the
same is located shall bear said additional expenses.
2.09. DEBT OBLIGATIONS
(a) Each of the Co-Tenants shall be obligated, in accordance with the
terms of this Agreement, to bear and pay its portion of the Debt Obligations.
(b) As of the Transfer Date, the outstanding principal amount of the
Debt Obligations owed by the Lehman Co-Tenants is $______ and the amount of the
Debt Obligations owed by the Amex Co-Tenants is $______, which amounts may be
adjusted from time to
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time by way of payments or accretions or as otherwise agreed to by the parties
without regard to any stated percentages contained in any Leasehold Mortgages,
Notes or other documents, and without regard to any Co-Tenant's Interest.
Furthermore, each of the Co- Tenants hereby affirmatively represents that it
shall promptly pay their portion of the Debt Obligations.
(c) The term "Debt Obligations" shall mean the total aggregate amount
of outstanding principal balance and accrued and unpaid interest due at any
time under the Indentures and Notes.
2.10. UTILITIES; UTILITY EXPENSES; UTILITY FACILITIES
(a) Each Co-Tenant shall bear and timely pay the cost of all
electricity, gas, water, steam, chilled and condensed water and all other
utilities (the "Utility Expenses") servicing its Space. Utility Expenses shall
be equitably apportioned among the Co-Tenants by Managing Co-Tenant, until such
time, if ever, as submeters are installed, following which the submeters shall
govern. The cost of all submeters installed with respect to Utility Expenses
shall be considered Property Obligations hereunder.
(b) Each of the Spaces shall be benefitted and burdened by certain
non-exclusive easements in favor of the Managing Co-Tenant for the
construction, installation, operation, maintenance, repair, restoration and
replacement of certain lines, conduits, pipes, ducts, vents, tanks, equipment,
machinery, convey-
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ors, dumb-waiters, and connections for utilities, HVAC and other systems in the
Building, and the closets and other areas housing or containing each of the
foregoing, to the extent the same serve a Space or Spaces other than the Space
in which they are located (collectively, the "Utility Facilities"). Each
Co-Tenant hereby agrees to use all reasonable efforts not to permit any
interference with or damage to the Utility Facilities within its Space.
(c) Each Utility Facility shall be constructed, installed, operated,
maintained, repaired, restored, replaced and insured by Managing Co-Tenant,
with the cost of each of the foregoing constituting a "Utility Facility
Expense."
(d) The Utility Facility Expense for each Utility Facility shall be
borne as follows:
(i) with respect to any Utility Facility which serves only one
Space (the "Benefitted Space") but is located in another Space (the "Burdened
Space"), the Co-Tenant of the Benefitted Space shall reimburse the Co-Tenant of
the Burdened Space within ten (10) days after demand therefor for the Utility
Facility Expenses incurred by the Co-Tenant of the Burdened Space during the
period covered by such demand;
(ii) with respect to any Utility Facility which serves more than
one Space, the Co-Tenants of the Spaces which are served shall bear the Utility
Facility Expense in accordance with an equitable apportionment made by the
Managing Co-Tenant.
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(e) The Co-Tenant of any Burdened Space shall utilize its reasonable
commercial efforts to prevent the Utility Facility therein from being
interfered or tampered with, or affected, in any manner whatsoever (except by
Managing Co-Tenant or its agents or contractors).
2.11. USE OF SPACE
(a) Each Co-Tenant may use its Space for any lawful purpose in
accordance with the provisions of this Agreement, the Certificate of Occupancy
for such Space, the Lease and any Leasehold Mortgages; provided, however, that
no Co-Tenant shall at any time be permitted to change, or permit the change of,
the then current particular use of its Space without the prior written consent
of the Managing Co-Tenant if such use would increase the burden on the Building
systems and/or the Utility Facilities, except that without any such consent a
Co-Tenant may change the particular use of its Space to (i) a use already in
effect in the Building or (ii) other uses required for the business of
Co-Tenant provided the character of the Building is not in any manner
diminished, in each such case in accordance with the Certificate of Occupancy
for such Space.
(b) Each Co-Tenant shall maintain its Space in a manner consistent
with a New York City first-class headquarters office building and in accordance
with the rules and regulations to which reference is made in Section 5.22.
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(c) A Co-Tenant may leave all or any material portion of its Space
unoccupied for a period not to exceed eighteen (18) months upon satisfaction of
the following conditions:
(i) such Co-Tenant shall give written notice to the Managing
Co-Tenant before leaving the Space unoccupied, and
(ii) such Co-Tenant shall in all respects comply with the
provisions of this Agreement, the Lease and any Leasehold Mortgages with
respect to such Space.
2.12. TELECOMMUNICATION FACILITIES AND T.V. STUDIO
With respect to the Telecommunication Facilities, Lehman, and with
respect to the T.V. Studio, TRSCO, shall: (a) manage and supervise its
operation and (b) make it available to all Co-Tenants on a reasonably equitable
basis. The Usage Costs of the Telecommunication Facilities and T.V. Studio
shall be determined in accordance with the provisions of Exhibit C annexed
hereto.
ARTICLE III
FINANCIAL MATTERS
3.01. BUDGETS
(a) (i) Managing Co-Tenant shall prepare, for planning and
informational purposes only, a proposed annual budget ("Budget") for the
Property for each calendar year during the term of this Agreement and shall
deliver such proposed Budget to each of the Co-Tenants not later than sixty
(60) days prior to the begin-
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ning of the calendar year to which such Budget relates. Such proposed Budget
shall contain those expenditure categories set forth on Exhibit G or otherwise
as Managing Co-Tenant may reasonably adopt (the "Budget Categories"). Each
proposed Budget Category shall show in reasonable detail the estimated costs of
operating the Building for the following calendar year, but shall not include
capital expenditures, Rental under the Lease, Debt Obligations and Common Area
Expenses under the Project Operating Agreement.
(ii) The Managing Co-Tenant shall have the authority to modify,
amend and/or supplement a Budget, a Budget Category or a Capital Budget
(hereinafter defined).
(iii) Managing Co-Tenant shall prepare, for planning and
informational purposes only, a separate proposed annual budget for capital
expenditures for the Property ("Capital Budget") for each calendar year during
the term of this Agreement and shall deliver the same to each of the Co-Tenants
simultaneously with delivery of the proposed Budget for each such calendar
year. Such Capital Budget shall describe in reasonable detail those capital
expenditures scheduled for the immediately following calendar year and the
estimated cost thereof.
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3.02. PAYMENT OF UTILITY EXPENSES AND PROPERTY OBLIGATIONS
(a) (i) The Managing Co-Tenant shall advance funds on behalf of each
of the Co-Tenants in order to timely satisfy the Utility Expenses and Property
Obligations.
(ii) The Co-Tenants each promise to timely reimburse to managing
Co-Tenant their respective Utility Expenses, Interests of all Property
Obligations and any Interest Component (hereinafter defined) due in connection
with either of the foregoing, each in accordance with the provisions of this
Section 3.02.
(b) (i) The term "Interest Component" shall mean the amount of
interest, whether computed at the Cost Rate (hereinafter defined), Investment
Rate (hereinafter defined), Penalty Rate (hereinafter defined) or any other
rate agreed upon between Managing Co-Tenant and a Co-Tenant, which accrues
hereunder with respect to any Utility Expense or Property Obligation.
(ii) The term "Cost Rate" for any particular period (currently
determined on a calendar month basis) shall mean the interest rate equal to
Managing Co-Tenant's average short term cost of funds for such period, as
determined by Managing Co-Tenant.
(iii) The term "Investment Rate" for any particular period
(currently determined on a calendar month basis) shall mean
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the interest rate equal to (A) the average return on Managing Co-Tenant's short
term investments for such period, as determined by Managing Co-Tenant, or (B)
if no such short term investments for such period are then being made, Managing
Co-Tenant's average short term cost of funds for such period, as determined by
Managing Co-Tenant.
(iv) The term "Penalty Rate" shall mean the lesser of (A) the
interest rate equal to 200 basis points in excess of the annual prime rate
charged by Morgan Guaranty Bank, as in effect from time to time, or (B) the
maximum rate then permitted by law.
(v) The term "payment" shall refer to the delivery of good funds,
unless otherwise indicated.
(c) (i) If, during any particular month or quarter (as the case may
be), Managing Co-Tenant shall have engaged in any short term borrowing, the
amount of any funds of Managing Co-Tenant used to satisfy the Utility Expenses
and/or Property Obligations accruing during such month or quarter (as the case
may be) shall bear interest from the date such funds were used to satisfy such
Utility Expenses and/or Property Obligations to the earlier of the date of
payment or the Due Date (as herein defined), at the greater of (A) the Cost
Rate, or (B) the Investment Rate for such period, as computed from time to
time.
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(ii) If, during any particular month or quarter (as the case may
be), Managing Co-Tenant shall not have engaged in any short term borrowing, the
amount of any funds of Managing Co-Tenant used to satisfy the Utility Expertise
and/or Property Obligations accruing during such month or quarter (as the case
may be) shall bear interest from the date such funds were used to satisfy such
Utility Expenses and/or Property Obligations to the Due Date, at the Investment
Rate for such period, as computed from time to time.
(d) The Managing Co-Tenant shall prepare or cause to be prepared, and
shall submit to each Co-Tenant,
(i) statements (each, a "Property Obligation and Utility Expense
Statement") within fifteen (15) days after the end of each month (or as soon as
possible thereafter) setting forth the particular Co-Tenant's respective (A)
Utility Expenses, (B) Interest of the Property Obligations incurred by the
Managing Co-Tenant during the preceding month, and (C) Interest on any accrued
but unpaid Interest Component; and
(ii) statements (each, a "Capital Property Obligation Statement")
on each April 15, July 15, November 15 and February 15 (or as soon as possible
after each such date) setting forth the particular Co-Tenant's respective
Interest of the (A) Property Obligations with respect to capital expenditures
("Capital Property Obligations") and which are incurred by the Managing
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Co-Tenant during, respectively, the first, second and third quarters of the
then current calendar year, and with respect to the February 15 statement, the
fourth quarter of the immediately preceding calendar year, and (B) any accrued
but unpaid Interest Component. With respect to specific and identifiable
Capital Property Obligations which are in excess of $1,000,000, Managing
Co-Tenant shall, where reasonably practical, issue in advance Capital Property
Obligation Statements with respect thereto setting forth the date by which
payment thereof is required.
(e) A Co-Tenant shall pay Managing Co-Tenant the amounts indicated on
its respective Property Obligation and Utility Expense Statement and Capital
Property Obligation Statement by the end of the thirtieth (30th) day following
Co-Tenant's receipt thereof (the "Due Date"). Any payment by a Co-Tenant in
full or partial satisfaction of its Utilities Expenses, Interest of Property
Obligations or its Capital Property Obligations shall be applied first to
payment of principal and then to interest. If a Co-Tenant shall at any time
fail to pay the full amount of its Utility Expenses (and any Interest Component
due in connection therewith) or its respective Interest of any Property
Obligation (or any Interest Component due in connection with either of the
foregoing) by the applicable Due Date, the unpaid portion of any such amount
shall bear interest at the Penalty Rate from the Due Date until fully paid.
Notwithstanding anything to the contrary
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which may be contained in this Agreement, the portion of any Interest Component
computed at the Penalty Rate shall be the sole property of Managing Co-Tenant.
(f) At any time after the end of each month, Managing Co-Tenant shall
be permitted to pay itself, on behalf of the other Co-Tenants, either by
borrowing funds or out of such funds of the Co-Tenants (as Co-Tenants only) as
it may then be in possession of, any accrued but unpaid Interest Component
relating to any Property Obligation or Capital Obligation incurred by Managing
Co-Tenant during the previous month.
(g) If, subsequent to the payment by a Co-Tenant to Managing
Co-Tenant of any Utility Expense or Property Obligation (and Interest Component
on either of the foregoing), Managing Co-Tenant determines that there has been
(i) an overpayment of any such amounts by said CoTenant (an
"Overpayment"), Managing Co-Tenant shall, within thirty (30) days after such
determination has been reached, pay to said Co-Tenant (A) the amount of said
Overpayment, including the portion of-any Interest Component paid to Managing
Co-Tenant and attributable to said Overpayment, and (B) interest on the
Overpayment, computed (1) at the rate, from time to time, then in effect for
the period from the date of payment of the Overpayment by Co-Tenant to the end
of the thirty (30) day period described above, and, if payment shall not have
been made by the end of such
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period, thereafter, at the Penalty Rate until payment shall be made; or
(ii) an underpayment of any such amounts by said Co-Tenant (an
"Underpayment"), Co-Tenant shall, within thirty (30) days following notice
thereof from Managing Co-Tenant, pay the amount of such Underpayment, including
any Interest Component due in connection therewith computed at the rate, from
time to time, then in effect for the period from the date such Underpayment
should have been paid to the end of the thirty (30) day period referred to
above, and, if payment shall not have been made by the end of such period,
thereafter, at the Penalty Rate until payment shall be made.
(h) All Co-Tenants agree to work together to promptly determine
whether there has been any overpayment or underpayment with respect to Utility
Expenses or Property Obligations. Each Co-Tenant's obligation hereunder to pay
any Property Obligations, Utility Expenses or Interest Component as herein
provided shall not in any manner be affected by the failure of the Managing Co-
Tenant to prepare or deliver to any Co-Tenant any Property Obligation and
Utility Expense Statement or Capital Property Obligation Statement.
(i) Nothing herein contained shall prevent the Managing Co-Tenant
from adjusting the length of the monthly and quarterly periods used in
administering the Property Obligations
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for purposes of facilitating the billing and collection of such amounts.
3.03. PAYMENT OF DEBT OBLIGATIONS
(a) The Managing Co-Tenant shall prepare or cause to be prepared, and
shall submit, periodic statements (each, a "Debt Obligation Statement") to the
other Co-Tenants not less than fifteen (15) days prior to the date a Debt
Obligation is due (or as soon thereafter as possible), setting forth the Debt
Obligations due for the next succeeding month. Each Co-Tenant shall furnish
Managing Co-Tenant with a check drawn on a bank which is a member of the New
York Clearing House Association (or any other means by which good funds are
available by 12:00 o'clock noon on the subsequent business day) in the amount
of its respective Debt Percentage of the Debt Obligations set forth in said
Debt Obligation Statement no later than 12:00 o'clock noon on the business day
preceding the day which Managing Co-Tenant reasonably determined to be the date
such Debt Obligations must be paid. Each Co-Tenant's obligation hereunder to
pay any Debt Obligations as herein provided shall not in any manner be affected
by the failure of Managing Co-Tenant to prepare or deliver to any Co-Tenant any
Debt Obligation Statement.
(b) It is the intention of the parties hereto that at no time prior
to, during or after the term of this Agreement, shall Managing Co-Tenant be
required to satisfy from its own funds
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any of the Debt Obligations (other than Managing Co-Tenant's Debt Percentage
thereof).
3.04. FUNDS OF CO-TENANTS
(a) All monies received by Managing Co-Tenant for or on behalf of the
Co-Tenants, other than those monies received by Managing Co-Tenant and intended
as payment or prepayment to Managing Co-Tenant, may be commingled with other
funds of Managing Co-Tenant but shall be held in trust by Managing Co-Tenant
for the Co-Tenants. Managing Co-Tenant shall have the right to sign checks on
behalf of the Co-Tenants for any amounts which the Co-Tenants may be obligated
to pay either herein or under the Lease, Project Operating Agreement or any
Leasehold Mortgages, without the prior consent of the Co-Tenants. Such monies
may be invested by Managing Co-Tenant in Managing Co-Tenant's discretion, in
any of (i) the investments contained in Amexco's short term investment list
approved by the Finance Committee of the Board of Directors of Amexco, (ii) any
investment-grade short term security or (iii) in so-called "money market
funds". Managing Co-Tenant shall have no responsibility for failing to select
the investment which would have provided the maximum rate of return on the
monies of the Co-Tenants or for the solvency of the issuer or depository
selected in accordance with the foregoing provisions. Except as otherwise
provided herein, any interest earned on such deposits shall
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remain the property of the Co-Tenants, in accordance with their respective
Interests.
(b) Managing Co-Tenant shall have the right without the consent of
any other Co-Tenant to sign all checks on behalf of the Co-Tenants for any
expenditures incurred in accordance with the provisions of this Agreement.
3.05. EXCESS FUNDS
(a) If at any time Managing Co-Tenant shall have collected funds from
or on behalf of a Co-Tenant in excess of said Co-Tenant's Interest of its then
due and owing installment of Property Obligations, such excess funds shall (i)
earn interest for the account of said Co-Tenant at the rate, from time to time,
in effect during the period commencing on the date of Managing Co-Tenant's
retention of such excess funds through the Managing Co-Tenant's disposition of
said excess funds and (ii) said excess funds and the interest earned thereon
(collectively, the "Excess Funds") shall be:
(A) retained by Managing Co-Tenant, if agreed to by
said Co-Tenant, and thereafter applied against said Co-Tenant's next accruing
installments of Property Obligations; or
(B) returned to said Co-Tenant upon either (1) the
decision of Managing Co-Tenant to return the same or (2) within five (5) days
after demand therefor by Co-Tenant (and, if said Excess Funds are not paid on
the end of the fifth day of said
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period, such Excess Funds shall accrue interest at the Penalty Rate until the
same are paid to Co-Tenant).
(b) Any income to the Co-Tenants arising from the Common Facilities
shall be collected, retained and applied in accordance with the Co-Tenants'
Interests by Managing Co-Tenant to satisfy any Property Obligations accruing
hereunder, and any sums remaining shall be distributed to the Co-Tenants in
accordance with the Co-Tenants' Interests.
3.06. PERIODIC STATEMENTS
Managing Co-Tenant shall use reasonable efforts to deliver to the
Co-Tenants within fifteen (15) days after the end of each month (or as soon as
possible thereafter), (i) an unaudited report of income and expense of the
Property for such next previous month prepared on a cash disbursement basis
(including a statement of funds, if any, held by it as provided in Section 3.04
hereof), (ii) an unaudited report of income and expense prepared on an accrual
basis, compared on a monthly and year-to-date basis to the Budget and (iii) an
unaudited report reflecting the then current status of the Debt Obligations.
In addition, after the close of each calendar year, Managing Co-Tenant shall
cause to be prepared by its independent public accountants and delivered to the
Co-Tenants audited annual financial statements (required by the Lease) as well
as all relevant income tax reporting information. The fees of such independent
public accountants and all
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other costs incurred in connection with the preparation and delivery of such
statements shall be considered Property Obligations.
3.07. BOOKS AND RECORDS
Managing Co-Tenant shall maintain and keep available, at its offices,
at all times, such complete and up-to-date books and records of the operation
of the Property as are customarily maintained by managing agents, or as
reasonably required by the Co-Tenants, including paid bills and vouchers as
well as leases, lease amendments and contracts relating to the Property. The
CoTenants and their respective partners, directors, agents and designees
reasonably acceptable to the Managing Co-Tenant shall, at all reasonable hours,
have a right to audit and examine said books, records, leases, lease amendments
and contracts relating to the Property and to make transcripts or photostats of
all or any part thereof. The books of account relating to the operation of the
Property shall be the property of the Co-Tenants; however all records relating
thereto shall be the property of Managing Co-Tenant, but copies thereof shall
at reasonable times be available to the Co-Tenants.
3.08. FINAL ACCOUNTING
Upon termination of this Agreement or upon the substitution of a new
Managing Co-Tenant, Managing Co-Tenant shall promptly render a final accounting
of receipts and disbursements
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to the Co-Tenants for any period for which an accounting has not theretofore
been submitted, all accounts shall be closed and the Managing Co-Tenant shall
transfer to such parties all funds being held by the Managing Co-Tenant to
which such parties are entitled. In addition the books of account maintained
by the Managing Co-Tenant for the Property together with copies of the relevant
Property records shall be delivered to the Managing Co-Tenant.
3.09. FAILURE TO PAY
(a) If any Co-Tenant shall fail to pay when due any installment of
Property Obligations, Debt Obligations or any other payments due hereunder when
required of it pursuant to this Agreement (such Co-Tenant unable or unwilling
to make such a payment being hereinafter referred to as a "Delinquent
Co-Tenant"), then Managing Co-Tenant shall so notify the other Co-Tenants who
may, within five (5) days following such notice advance the amount of such
Delinquent Co-Tenant's required payment and that amount shall be treated as a
debt of the Delinquent Co-Tenant to the other Co-Tenants which debt shall bear
interest from the date of advance to the date of repayment at the Penalty Rate.
(b) In addition to any other remedy which may be available at law or
in equity, upon failure of a Delinquent Co-Tenant to pay when due any
installment of Property Obligations, Debt Obligations or any other payments due
hereunder when required of it pursuant to this Agreement, and upon the other
Co-Tenants
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having advanced the amount of the Delinquent Co-Tenant's required payment as
set forth above, then such advance, together with interest thereon as set forth
above, shall become a lien against the Interest of such Delinquent Co-Tenant
upon the filing in the Office of the Register of the City of New York, County
of New York, of record of a notice of lien by the other Co-Tenants. To the
extent permitted by law, such lien shall be evidenced, enforced, discharged or
removed as an equitable lien under the laws of the State of New York.
(c) Each Co-Tenant authorizes Managing Co-Tenant to apply its share
of any income due it or attributable to it, from any source whatsoever, against
the amounts due any other Co-Tenants (as Co-Tenants only) (including interest)
from such Co-Tenant (as a Delinquent Co-Tenant) under this Section 3.09.
3.10. INSURANCE
(a) On and after the Distribution Date, Managing Co-Tenant shall
obtain and maintain "all risk" property insurance (covering real and personal
property and business interruption/extra expense loss) for WFC (the "Property
Policy"). The insured amount of the Property Policy shall be no less than the
greater of the replacement cost value of the Building, any leasehold
improvements therein and improvements and betterments therein or the amount
required under the WFC Indebtedness. Managing Co-Tenant shall arrange for the
other Co-Tenants to be named as
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insureds and loss-payees under the Property Policy to the extent of their
insurable interest. Managing Co-Tenant shall have the right to negotiate and
settle with the applicable insurer all claims pursuant to the Property Policy,
provided, however, that Non- Managing Designated Co-Tenant shall have the
right, upon notice to Managing Co-Tenant, to negotiate and settle directly with
the applicable insurer any claim involving the leasehold improvements or
betterments (other than personal property) when the loss only affects the
Non-Managing Designated Co-Tenant's Space or the Space of its related
Co-Tenants. The Non-Managing Designated Co-Tenant agrees to participate with
the Managing Co-Tenant with regard to the negotiating and settling of any
claims involving the core, shell or central systems within the Non-Managing
Designated Co-Tenant's Space or the Space of its related Co-Tenants or claims
involving leasehold, improvements or betterments, when the loss goes beyond the
Non-Managing Designated Co-Tenant's Space or the Space of its related
Co-Tenants. All policy terms and deductible levels shall be reasonably
acceptable to the Non-Managing Designated Co-Tenant.
(b) (i) On and after the Distribution Date, the Managing Co-Tenant
shall obtain and maintain occurrence-based commercial general liability
insurance for WFC (the "Managing Co-Tenant's Commercial Policy"). The insured
amount of the Managing Co-Tenant's Commercial Policy shall be no less than the
greater of
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One Hundred Million-Dollars ($100,000,000) or the amount specified and required
under the WFC Indebtedness. The insured amount and coverage under the Managing
Co-Tenant's Commercial Policy shall conform to and be consistent with industry
practice and include, but not be limited to, contractual liability,
products/completed operations, independent contractors, broad form property
damage, personal injury, cross liability and severability of interest. All
policy terms and deductible levels shall be reasonably acceptable to the
Non-Managing Designated Co-Tenant.
(ii) On and after the Distribution Date, the Non-Managing
Designated Co-Tenant shall obtain and maintain occurrence- based commercial
general liability insurance for WFC, excluding Common Areas (the "Non-Managing
Designated Co-Tenant's Commercial Policy"). The insured amount and coverage of
the Non-Managing Designated Co-Tenant's Commercial Policy shall conform to and
be consistent with industry practice including, but not limited to, contractual
liability, products/completed operations, independent contractors, broad form
property damage, cross liability/severability of interests and personal injury.
(iii) On and after the Distribution Date, the Non-Managing
Designated Co-Tenant shall obtain and maintain "all risk" property insurance
for the personal property of its related Co-Tenants. The personal property
shall be insured at replacement
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cost. The form, coverage and limits covered shall conform to and be consistent
with industry practice.
(iv) (A) The Managing Co-Tenant shall name the Non-Managing
Designated Co-Tenant and its related Co-Tenants as additional insureds on the
Managing Co-Tenant's Commercial Policy to the extent necessary to insure the
Non-Managing Designated Co- Tenant and its related Co-Tenants against claims
arising out of the premises and operations of the other Non-Managing Designated
Co- Tenants Space (or the Space of its related Co-Tenants) or the Common
Facilities.
(B) The Non-Managing Designated Co-Tenant shall name the
Managing Co-Tenant and its related Co-Tenants as additional insureds on the
Non-Managing Designated Co-Tenant's Commercial Policy to the extent necessary
to insure the Managing Co- Tenant and its related Co-Tenants against claims
arising out of the premises or operations of the Non-Managing Designated Co-
Tenant's or its Related Co-Tenant's Space.
(c) The Managing Co-Tenant shall cause any Insurance Policy obtained
and maintained by it to provide, as a condition precedent to the cancellation
of such policy, a minimum of 30 days' advance written notice by such insurer to
the Non-Managing Designated Co-Tenant. A copy of each Insurance Policy
obtained by the Managing Co-Tenant shall be provided to the Non-Managing
Designated Co-Tenant.
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(d) Each policy of insurance shall contain a waiver of the insurer's
right of subrogation. A certificate of each policy issued and required to be
carried by any Co-Tenant under the Lease, any Leasehold Mortgage or hereunder
shall be delivered promptly following its availability to Managing Co-Tenant.
The Co-Tenants shall be entitled to all dividends or return premiums in
connection therewith in accordance with their payments with respect thereto in
accordance with clause (iii) of Section 2.03(b).
(e) Each of the Managing Co-Tenants and the Non-Managing Designated
Co-Tenants shall make best efforts to collect under available insurance
policies before seeking indemnification from the other, where allowed.
ARTICLE IV
TRANSFERS
4.01. CONSENT REQUIRED
Except as otherwise expressly provided in this Agreement, each of the
Co-Tenants expressly covenants that they shall not transfer, assign, mortgage,
create a security interest in, or otherwise encumber, all or any part of their
respective Interests, or sublet all or any part of their respective Spaces, or
suffer or permit all or any part of their respective Spaces to be used by
others.
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4.02. SUBLETTING PERMITTED
Except with respect to a sublease to an Affiliate (as to which the
following limitations shall not apply and which is permitted hereunder from
time to time upon ten (10) business days prior notice to the Managing
Co-Tenant), provided that there shall have been no exercise of a Right of First
Offer or Right of First Refusal (as such terms are hereinafter defined) with
respect to a proposed subletting of Space, Managing Co-Tenant shall, on behalf
of the Co-Tenants and for the account of the subletting Co-Tenant, enter into a
sublease of all or a portion of said subletting Co-Tenant's Space, provided
that:
(i) such sublease shall be for a term of not less
than five (5) years;
(ii) the portion of the Space demised under such sublease shall
not be less than one (1) full floor of the Building;
(iii) such sublease shall provide for fair market terms,
concessions and rental;
(iv) the terms and conditions of such sublease (including the
specific uses permitted thereunder) shall be in form and substance reasonably
acceptable to Managing Co-Tenant and shall comply in all respects with the
terms and provisions of the Lease and any and all Leasehold Mortgages;
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(v) the subtenant shall (a) have a financial rating, as measured
by the Standard and Poor's Corporation, of not less than "Investment Grade" (or
successor rating of similar standing), or (b) be an entity with a balance sheet
and income statement, which Managing Co-Tenant determines to be reasonably
adequate, taking into consideration the terms and provisions of the sublease in
question;
(vi) such sublease shall by its terms appoint the Managing
Co-Tenant to administer such sublease on behalf of the subletting Co-Tenant;
(vii) the subletting Co-Tenant shall indemnify and hold harmless
the other Co-Tenants and the Property from and against any and all real
property transfer and transfer gains taxes and any Commercial Rent or Occupancy
Tax, attributable to such sublease;
(viii) if the subletting Co-Tenant is (A) a Lehman Co-Tenant, the
subtenant shall not then be engaged in any signif- icant business or businesses
of any AMEX Co-Tenant, or (B) an AMEX Co-Tenant, the subtenant shall not then
be engaged in any significant business or businesses of any Lehman Co-Tenant;
(ix) the subtenant shall, in the reasonable judgment of Managing
Co-Tenant, be of a character in keeping with the standards of the Building as a
first-class New York City office
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building and consistent with other tenants and/or occupants in the Building;
and
(x) the proposed subtenant shall not be entitled, directly or
indirectly, to diplomatic or sovereign immunity and shall be subject to the
service of process in, and the jurisdiction of the courts of, the State of New
York.
4.03. ASSIGNMENTS
Supplementing each of the other provisions contained in this Agreement
respecting the assignment or other transfer of any Interest of a Co-Tenant
hereunder, there shall be no assignment or transfer whatsoever of any Interest
of a Co-Tenant, in whole or in part, without the consent of Managing Co-Tenant,
which consent shall be granted or denied in the sole and absolute discretion of
Managing Co-Tenant until such time as the Existing Leasehold Mortgages and
Existing Notes are satisfied. After the satisfaction of the Existing Leasehold
Mortgages and Existing Notes, there shall be no assignment or transfer
whatsoever of any Interest of a Co- Tenant, in whole or in part, without the
consent of the Managing Co-Tenant, which consent shall not be unreasonably
withheld or delayed provided that:
(i) the terms and conditions of such assignment shall be in form and
substance reasonably acceptable to Managing Co-Tenant and shall comply in all
respects with the terms and provisions of the Lease and any and all Leasehold
Mortgages;
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(ii) the assignee shall (a) have a financial rating, as measured by
the Standard and Poor's Corporation, of not less than "Investment Grade" (or
successor rating of similar standing), or (b) be an entity with a balance sheet
and income statement, which Managing Co-Tenant determines to be reasonably
adequate, taking into consideration the terms and provisions of the assignment
in question;
(iii) the assigning Co-Tenant shall indemnify and hold harmless the
other Co-Tenants and the Property from and against any and all real property
transfer and transfer gains taxes and any Commercial Rent or Occupancy Tax,
attributable to such assignment;
(iv) if the assigning Co-Tenant is (A) a Lehman Co-Tenant, the
assignee shall not then be engaged in any significant business or businesses of
any AMEX Co-Tenant, or (B) an AMEX Co-Tenant, the assignee shall not then be
engaged in any significant business or businesses of any Lehman Co-Tenant;
(v) the assignee shall, in the reasonable judgment of Managing
Co-Tenant, be of a character in keeping with the standards of the Building as a
first-class New York City headquarters office building and consistent with
other tenants and/or occupants in the Building; and
(vi) the proposed assignee shall not be entitled, directly or
indirectly, to diplomatic or sovereign immunity and
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shall be subject to the service of process in, and the jurisdiction of the
courts of, the State of New York.
4.04. ADDITIONAL RESTRICTIONS
(a) Each sublease or instrument of assignment of a CoTenant's Space
or Interest as the case may be, is to be executed by Managing Co-Tenant on
behalf of the Co-Tenants. Each sublease or instrument of assignment shall
contain an assumption by the subtenant or assignee, as the case may be, of the
obligations of the sublessor or assignor, as the case may be, hereunder. Each
assigning or subletting Co-Tenant shall remain fully liable for the performance
of all of its obligations hereunder notwithstanding any subletting or
assignment provided for herein and, without limiting the generality of the
foregoing, shall remain fully responsible and liable to the other Co-Tenants
for all acts and omissions of any subtenant, assignee or anyone claiming by,
through or under any subtenant or assignee, which shall be in violation of any
of the obligations of this Agreement, and any such violation shall be deemed to
be a violation by the Co-Tenant. Notwithstanding any assignment and assumption
by the assignee of the obligations of a Co-Tenant, said Co-Tenant (unless
released in accordance with the following sentence), and each immediate or
remote successor in interest of said Co-Tenant shall remain liable, jointly and
severally (as a primary obligor), with its assignee and all subsequent
assignees for the performance of said
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Co-Tenant's obligations hereunder, and shall remain fully and directly
responsible and liable to each of the other Co-Tenants for all acts and
omissions on the part of any assignee or subtenant subsequent to it in
violation of any of the obligations of this Agreement. A Co-Tenant which has
assigned its Interest in whole or in part may be released of all responsibility
and liability for the performance of its obligations hereunder with respect to
its assigned Interest only, provided that all such responsibilities and
liabilities are assumed by an entity which, in Managing Co-Tenant's reasonable
discretion, has a financial standing comparable to that of said Co-Tenant as of
the date of the assignment and assumption in question.
(b) If there shall be any assignment, sublease or other agreement of
occupancy of a Co-Tenant's Space or Interest, as the case may be, permitted
under this Agreement, of or affecting all or any portion of such Co-Tenant's
Space, or if there is any transfer of the Co-Tenant's Interest by operation of
law or otherwise, and if such Co-Tenant shall be entitled to any consideration
from the assignee, subtenant or licensee for or in connection with the
assignment of such Co-Tenant's Interest or the subletting or occupancy of such
Co-Tenant's Space, subject to the provisions of Section 4.07(d), said Co-Tenant
shall be entitled to receive all such consideration, and any interest earned
thereon pursuant to Section 3.05(a).
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(c) The consent of Managing Co-Tenant to an assignment or a
subletting, shall not relieve any Co-Tenant from obtaining the consent of
Managing Co-Tenant to any further assignment or subletting.
4.05. TRANSFEREE USE OF UTILITY FACILITIES AND COMMON FACILITIES
(a) In the event of an assignment or transfer of the Interest of a
Co-Tenant, in whole or in part (other than to an Affiliate), or a subletting of
any or all of a Co-Tenant's Space (other than to an Affiliate), or the
occupancy of any or all of Co-Tenant's Space by an entity or individual other
than the Co-Tenant or an Affiliate, the assignee, transferee, subtenant or
occupant of said Interest or Space (the "Transferee"), as the case may be,
shall not be permitted to use (i) the Utility Facilities if and to the extent
Managing Co-Tenant determines that any such use would materially diminish or
reduce the availability or security of Utility Facilities to the Co-Tenants
then occupying Space in the Building, or (ii) without Managing Co-Tenant's
prior consent, which consent shall be in the sole and absolute discretion of
the Managing Co-Tenant, any Special Common Facilities. If Managing Co-Tenant
shall fail or refuse to consent to the use of a Special Common Facility by a
Transferee and the transferring Co- Tenant does not elect to utilize said
Special Common Facility for its own purposes, the Maintenance Cost and the
Usage Cost shall be
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equitably reapportioned among the Co-Tenants (other than the transferring
Co-Tenant and the Transferee) so as to ensure that such costs are thereafter
fully satisfied except as otherwise provided above, a Transferee shall be
entitled to utilize the Common Facilities on the same basis and cost as the
Initial Co-Tenants provided, however, that the Transferring Co-Tenant shall
indemnify and hold hereunder to the fullest extent permitted by law the other
Co-Tenants (including the Managing Co-Tenant) from and against all losses,
claims, damages, liabilities, costs and expenses (including, without
limitation, reasonable attorney fees) based on, arising out of or resulting
from, or in connection with use of the Common Facilities by the Transferee, its
employees, agents and investees.
4.06. PARTITION
(a) So long as any Initial Co-Tenant or an Affiliate shall own an
Interest, any rule of law to the contrary notwith- standing, except as
specifically provided in this Agreement:
(i) notwithstanding any changes in the ownership of an Interest,
the Interests will continue to be subject to this Agreement;
(ii) no Co-Tenant shall terminate or commence any proceeding to
attempt to terminate this Agreement;
(iii) no Co-Tenant shall have the right to partition the
Leasehold or the Building and no Co-Tenant shall apply
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for, commence or prosecute any action or proceeding for partition, it being
understood and agreed by the Co-Tenants that a material inducement to their
entering into this Agreement is that their sole and exclusive methods to divest
themselves of their Interest are as specifically set forth in this Agreement;
and
(iv) any transfer, assignment, mortgaging, creation of a security
interest in, or encumbrance of, an Interest, or subletting of any Space, in
breach of this Agreement shall be null and void.
4.07. RIGHT OF FIRST OFFER
(a) Subject to the provisions of Section 4.03 and except as provided
in Section 4.07(e), if at any time during the term of this Agreement, any
Co-Tenant shall desire to sublet all or any portion of its Space or assign or
otherwise transfer its Interest, to any person or entity, then Lehman, if such
Co-Tenant is a Lehman Co-Tenant, or Amexco, if such Co-Tenant is an AMEX
Co-Tenant, (the "Transferring Co-Tenant"), shall give notice thereof
(hereinafter called "Co-Tenant's Notice") to the Managing Co-Tenant, setting
forth the terms and conditions upon which the Transferring Co-Tenant is willing
to sublet such Space, or assign or otherwise transfer its Interest, as the case
may be. The Managing Co-Tenant shall have the right for itself or its
Affiliates (the "Right of First Offer") to sublease such space, take an
assignment of, or otherwise be the transferee of the Transferring Co-Tenant's
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Interest, as the case may be, upon the terms and conditions set forth in the
Co-Tenant's Notice. In order to exercise the Right of First Offer, the
Managing Co-Tenant must give notice of such exercise (hereinafter called the
"First Offer Exercise Notice") to the Transferring Co-Tenant prior to the end
of the thirtieth (30th) day after the receipt of a Co-Tenant's Notice (said
thirty-day period being hereinafter referred to as the "First Offer Period").
Time shall be of the essence with respect to the giving of the First Offer
Exercise Notice.
(b) If the Managing Co-Tenant shall not exercise its Right of First
Offer, then the Transferring Co-Tenant shall, subject to compliance with the
provisions of Section 4.02 or Section 4.03, as the case may be, and Section
4.08, be free so to sublet, assign or otherwise transfer, as the case may be,
the Space or Interest which was the subject of the Co-Tenant's Notice to any
other person or entity (the "Outside Party") upon terms and conditions not more
favorable to the Outside Party than those set forth in the Co-Tenant's Notice.
If Co-Tenant shall fail to sublease, assign or otherwise transfer, as the case
may be, such Space or Interest to any Outside Party on such terms and
conditions within 270 days with respect to an assignment, and 180 days with
respect to a sublease, after the date of receipt of the Co-Tenant's Notice, and
if the Transferring Co-Tenant shall still desire to sublease, assign or
otherwise transfer, as the case may
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be, such Space or Interest, then the procedure set forth in the foregoing
provisions of this Section 4.07 shall be followed in respect of said
subleasing, assigning or other transfer thereof.
(c) If the Managing Co-Tenant shall effectively exercise its Right of
First Offer, then the Transferring Co-Tenant shall sublease, assign or
otherwise transfer, as the case may be, to the Managing Co-Tenant (or its
Affiliate) (herein the "exercising Co-Tenant") and the exercising Co-Tenant
shall hire and take from the Transferring Co-Tenant said Space or Interest upon
the terms and conditions set forth in the Co-Tenant's Notice. Without
limitation of the foregoing, the exercising Co-Tenant shall, with respect to
the Interest, be subject to all of the terms and provisions set forth in this
Agreement, the Lease and any Leasehold Mortgages, including, without
limitation, all provisions respecting the use of the Space.
(d) The Transferring Co-Tenant shall indemnify and hold harmless the
other Co-Tenants (other than the exercising Co- Tenant) and the Property from
and against any and all real property transfer and transfer gains taxes, and
any Commercial Rent or Occupancy Tax, in any way related to the transfer of the
offered Space or Interest and shall execute and deliver all documents and
instruments to the exercising Co-Tenant as necessary and appropriate to
effectuate the transfer of such Space or Interest, as the case may be. If, as
of the closing, the Transferring Co-Tenant
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has any outstanding debts to the other Co-Tenants (as Co-Tenants), an amount
sufficient to satisfy all such outstanding debts including any interest earned
thereon, shall be paid to Managing Co-Tenant out of the proceeds for the
sublease, assignment or other transfer at the closing thereof, to be held for
and on behalf of the Transferring Co-Tenant until all such outstanding debts of
the Transferring Co-Tenant, including interest, if any, shall have been paid
and discharged in full.
(e) Notwithstanding anything to the contrary contained in this
Article IV, the Right of First Offer shall not be appli- cable with respect to
(i) any sublease or assignment to an Affiliate of the Co-Tenant or (ii) any
sublease to an existing subtenant of the Transferring Co-Tenant (previously
approved by the Managing Co-Tenant in accordance with the terms and provisions
of Section 4.02 hereof) then occupying at least 100,000 square feet of space in
the Premises (a "Major Subtenant").
4.08. RIGHT OF FIRST REFUSAL
(a) Subject to the provisions of Section 4.03 and except as provided
in Section 4.08(d), if at any time during the term of this Agreement, any
Co-Tenant shall desire to sublet all or any portion of its Space or assign or
otherwise transfer all or any part of its Interest to any person or entity in
accordance with a bona fide offer therefor (a "Bona Fide Offer"), then Lehman,
if such Co-Tenant is a Lehman Co-Tenant, or Amexco, if
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such Co-Tenant is an AMEX Co-Tenant, so desiring to accept such Bona Fide Offer
(the "Offeree Co-Tenant") shall give the other Designated Co-Tenant (i) a copy
of such Bona Fide Offer and (ii) a written notice which shall set forth the
identity, resume of individual principals and general financial and managerial
capacity of the offeror of the Bona Fide Offer (the "BFO"), including, without
limitation, information with respect to any financial rating and credit history
thereof, and the intended use or uses of the transferred portion of the Space
or the Interest (collectively, the "Bona Fide Offer Notice"). Every Bona Fide
Offer shall be expressed only in cash and/or debt securities payable in lawful
money. Additionally, the Offeree Co-Tenant shall, at a time not later than the
receipt by the other Designated Co-Tenant of a Bona Fide Offer Notice, have
delivered to the BFO a written notice which expressly states that the BFO's
offer is subject to the Right of First Refusal (hereinafter defined) provided
for herein. The other Designated Co-Tenant shall thereafter have the right for
itself, its Affiliates or its Major Subtenants (the "Right of First Refusal")
to sublease, take an assignment of, or otherwise be the transferee of, as the
case may be, the Offeree Co-Tenant's Space or Interest, as the case may be, on
terms which reflect at least the same amount of cash as the amount contained in
the Bona Fide Offer and debt securities of equivalent value to the debt
securities which are part of the Bona Fide Offer (such valuation
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in each case to be made by an investment banker reasonably acceptable to both
the Offeree Co-Tenant and the other Designated Co-Tenant). The other
Designated Co-Tenant shall exercise such Right of First Refusal by giving the
Offeree Co-Tenant written notice thereof within ten (10) days (the "First
Refusal Period") after receipt of the Bona Fide Offer Notice from the Offeree
Co-Tenant of its desire to transfer its Space or Interest, as the case may be.
Time shall be of the essence as to the First Refusal Period.
(b) Failure to deliver written notice prior to the end of the final
day of the First Refusal Period shall constitute an election not to exercise
the Right of First Refusal with respect to such Offeree Co-Tenant's Space or
Interest, as the case may be. In the event of any exercise of the Right of
First Refusal, the transfer of the Offeree Co-Tenant's Interest to the other
Designated Co-Tenant (or its Affiliate) (herein the "exercising Co-Tenant")
shall be consummated and closed within one hundred twenty (120) days (or, if
additional time is needed to obtain any regulatory approvals, as soon as
possible thereafter) after the date of the Offeree Co-Tenant's Bona Fide Offer
Notice. The Offeree Co-Tenant shall indemnify and hold harmless the other
Co-Tenants (other than the exercising Co-Tenant) and the Property from and
against any and all real property transfer and transfer gains taxes, and any
Commercial Rent or Occupancy Tax, in any way
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related to such transfer, and shall execute and deliver all documents and
instruments to the exercising Co-Tenant as necessary and appropriate to
effectuate the transfer of such offered Space or Interest, as the case may be.
If as of the closing the Offeree Co-Tenant has any outstanding debts to the
other Co-Tenants (as Co-Tenants), an amount sufficient to satisfy all such
outstanding debt, including any interest earned thereon, shall be paid to the
Managing Co-Tenant for and on behalf of the Offeree Co-Tenant until all
outstanding debts relating to the Property of the Offeree Co-Tenant, including
interest, if any, shall have been paid and discharged in full.
(c) In the event there is no timely exercise of the Right of First
Refusal in a particular instance and the consent of the Managing Co-Tenant is
obtained, an Offeree Co-Tenant shall then be permitted in such instance to
transfer its Space or Interest, as the case may be, to the person or entity
identified in the Bona Fide Offer Notice on terms identical in all material
respects to those described therein. The closing and consummation of such
transfer shall occur within one hundred eighty (180) days after the date set
forth for the date of closing in the Bona Fide Offer Notice (or, if additional
time is needed to obtain any regulatory approvals, as soon as possible
thereafter), and, if such transfer is not so closed and consummated to such
person or entity on such identical terms within such one hundred eighty
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(180) day period (as extended, as set forth above), the Right of First Refusal
shall again be exercisable with respect to the Space or Interest thereafter
proposed to be transferred. In the event any Space or Interest is sublet or
transferred in accordance with the terms hereof, then the person or entity to
whom such Space or Interest is transferred shall take such Space or acquire
such Interest, subject in all respects to the terms and provisions of this
Agreement.
(d) Notwithstanding anything to the contrary contained in this
Article IV, the Right of First Refusal shall not be applicable with respect to
(i) any sublease or assignment to an Affiliate of the Co-Tenant or (ii) a
sublease to a Major Subtenant.
4.09. REQUIRED TRANSFERS
If AEBL, TRSCO or any other Co-Tenant which is then one of the AMEX
Co-Tenants, on one hand, or LGS, LCP or any other Co-Tenant which is then one
of the Lehman Co-Tenants, on the other hand, shall at any time cease to be an
Affiliate of Amexco or Lehman, as the case may be, then the Interest of such
Co-Tenant shall at the option of the related Designated Co-Tenant be
transferred to such related Designated Co-Tenant and such related Designated
Co-Tenant shall have the right to sublet back such space to the entity that has
ceased to be an Affiliate upon market terms and conditions subject to the terms
and conditions of
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Section 4.02 hereof. If such related Designated Co-Tenant elects not to
exercise such option to acquire such Interest, then the non-related Designated
Co-Tenant shall have the right to acquire from the related Designated Co-Tenant
such Interest, upon 180 days' notice, at Fair Market Value as determined
pursuant to the Option Agreement, dated as of the date hereof, among the Lehman
Co- Tenants and the Amex Co-Tenants.
4.10. BROKERAGE
(a) No Co-Tenant shall contact, have discussions or negotiate with in
any manner whatsoever, a broker, finder or like agent in connection with any
sublease of any part of its Space, assignment or other transfer in whole or in
part of its Interest, except through its Designated Co-Tenant, which shall
coordinate all brokerage activities with respect to the Building with the other
Designated Co-Tenant.
(b) Managing Co-Tenant shall have the right to contract with a broker
in order to facilitate the rental of any portion of the Retail Space in the
Property or any Common Facilities which shall have been converted to office or
retail use. Any brokerage commission due in the event of the rental of any
such space shall be borne by the Co-Tenants in accordance with their respective
Interests.
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4.11. RIGHT OF DISAPPROVAL
Notwithstanding anything contained herein to the contrary, with
respect to any proposed mortgaging, creation of a security interest, or other
encumbrances of all or any part of a Co-Tenant's Interest, Managing Co-Tenant,
shall have the right (the "Right of Disapproval"), to be exercised in its sole
and absolute discretion, to disapprove of any such proposal, and if Managing
Co-Tenant, should exercise such Right of Disapproval with respect to any such
proposal, the party making such proposal shall not effect or permit to be
effected the proposed mortgaging, creation of security interest or other
encumbrance, as the case may be.
4.12. SUBMISSION TO CONDOMINIUM REGIME
(a) After satisfaction of the Existing Leasehold Mortgages and
Existing Notes, upon the request of either Designated Co-Tenant and upon ninety
(90) days' notice from one to the other, the Co-Tenants shall together submit
the Leasehold to the provisions of Article 9-B of the Real Property Law of the
State of New York or any statute in lieu thereof (the "Condominium Act") by
executing and recording such instruments (collectively, the "Declaration") by
which the Leasehold is submitted to the Condominium Act, together with all
amendments, modifications and all supplements thereto, subject in all respects
to any requisite consent by the landlord under the Lease and the holders of any
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Leasehold Mortgage. Except as provided in this Section 4.13, the Declaration
(or other documents executed in connection therewith or contemporaneously
thereto) shall conform in all material respects to the terms, provisions and
intent of this Agreement and shall provide, inter alia, (i) for the Interests
of each Co-Tenant under this Agreement to be exchanged for an appropriate
condominium unit as described in the Declaration, (ii) for Common Facilities to
be treated substantially in the same manner as provided in this Agreement,
(iii) for Managing Co-Tenant to have the rights and obligations contained (and
to be determined or designated, as the case may be, in the manner set forth)
in this Agreement, (iv) for restrictions on the transfers of, and encumbrances
upon, the condominium units which are equivalent to the restrictions on the
transfers of, and encumbrances upon, the Interests and subletting of Space
contained in this Agreement (as supplemented and modified by clause (b),
below), provided, however, that the Declaration shall not contain a right of
disapproval comparable to the right described in Section 4.12, and (v) for
costs with respect to the Property to be allocated and paid as provided in this
Agreement.
(b) The Declaration (and such other documents) shall permit the owner
of each condominium unit to:
(i) enter into a traditional "sale-leaseback" financing
transaction with an "institutional lender", as such term is defined in the
Lease (an "Institutional Lender") , which is not
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an entity of the type proscribed in clause (x) of Section 4.02, provided that
the other unit owners are given a right of first offer, comparable to the right
described in Section 4.07, both to enter into the sale-leaseback as the
owner/lessor and to acquire the interest of the owner/lessor upon all
subsequent transfers thereof;
(ii) grant a mortgage encumbering its condominium unit to an
Institutional Lender which is not an entity of the type proscribed in clause
(x) of Section 4.02, provided that the other unit owners are given a right of
first offer, comparable to the right described in Section 4.07, to be the
mortgagee in any such mortgage transaction, and, notwithstanding anything
contained elsewhere herein, permit a successful bidder/purchaser at a
foreclosure sale to transfer its interest in the condominium unit to a
transferee free of any occupancy restrictions or any restrictions on transfers
contained in the Declaration, provided that said transferee and all subsequent
transferees shall take the condominium unit subject to all such restrictions;
and
(iii) transfer its condominium unit to a transferee which has a
financial rating or balance sheet and income statement of the type described in
clause (v) of Section 4.02, which is not a competitor of the type described in
clause (viii) of Section 4.02 and which is not an entity of the type proscribed
in clause (x) of Section 4.02, provided that the other unit owners
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are given the right of first refusal (comparable to the right described in
Section 4.08), and further provided that the condominium unit shall be occupied
only in accordance with the provisions of the Declaration.
(c) The Leasehold shall not be submitted to the provisions of the
Condominium Act if, in the opinion of Stroock & Stroock & Lavan (or any other
law firm selected by the Managing Co-Tenant), (i) the provisions of the
Declaration with regard to the clauses set forth in (a) and (b) above, are,
more likely than not, unenforceable, (ii) the Leasehold Mortgages then
outstanding cannot be partially released and/or reallocated to permit a
transfer of a condominium unit or (iii) the Declaration shall contain any
provision which in any material respect violates any provision of law.
(d) The Designated Co-Tenant initially electing to file the
Declaration shall pay all costs and expenses incurred in order to file the
Declaration and effect the exchange of Interests as referred to in clause (a)
above (the "Submission Costs"), which shall include, without limitation,
transfer and transfer gains taxes and attorneys' fees and disbursements and
shall reimburse the other Designated Co-Tenant for those costs and expenses
which the other Designated Co-Tenant would not have incurred if not for the
filing of the Declaration including, without limitation, loss of any tax
credits or governmental benefits or subsidies.
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ARTICLE V
GENERAL
5.01. NOTICES
(a) All notices, demands, consents, approvals, requests or other
communications provided for or permitted to be given pursuant to this Agreement
must be in writing.
(b) All notices, demands, consents, requests or other communications
to be sent to any Co-Tenant hereunder shall be deemed to have been properly
given or served when personally delivered, provided receipt is acknowledged, or
three days after being deposited in the United States mails, postage prepaid,
certified mail, return receipt requested.
(c) All notices required, permitted or appropriate hereunder shall be
served upon the respective parties at the following addresses:
If to the AMEX
Co-Tenants, to
Amexco at: American Express Company
American Express Tower
World Financial Center
New York, New York 10285
Attn: General Counsel
If to the Lehman
Co-Tenants, to
Lehman at: Lehman Brothers Inc.
American Express Tower
World Financial Center
New York, New York 10285
Attention: Vice-Chairman
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or to such other addresses as may be designated by notice to the other parties
hereto.
5.02. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement among the Co-Tenants
relative to the Property, its ownership and its operation. No variations,
modifications, or changes herein or hereof shall be binding upon any Co-Tenant
unless set forth in a document duly executed and acknowledged by or on behalf
of such Co-Tenant (through its Designated Co-Tenant).
5.03. GOVERNING LAWS
This Agreement and the rights and obligations of the Co-Tenants
hereunder shall be interpreted, construed and enforced in accordance with the
laws of the State of New York.
5.04. WAIVER
No consent or waiver, express or implied, by any Co-Tenant to or of
any breach or default by any other Co-Tenant in the performance by a Co-Tenant
of its obligations hereunder shall be deemed or construed to be a consent or
waiver to or of any other breach or default in the performance by any Co-Tenant
of the same or any other obligations of any other Co-Tenant hereunder. Failure
on the part of any Co-Tenant to complain of any act or failure to act of any
other Co-Tenant or to declare any other Co-Tenant in default, irrespective of
how long such failure
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continues, shall not constitute a waiver by such Co-Tenant of its rights
hereunder.
5.05. SEVERABILITY
(a) If any provision of this Agreement or the application thereof to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provisions to other
persons or circum- stances shall not be affected thereby and shall be enforced
to the greatest extent permitted by law.
(b) If any provision of this Agreement or the application thereof to
any person or circumstance shall violate any of the provisions of the Lease or
any Leasehold Mortgages, then said provision of this Agreement shall be deemed
to be of no force and effect, it being understood that said provision shall
continue to have full force and effect with respect to the application thereof
to all other persons or circumstances.
5.06. BENEFIT
The provisions of this Agreement relate only to the Co-Tenants and
their successors and permitted assigns, and are not intended to benefit any
other parties and are in no event to be enforceable by any other parties.
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5.07. TERMINOLOGY
All personal pronouns used in this Agreement, whether used in the
masculine, feminine, or neuter gender, shall include all other genders; the
singular shall include the plural and vice versa. Titles are for convenience
only, and neither limit nor amplify the provisions of this Agreement.
5.08. STATUS REPORTS
Recognizing that each Co-Tenant may find it necessary from time to
time to establish to third parties such as accountants, banks, mortgagees,
subtenants and assignees, or the like, the then current status of performance
hereunder, each Co-Tenant agrees, upon the written request of any other
Co-Tenant, made from time to time, to prepare, execute and furnish to the
requesting Co-Tenant promptly a written statement (which statement shall be
acknowledged, if requested) with respect to the status of any matter pertaining
to this Agreement, which statement may be to the best of the knowledge and
belief of the party making such statement.
5.09. NO RECORDING OF THIS AGREEMENT
The Co-Tenants covenant that neither this Agreement, nor any
memorandum hereof, shall be filed or recorded.
5.10. BINDING AGREEMENT
Subject to the restrictions on transfers and encumbrances set forth
herein, this Agreement shall inure to the bene-
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fit of and be binding upon the Co-Tenants and their respective successors
(whether by operation of law or otherwise), and permitted assigns.
5.11. LIABILITY OF CO-TENANTS/INDEMNIFICATION
(a) In performing its duties hereunder, each Co-Tenant shall act at
all times in good faith and shall use best efforts in all respects to collect
from the Building's and each Co-Tenant's respective insurance policy before
proceeding against another Co- Tenant hereunder.
(b) In the event of any physical damage to property of any Co-Tenant
(a "Non-Negligent Co-Tenant"), to the extent such physical damage is not
covered by insurance, such Non-Negligent Co-Tenant shall be responsible for
such uninsured damage provided that, to the extent such damage was caused by
the gross negligence, bad faith or wilful misconduct of any other Co-Tenant,
such Co- Tenant shall indemnify, defend and hold such Non-Negligent Co-Tenant
harmless from and against all uninsured physical property damage incurred by
such Non-Negligent Co-Tenant and caused by such gross negligence, bad faith or
wilful misconduct.
(c) Amexco and Lehman hereby mutually indemnify one another and hold
the other free and harmless from and against any losses or damages, which may
be incurred by, or asserted against, either Amexco or Lehman on account of the
injury to any person or property damage liability occurring at any of the
Common Facili-
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ties. Amexco and Lehman shall be liable for any losses or damages arising out
of injuries to a third party or third party's property sustained in a Common
Facility in accordance with the respective Interest, provided however that in
regard to injuries to a third party or a third party's property who is an
employee of any Co-Tenant, Amexco and Lehman shall be jointly (but not
severally) liable for any such losses and damages on a 50/50 basis and;
provided, further however, that in regard to injuries to a third party or a
third party's property sustained entirely within a Co-Tenant's Space, the
Co-Tenant occupying such Space shall indemnify and hold harmless all other
Co-Tenants against losses or damages arising out of claims brought by such
third party.
(d) Notwithstanding anything to the contrary contained herein, no
Co-Tenant shall be liable to any other Co-Tenant for any consequential damages
(including without limitation, loss of business, and loss of use or income from
the Property), as the result of any loss or damage incurred by any Co-Tenant in
connection with the Building.
(e) In connection with the Managing Co-Tenant entering into any
contract or agreement with a vendor, the Managing Co- Tenant will endeavor to
require that such vendor have insurance in force that is reasonable and
customary, and will endeavor in good faith to require that such policies of
insurance name each Co-Tenant as an additional insured. The failure of the
Managing Co-
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Tenant to comply with the foregoing shall not result in any liability accruing
to the Managing Co-Tenant unless the Managing Co- Tenant acts in complete
disregard with respect to its obligations set forth in this paragraph (e).
5.12. CLAIMS
Whenever any Co-Tenant shall learn through the filing of a claim or
the commencement of a proceeding or otherwise of the existence of any liability
for which another Co-Tenant is or may be responsible and which relates to the
Property, such Co-Tenant shall notify the other Co-Tenants and Managing
Co-Tenant promptly and furnish such copies of documents (and make originals
thereof available) and such other information as such Co-Tenant may have which
may be used or useful in the defense of such claims.
5.13. CONSENT OR APPROVAL
In any case where the provisions of this Agreement require the consent
or approval of Managing Co-Tenant (other than such consents or approvals as
required in Article IV hereof), Managing Co-Tenant agrees that it will respond
affirmatively or negatively (stating specific reasons for the denial) and in
writing to requests for such consents or approvals within ten (10) days of
receipt therefor unless Managing Co-Tenant advises in writing it will need
longer than ten (10) days, in which case Managing Co-Tenant shall respond
within thirty (30) days of receipt of written request therefor, it being
understood that any
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such request for approval shall apply only with respect to the particular
matter or act to which such consent or approval is sought. If Managing
Co-Tenant shall fail to so respond affirmatively or negatively (with specific
reasons for the denial) to any such request within such 10-day period, the
requested consent or approval of Managing Co-Tenant shall be deemed to have
been given.
5.14. TERM
(a) The term of this Agreement shall commence on the date of
execution hereof and shall continue until the earlier occurrence of the
following events:
(i) the assignment or other transfer (by one or a series of
transactions) of the whole of the Interests of each of the Initial Co-Tenants
(including a termination of the Lease) and the distribution of the proceeds of
such transfer or transfers; or
(ii) the decision of the Managing Co-Tenant to terminate this
Agreement.
(b) In the event of the assignment or other transfer of the whole of
the Interests of each of the Co-Tenants (including a termination of the Lease),
the parties agree that the costs incurred in connection with such transfer
including, without limitation, all real property and transfer gain taxes shall
be paid by the Co-Tenants in accordance with their respective Interests at the
time of such transfer and that any monies remaining
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shall be distributed to the Co-Tenants in accordance with their respective
Interests at the time of such transfer.
5.15. ARBITRATION
All disputes or questions between or among the Co-Tenants shall be
settled by arbitration as hereinafter provided. All arbitrations shall be
initiated, prosecuted and defended by the Designated Co-Tenants only. The
Designated Co-Tenant desiring arbitration shall appoint a disinterested person
as arbitrator on its behalf and give notice thereof to the other Designated
Co-Tenant who shall, within 15 days thereafter, appoint a second disinterested
person as arbitrator on its behalf and-give written notice thereof to the first
Designated Co-Tenant. The two arbitrators thus appointed shall together
appoint a third disinterested person within 15 days after the appointment of
the second arbitrator, and said three arbitrators shall, as promptly as
possible, determine the matter which is the subject of the arbitration and the
decision of the majority of them shall be conclusive and binding on all
Co-Tenants and judgment upon the award may be entered in any court having
jurisdiction. If, after appointment of the first arbitrator, the Designated
Co-Tenant who shall have the right pursuant to the foregoing to appoint a
second arbitrator fails or neglects to do so, then in such event, the other
Designated Co-Tenant (or if the two arbitrators appointed by the Designated
Co-Tenants shall fail to appoint a third arbitrator
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when required hereunder, then either Designated Co-Tenant) may apply to any
court of competent jurisdiction to appoint such arbitrator. The arbitration
shall be conducted in the City and County of New York and, to the extent
applicable and consistent with this Section 5.16, shall be in accordance with
the Commercial Arbitration Rules then obtaining of the American Arbitration
Association or successor body of similar function. The expenses of arbitration
shall be shared equally by the Designated Co-Tena- nts, and each Designated
Co-Tenant shall be responsible for the fees and disbursements of its own
attorneys and the expenses of its own proof. The Co-Tenants agree to sign all
documents and do all other things necessary to submit any such matter to
arbitration and further agree to, and hereby do, waive any and all rights they
or any of them may at any time have to revoke their agreement hereof to submit
to arbitration and to abide by the decision rendered thereof. The arbitrators
shall have no power to vary or modify any of the provisions of this Agreement
and their jurisdiction is limited accordingly. If the arbitration concerns
only construction matters, then each of the arbitrators shall be licensed
professional engineers or registered architects, having at least ten (10)
years' experience in the design of office buildings. If the arbitration
concerns only the value of real property, then each of the arbitrators shall be
members of the American Institute of Real Estate Appraisers or the Society of
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Real Estate Appraisers, or any successor bodies of comparable function, having
at least ten (10) years' experience in the appraisal of first class office
buildings.
5.16. CONSUMER PRICE INDEX
As used herein, the term "Consumer Price Index" shall mean the
"Consumer Price Index for All Urban Consumers" (1967-100) specified for "All
Items" relating to New York-Northern New Jersey-Long Island, NY-NJ-CT,
published by the Bureau of Labor Statistics of the United States Department of
Labor, or any successor index thereto covering New York City, appropriately
adjusted.
5.17. AFFIRMATIVE ACTION PROGRAM
The Co-Tenants hereby acknowledge that in connection with the
acquisition of the Property, the Co-Tenants became bound to the provisions of a
certain Affirmative Action Program Agreement, a copy of which is annexed to the
Lease as Exhibit C. Such Affirmative Action Program Agreement requires
compliance with BPCA's affirmative action program. The Co-Tenants further
acknowledge that the Affirmative Action Program Agreement continues to be, and
shall remain throughout the term of the Lease, in full force and effect and
each Co-Tenant covenants to faithfully observe and comply with all provisions
contained therein.
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5.18. SIGNS; NAME OF BUILDING
(a) No Co-Tenant shall display or erect any lettering, signs,
advertisements, posters, displays or awnings on the outside of its Space or any
interior signs which are visible from the outside (collectively, "Signs")
without obtaining Managing Co-Tenant's prior written approval. In addition to
complying with all of the terms and conditions of this Agreement and the Lease,
each Co-Tenant shall submit to Managing Co-Tenant a detailed sketch of any such
Sign and if approved, the same shall not be altered in any manner whatsoever
without first obtaining Managing Co-Tenant's prior written consent for such
proposed change. All such Signs shall be maintained by the Co-Tenant at its
sole cost and expense in good order and condition, and in accordance with all
of the terms and provisions of this Agreement. Any work done with respect to
any Sign shall be considered to be a Co-Tenant's Change hereunder.
(b) Amexco shall be permitted to change the name of the Building to
conform with a change in the name of Amexco, without the consent of any
Co-Tenant.
5.19. RULES AND REGULATIONS
Each Co-Tenant agrees to comply with such rules and regulations which
may from time to time be promulgated by the Managing Co-Tenant with respect to
the use, maintenance and operation of the Property; provided, however, that all
such rules and regulations shall be reasonable and equitable, consistent with
119
<PAGE> 124
the provisions of this Agreement and each Co-Tenant is given as much advance
written notice thereof as is reasonably practical. Should there be a conflict
between the rules and regulations and the provisions of this Agreement, the
provisions of this Agreement shall govern.
5.20. POWER OF ATTORNEY
Each of the Co-Tenants hereby constitutes, appoints and grants to the
Managing Co-Tenant an irrevocable power of attorney, coupled with an interest,
to execute any subleases, contracts and other instruments which Managing
Co-Tenant is authorized to execute on behalf of the Co-Tenants in accordance
with this Agreement.
5.21 RECORDING OF EXISTING LEASEHOLD MORTGAGE.
Amexco has the right at its option and its cost and expense at any
time to cause the Existing Leasehold Mortgages to be recorded and to cause to
be filed related financing statements and any other related documentation
required in connection therewith, and the Lehman Co-Tenants will execute any
such required financing statements and related documents.
120
<PAGE> 125
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto effective as of the date first set forth above.
AMERICAN EXPRESS COMPANY
By:
---------------------------
Title:
AMERICAN EXPRESS BANK LTD.
By:
---------------------------
Title:
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By:
---------------------------
Title:
LEHMAN BROTHERS INC.
By:
---------------------------
Title:
LEHMAN GOVERNMENT
SECURITIES, INC.
By:
---------------------------
Title:
LEHMAN COMMERCIAL
PAPER INCORPORATED
By:
---------------------------
Title:
121
<PAGE> 126
COUNTY OF NEW YORK)
: ss.:
STATE OF NEW YORK )
On this ____ day of , 1994, before me came
____________________________ to me known, who being by me duly sworn did depose
and say that _he resides at _________________________________________, that
_he is the _______________________________________________ of AMERICAN EXPRESS
COMPANY, one of the CO-TENANTS described in and which executed the foregoing
instrument; and that _he signed h__ name hereto by order of the Board of
Directors of said corporation.
________________________________
Notary Public
122
<PAGE> 127
COUNTY OF NEW YORK)
: ss.:
STATE OF NEW YORK )
On this ____ day of , 1994, before me came
____________________________ to me known, who being by me duly sworn did depose
and say that _he resides at _________________________________________, that
_he is the _______________________________________________ of AMERICAN EXPRESS
BANK LTD., one of the CO-TENANTS described in and which executed the foregoing
instrument; and that _he signed h__ name hereto by order of the Board of
Directors of said corporation.
________________________________
Notary Public
123
<PAGE> 128
COUNTY OF NEW YORK)
: ss.:
STATE OF NEW YORK )
On this ____ day of , 1994, before me came
____________________________ to me known, who being by me duly sworn did depose
and say that _he resides at _________________________________________, that
_he is the _______________________________________________ of AMERICAN EXPRESS
TRAVEL RELATED SERVICES COMPANY, INC., one of the CO-TENANTS described in and
which executed the foregoing instrument; and that _he signed h__ name hereto
by order of the Board of Directors of said corporation.
________________________________
Notary Public
124
<PAGE> 129
COUNTY OF NEW YORK)
: ss.:
STATE OF NEW YORK )
On this ____ day of , 1994, before me came
____________________________ to me known, who being by me duly sworn did depose
and say that _he resides at _________________________________________, that
_he is the _______________________________________________ of LEHMAN BROTHERS
INC., one of the CO-TENANTS described in and which executed the foregoing
instrument; and that _he signed h__ name hereto by order of the Board of
Directors of said corporation.
_________________________________
Notary Public
125
<PAGE> 130
COUNTY OF NEW YORK)
: ss.:
STATE OF NEW YORK )
On this ____ day of , 1994, before me came
____________________________ to me known, who being by me duly sworn did depose
and say that _he resides at _________________________________________, that
_he is the _______________________________________________ of LEHMAN GOVERNMENT
SECURITIES, INC., one of the CO-TENANTS described in and which executed the
foregoing instrument; and that _he signed h__ name hereto by order of the
Board of Directors of said corporation.
_________________________________
Notary Public
126
<PAGE> 131
COUNTY OF NEW YORK)
: ss.:
STATE OF NEW YORK )
On this ____ day of , 1994, before me came
____________________________ to me known, who being by me duly sworn did depose
and say that _he resides at _________________________________________, that
_he is the _______________________________________________ of LEHMAN COMMERCIAL
PAPER INCORPORATED, one of the CO-TENANTS described in and which executed the
foregoing instrument; and that _he signed h__ name hereto by order of the Board
of Directors of said corporation.
_________________________________
Notary Public
127
<PAGE> 132
EXHIBIT A
DESCRIPTION OF LAND
Street lines noted in the descriptions of Parcel C, Easement no. 12, Easement
no. 13, Easement no. 14, Easement no. 15A, Easement no. 15B, part of Vesey
Street and part of North End Avenue are in accordance with map being prepared
by New York City, said map has not been adopted by the Board of Estimate as
yet. Street lines noted in the description of Easement no. 9 are in accordance
with Map No. ACC. 30071 adopted by the New York City Board of Estimate on
November 13, 1981.
Elevations refer to datum used by the Topographical Bureau, Borough of
Manhattan which is 2.75 feet above datum used by the United States Coast and
Geodetic survey, mean sea level, Sandy Hook, New Jersey.
Bearings noted herein are in the system used on the Borough Survey, President's
office, Manhattan.
The following description is based upon the information shown on the Easement
Plan.
Parcel C
All that certain plot, piece of parcel of land situate, lying and being in the
City, County and State of New York, described as follows:
BEGINNING at the intersection of the southerly line of Vesey Street with the
westerly line of Marginal Street, Wharf or Place and The United States Bulkhead
Line approved by The Secretary of War, July 31, 1941:
The following 3 courses run along the westerly line of Marginal Street, Wharf
or Place and The United States Bulkhead Line approved by The Secretary of War,
July 31, 1941:
1. Running thence south 18o-34'-07" east, 46.78 feet;
2. thence south 18o-49'-40" east, 187.30 feet;
3. thence south 18o-59'-34" east, 41.09 feet;
4. thence south 77o-31'-29" west, 92.15 feet;
- 1 -
<PAGE> 133
5. thence south 12o-28'-31" east, 51.54 feet;
6. thence south 77o-08'-34" west, 22.36 feet;
7. thence northwesterly, curving to the left, on the arc of a circle
whose radial line bears south 77o-08'-34" west, having a radius of
56.08 feet and a
- 2 -
<PAGE> 134
central angle of 77o-08'-34" west, 75.51 feet to a point of tangency;
8. thence due west, 21.42 feet;
9. thence due north, 10.00 feet;
10. thence due west, 45.00 feet;
11. thence due north, 10.00 feet;
12. thence due west, 81.16 feet;
13. thence due south, 22.00 feet;
14. thence due west, 20.92 feet;
15. thence due north, 212.41 feet;
16. thence due west, 15.00 feet;
17. thence due north, 89.88 feet to the southerly line of Vesey Street;
18. thence south 88o-07'-10" east along the southerly line of Vesey Street
250.24 feet to the point or place of BEGINNING.
The following five descriptions are based upon the information shown on the
Parcel Lines Easement Plan.
Together with the following exclusive easements, on the terms and subject to
the conditions set forth with respect thereto in Section 41.07 of the Lease.
EASEMENT NO. 12
GROUND FLOOR RETAIL AREA
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation 12.50 feet and an upper horizontal plane drawn at
elevation 31.00 feet bounded and described as follows:
BEGINNING at a point 133.09 feet, as measured along the southerly line of Vesey
Street, west of the intersection of the westerly line of Marginal Street, Wharf
or Place and The United States Bulkhead Line approved by the Secretary of War,
July 31, 1941,
- 3 -
<PAGE> 135
with the southerly line of Vesey Street and 276.45 feet, as measured along a
line bearing due south, south of the southerly line of Vesey Street;
1. Running thence due south, 10.00 feet;
2. thence due east, 45.00 feet;
3. thence due south, 12.08 feet;
4. thence due west, 47.08 feet;
5. thence due north, 10.00 feet;
6. thence due west, 67.50 feet;
7. thence due north, 12.08 feet;
8. thence due east, 69.58 feet to the point or place of BEGINNING.
EASEMENT NO. 13
SECOND FLOOR BALCONY AREA
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation 31.00 feet and an upper horizontal plane drawn at
elevation 52.00 feet bounded and described as follows:
BEGINNING at a point 133.09 feet, as measured along the southerly line of Vesey
Street, west of the intersection of the westerly line of Marginal Street, Wharf
or Place and The United States Bulkhead Line approved by The Secretary of War,
July 31, 1941, with the southerly line of Vesey Street and 276.45 feet, as
measured along a line bearing due south, south of the southerly line of Vesey
Street;
1. Running thence due south, 10.00 feet;
2. thence due east, 45.00 feet;
3. thence due south 12.08 feet;
4. thence due west, 47.08 feet;
5. thence due north, 10.00 feet;
- 4 -
<PAGE> 136
6. thence due west, 67.50 feet;
7. thence due north, 12.08 feet;
8. thence due east, 69.58 feet to the point or place of BEGINNING.
EASEMENT NO. 14
NORTH COURTYARD WING MECHANICAL AREA
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation 54.00 feet and an upper horizontal plane drawn at
elevation 65.75 feet bounded and described as follows:
BEGINNING at a point 250.24 feet, as measured along the southerly line of Vesey
Street, west of the intersection of the westerly line of Marginal Street, Wharf
or Place and The United States Bulkhead Line approved by The Secretary of War,
July 31, 1941, with the southerly line of Vesey Street and 45.88 feet, as
measured along a line bearing due south, south of the southerly line of Vesey
Street;
1. Running thence due south, 44.00 feet;
2. thence due west, 26.50 feet;
3. thence due north, 44.50 feet;
4. thence due east, 26.50 feet to the point or place of BEGINNING.
EASEMENT NO. 15A
SOUTH COURTYARD WING MECHANICAL AREA
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation 53.00 feet and an upper horizontal plane drawn at
elevation 65.75 feet bounded and described as follows:
BEGINNING at a point 235.23 feet, as measured along the southerly line of Vesey
Street, west of the intersection of the westerly line of Marginal Street, Wharf
or Place and The United States Bulkhead Line approved by The Secretary of War,
July 31, 1941 with the southerly line of Vesey Street and 202.38 feet, as
measured along a line bearing due south, south of the southerly line of Vesey
Street;
- 5 -
<PAGE> 137
1. Running thence due south, 66.00 feet;
2. thence due west, 11.50 feet;
3. thence due north, 66.00 feet;
4. thence due east, 11.50 feet to the point or place of BEGINNING.
EASEMENT NO. 15B
SOUTH COURTYARD WING MECHANICAL AREA
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation 54.00 feet and an upper horizontal plane drawn at
elevation 65.75 feet bounded and described as follows:
BEGINNING at a point 291.76 feet, as measured along the southerly line of Vesey
Street, west of the intersection of the westerly line of Marginal Street, Wharf
or Place and The United States Bulkhead Line approved by The Secretary of War,
July 31, 1941, with the southerly line of Vesey Street and 204.24 feet, as
measured along a line bearing due south, south of the southerly line of Vesey
Street.
1. Running thence due east, 45.00 feet;
2. thence due south, 66.00 feet;
3. thence due west, 28.00 feet;
4. thence due south, 2.00 feet;
5. thence due west, 17.00 feet;
6. thence due north, 68.00 feet to the point or place of BEGINNING.
The following seven descriptions are based upon the information shown on the
Easement Plan.
Together with the following nonexclusive easements, on the terms and subject to
the conditions set forth with respect thereto in Section 41.07 of the Lease.
EASEMENT NO. 9
VEHICULAR ACCESS
- 6 -
<PAGE> 138
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation -50.0 feet and an upper horizontal plane drawn at
elevation 29.5 feet bounded and described as follows:
BEGINNING at a point in the northerly line of Liberty Street, distant 216.96
feet westerly from the intersection of the northerly line of Liberty Street
with the westerly line of Marginal Street, Wharf or Place and The United States
Bulkhead Line approved by the Secretary of War, July 31, 1941;
1. Running thence due west, along the northerly
line of Liberty Street, 92.18 feet;
2. thence north 12o-28'-31" west, 105.56 feet;
3. thence north 73o-04'-45" east, 90.27 feet;
4. thence south 12o-28'-31" east, 132.47 feet to the point or place of
BEGINNING.
EASEMENT NO. 11
TURNING CIRCLE AREA
All that portion of the parcel below described lying between a lower horizontal
plane drawn at elevation -50.0 feet and an upper horizontal plane drawn at
elevation 29.5 feet bounded and described as follows:
BEGINNING at a coordinate north 4370.933, west 10580.253;
1. Running thence north 12o-28'-31" west, 55.48 feet;
2. thence southeasterly, curving to the right on the arc of a circle
whose radical line bears south 51o-43'-54" west, having a radius of
63.75 feet and a central angle of 51o-35'-11", 57.40 feet to the point
or place of BEGINNING.
PART OF VESEY STREET
BEGINNING at the intersection of the southerly line of Vesey Street and the
westerly line of Marginal Street, Wharf or Place and The United States Bulkhead
Line approved by The Secretary of War, July 31, 1941:
- 7 -
<PAGE> 139
1. Running thence north 88o-07'-10" west, along the southerly line of
Vesey Street, 693.61 feet;
2. thence north 1o-52'-50" east, 100.00 feet, to the northerly line of
Vesey Street;
3. thence south 88o-07'-10" east, along the northerly line of Vesey
Street, 655.68 feet, to the westerly line of Marginal Street, Wharf or
Place and The United States Bulkhead Line approved by The Secretary of
War, July 31, 1941;
4. thence south 18o-56'-00" east, along the westerly line of Marginal
Street, Wharf or Place and The United States Bulkhead Line approved by
The Secretary of War, July 31, 1941, 94.24 feet to an angle point
therein;
5. thence south 18o-34'-07" east, still along the westerly line of
Marginal Street, Wharf or Place and The United States Bulkhead Line
approved by The Secretary of War, July 31, 1941, 12.71 feet to the
point or place of BEGINNING.
PART OF NORTH END AVENUE
BEGINNING at the intersection of the southerly line of Vesey Street and the
easterly line of North End Avenue:
1. Running thence south 1o-52'-50" west, along the easterly line of North
End Avenue, 355.00 feet, to the southerly line of North End Avenue;
2. thence north 88o-07'-10" west, along the southerly line of North End
Avenue, 100.00 feet, to the westerly line of North End Avenue;
3. thence north 1o-52'-50" east, along the westerly line of North End
Avenue, 355.00 feet, to the northerly line of North End Avenue which
is coincident with a portion of the southerly line of Vesey Street;
4. thence south 88o-07'-10" east, along the northerly line of North End
Avenue which is coincident with a portion of the southerly line of
Vesey Street, 100.00 feet, to the point or place of BEGINNING.
- 8 -
<PAGE> 140
PLAZA
Line of Liberty Street is in accordance with Map No. ACC. 30071 adopted by the
New York City Board of Estimate, November 13, 1981.
Line of North End Avenue is in accordance with map being prepared by New York
City, said map has not been adopted by the Board of Estimate as yet.
BEGINNING at a point in the northerly line of Liberty Street distant 216.96
feet westerly from the intersection of the northerly line of Liberty Street
with the westerly line of Marginal Street, Wharf or Place and The United States
Bulkhead Line approved by The Secretary of War, July 31, 1941:
1. Running thence due west, along the northerly line of Liberty Street,
412.64 feet;
2. thence north 73o-04'-45" east, 78.82 feet;
3. thence north 18o-36'-20" west, 463.95 feet;
4. thence south 71o-07'-33" west, 194.68 feet to a point of curvature;
5. thence westerly, on a curve to the right having a radius of 1880.08
feet, a central angle of 3o-01'-26" and a distance of 99.23 feet;
6. thence north 1o-52'-50" east, 143.14 feet;
7. thence south 88o-07'-10" east, along the southerly line of North End
Avenue, 100.00 feet;
8. thence north 1o-52'-50" east, along the easterly line of North End
Avenue, 61.29 feet;
9. thence due east, 354.87 feet;
10. thence due south, 343.47 feet;
11. thence due east, 72.58 feet;
12. thence south 12o-28'-31" east, 108.28 feet;
13. thence north 77o-31'-29": east, 86.50 feet;
- 9 -
<PAGE> 141
14. thence south 16o-55'-15" east, 38.01 feet;
15. thence north 73o-04'-45" east, 86.27 feet
16. thence south 12o-28'-31" east, 132.47 feet to the point or place of
BEGINNING.
NORTHERN PEDESTRIAN BRIDGE
As shown on Map N. ACC. 30079 adopted by the New York City Board of Estimate,
December 16, 1982.
SOUTHERN PEDESTRIAN BRIDGE
As shown on Map No. ACC. 30071 adopted by the New York City Board of Estimate,
November 13, 1981.
- 10 -
<PAGE> 142
EXHIBIT B
[SPACE SCHEDULE]
<PAGE> 143
EXHIBIT C
[COMMON FACILITIES]
<PAGE> 144
EXHIBIT D
[EMPLOYEE ASSISTANCE PROGRAM SERVICES]
<PAGE> 145
EXHIBIT E
[SUPPLEMENTAL EMPLOYEE ASSISTANCE
PROGRAM SERVICES]
<PAGE> 146
EXHIBIT F
SECURED AREAS
Entire Nineteenth (19th) Floor
<PAGE> 147
EXHIBIT G
AMERICAN EXPRESS TOWER
FORM OF BUDGET
BUDGET CATEGORIES
Bldg. Mgt. Force
Bldg. Mgt. Force-Benefits
Electricity
Chilled Water
Steam
Oil/Gas
Water
Contract Cleaning-National
Window Cleaning
Carpet Cleaning
Wood Floor Cleaning
Fabric Wall Cleaning
Contract Cleaning-Special Cleaning
Rubbish Removal
Maintenance & Repairs
Maintenance Agreements
Freight & Transportation
Other Svc's & Sup.-Bldg. Sup.
Other Svc's & Sup.-(BUNN)
Telephone
Legal Fees
Consultant Fees
Mgt. Fee (C&W)
Other Professional Services
Co-Mgt. Expenses
Outside Security-Special Security
Other Operating Exps.
Occupancy Taxes
Insurance
TRS Security
TRS Security-Equipment Maintenance
<PAGE> 148
EXHIBIT H
FITNESS CENTER SERVICES
<PAGE> 149
EXHIBIT I
MEDICAL DEPARTMENT SERVICES
<PAGE> 150
EXHIBIT J
[Designated Locations for Lehman
Messenger Messenger Center
and Lehman Incoming Delivery
Station]
<PAGE> 1
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT, dated this ___ day of _________,
1994 (the "Agreement"), is between American Express Company, a New York
corporation ("AMEX"), and Lehman Brothers Holdings Inc., a Delaware corporation
("LBH"). AMEX and LBH each has its executive office at American Express Tower,
World Financial Center, City of New York, County of New York, State of New
York.
WHEREAS, from June 30, 1981 through May 15, 1987 and August 10,
1990 through the Closing Date (defined below) of the Spinoff (defined below),
income of certain present and former members of the LBH Group (defined below)
has been or will be included in the U.S. consolidated Federal income tax
returns of the AMEX Group (defined below); and
WHEREAS, certain LBH Group members have filed or will file
combined state or local tax returns with certain AMEX Group members; and
WHEREAS, the consolidated U.S. Federal income tax liability of
the AMEX Group and certain combined state and local income tax liabilities have
been allocated and settled among the members of the AMEX Group in accordance
with the U.S. Federal Income Tax Policy (de-
<PAGE> 2
fined below) and Tax Instruction 400 (defined below), respectively, and in
prior years were allocated under predecessor procedures; and
WHEREAS, in connection with the initial public offering of LBH
stock in May 1987, AMEX and LBH entered into the Shearson Agreement (defined
below); and
WHEREAS, LBH and other members of the LBH Group will cease to be
members of the AMEX Group upon the Closing Date; and
WHEREAS, AMEX and LBH (i) desire to set forth in this Agreement
tax allocation principles for Affiliation Years which, except to the extent
provided herein, will supersede the U.S. Federal Income Tax Policy, the
Shearson Agreement and Tax Instruction 400 and (ii) desire to define the
effects upon the settlement and allocation of certain tax liabilities and tax
benefits of transactions or developments that occur during Interim Years
(defined below) and Post-Affiliation Years (defined below).
NOW, THEREFORE, LBH and AMEX agree as follows:
Section 1. Definitions. For all purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Adjusted Separate LBH Group Federal Tax Liability" shall
mean with respect to any Affiliation Year(s) the U.S. Federal income tax
liability of the LBH
2
<PAGE> 3
Group, determined by AMEX, applying the Highest Tax Rate, computed as if the
LBH Group (with LBH as the common parent) filed a consolidated U.S. Federal
income tax return separately from the AMEX Group, and applying such U.S. tax
laws and regulations that would have been applicable to LBH if it had so filed
separately, including any applicable limitations or carryforwards or carrybacks
(subject to limitations applicable to carryforwards and carrybacks hereunder,
including those set forth in Section 11 hereof and without regard to the AMT as
defined in Section 5 of this Agreement, provided, however, LBH shall remain
liable for AMT due pursuant to Section 5) that would apply for such separate
consolidated return for such year, adjusted as follows:
(1) the LBH Group shall be treated as bound by all elections made by
AMEX and all methods and policies in force for the AMEX Group for all
Affiliation Years;
(2) the LBH Group shall be permitted to reduce its Adjusted Separate LBH
Group Federal Tax Liability (not below zero) to the extent that AMEX
determines that the AMEX Group is able to reduce its U.S. Federal income
tax liability in the AMEX Consolidated Return for such Affiliation Year
by utilizing items of deduction, loss, or Credit which AMEX determines
the LBH Group would have been unable to
3
<PAGE> 4
utilize if it had filed a consolidated Federal income tax return
separately from the AMEX Group for such year ("Excess Items"); provided,
that it shall be assumed that such items of deduction, loss or Credit
were utilized in the AMEX Consolidated Return only after items in the
same category for the same Affiliation Year of other members of the AMEX
Group were utilized on actual Tax Returns as filed, subject to any
Adjustments thereto ("last-in basis"), and shall not be given effect to
the extent, on such last-in basis, AMEX determines that they exceed any
limitations applicable to the AMEX Group for such year; provided,
further, such limitations shall take into account carryforwards or
carrybacks to an Affiliation Year of members of the AMEX Group (other
than the LBH Group), but only to the extent such carryforwards or
carrybacks are allowable by law; provided, further, that to the extent
that the LBH Group reduces its Adjusted Separate LBH Group Federal Tax
Liability for an Affiliation Year by Excess Items, it shall not be
permitted to take such Excess Items into account in computing such
liability in any other Affiliation Year; and provided, further, if,
pursuant to the above provisions, an Excess Item is not usable by the
AMEX Group in one Affiliation Year, it shall be
4
<PAGE> 5
carried forward or carried back as an Excess Item to any other
Affiliation Years subject to the same limitations as above and
any other applicable limitations hereunder.
(3) the LBH Group shall take into account the items of income, gain,
loss, deduction or Credit attributable to deferred intercompany items,
excess loss accounts, dual consolidated losses or other items that
AMEX determines are required to be restored, recaptured or otherwise
triggered as a result of the Spinoff.
(b) "Adjustment" shall mean, with respect to any Affiliation
Year, any change in actual tax liability from the tax liability reported on an
AMEX Consolidated Return (except for items described in Sections 6, 7(c) or 11
of this Agreement), including changes attributable to amended returns,
deficiencies asserted by the IRS, overpayments, claims for refund, and IRS
audits, examinations, proceedings or litigation resulting from any of the
foregoing events. If such Adjustment relates only to a separate consolidated
return computation for the LBH Group hereunder, such Adjustment shall relate to
an item of income, gain, loss, deduction or Credit of a member of the LBH
Group.
(c) "Affiliation Year" shall mean each taxable year, or portion
thereof, with respect to which the LBH
5
<PAGE> 6
Group was a member of the AMEX Group and for which the LBH Group joined or will
join the AMEX Group in the filing of consolidated U.S. Federal income Tax
Returns. Reference to "Affiliation Years" shall mean all of the Affiliation
Years taken as a whole.
(d) "AMEX Consolidated Return" shall mean a consolidated U.S.
Federal income Tax Return filed by AMEX on behalf of the AMEX Group.
(e) "AMEX Group" shall mean the affiliated group of corporations
(as constituted from time to time), within the meaning of Section 1504 of the
Code, including AMEX, of which AMEX is the common parent.
(f) "Closing Date" shall mean the effective date of the Spinoff
(hereinafter defined). For purposes of filing all Tax Returns and making all
determinations under this Agreement, the LBH Group shall cease to be a member
of the AMEX Group as of 12:00 a.m. on the first day after the Closing Date, and
LBH shall cause the LBH Group's books of account to be closed for accounting
and tax purposes as of the end of the Closing Date in accordance with AMEX's
direction.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended. Any references to the Code and Treasury regulations promulgated
thereunder shall include any successor provisions thereto.
6
<PAGE> 7
(h) "Credits" shall mean, with respect to an Affiliation Year,
all of the credits against U.S. Federal income tax of the LBH Group
attributable to that Affiliation Year. Credits shall include, but not be
limited to, foreign tax credits, research credits, investment tax credits and
targeted job credits but specifically exclude Employee Stock Ownership Plan
credits.
(i) "Excess AMEX Group Benefits" shall mean the amount by which
AMEX determines that AMEX was able to reduce its U.S. Federal income tax
liability in the AMEX Consolidated Return for an Affiliation Year by use of
Excess Items (as defined above under "Adjusted Separate LBH Group Federal Tax
Liability") which would reduce the Adjusted Separate LBH Group Federal Tax
Liability for such year, if zero, below zero ("Additional Excess Items"). Use
of Additional Excess Items shall otherwise be subject to the same limitations
and other provisions applicable to the use of Excess Items, as determined by
AMEX.
(j) "LBH Group" shall mean each of (i) LBH, its subsidiaries and
any predecessor corporations and (ii) any corporation which at any time would
have been or is entitled to file consolidated U.S. Federal income Tax Returns
with any of the corporations described in (i) as the common parent.
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<PAGE> 8
(k) "Final Settlement" shall mean a final settlement with a
taxing authority that is binding on all parties or, if applicable, a final
judicial decision upon the expiration of the time for the decision to be
appealed, with respect to the items in question.
(l) "Highest Tax Rate" for the taxable year in question shall
mean the highest Federal income tax rate that would apply to that particular
type of income for such year. With respect to the Affiliation Year beginning
on January 1, 1987 and ending on May 15, 1987, the Highest Tax Rate shall not
exceed forty percent (40%).
(m) "Income Tax Benefit", for purposes of Section 6(a), 6(c) or
11 of the Agreement, shall mean the amount of the tax savings realized by the
AMEX Group, as determined by AMEX. Such amount shall be determined by
comparing (i) the actual U.S. Federal income tax liability of the AMEX Group
for the year(s) in question without giving effect to the item(s) in question
with (ii) the actual U.S. Federal income tax liability of the AMEX Group for
such year after giving full effect to such item(s), provided that it shall be
assumed that such items are utilized on a last-in basis as defined above in
"Adjusted Separate LBH Group Federal Tax Liability". An Income Tax Benefit
shall be deemed to be realized at the time that the AMEX Group receives a
refund or credit for refund from the relevant taxing authority upon a Final
8
<PAGE> 9
Settlement of the items in question. "Income Tax Detriment" shall mean, for
purposes of Section 7(c), the amount of additional tax incurred by the AMEX
Group as determined by AMEX. Such amount shall be determined by comparing (i)
the actual U.S. Federal income tax liability of the AMEX Group for the year(s)
in question after giving effect to the item(s) in question with (ii) the actual
U.S. Federal income tax liability of the AMEX Group without giving effect to
the item(s) in question, on such a last-in basis. An Income Tax Detriment shall
be deemed to be incurred at such time that payment is due to the relevant
taxing authority upon a Final Settlement of the items in question. For
purposes of these definitions, (i) U.S. Federal income tax liability shall be
determined by giving full effect to the U.S. Federal income tax laws applicable
to the years in question, and (ii) full effect shall be given to the collateral
effects including, without limitation, carrybacks, carryforwards, and the
non-deductibility of ordinary losses at the rates of tax applicable to ordinary
income, as determined by AMEX. In computing the U.S. Federal income tax
liability of the AMEX Group for purposes of "(ii)" of the first sentence of
this definition, increases or decreases in the U.S. Federal income tax
liability of the AMEX Group attributable to the effect on AMEX's (or any
subsidiary's) basis in the stock of any member of the LBH
9
<PAGE> 10
Group shall be ignored. For purposes of Sections 6(a) and 7(c), as the context
requires, "LBH" shall be substituted for AMEX for purposes of applying these
definitions, except AMEX shall make all relevant determinations therefor.
(n) "Interim Years" shall mean all taxable periods beginning on
or after May 16, 1987 and ending on or before August 9, 1990 during which the
LBH Group was not a member of the AMEX Group and did not join the AMEX Group in
the filing of its consolidated U.S. Federal income Tax Returns.
(o) "IRS" shall mean the U.S. Internal Revenue Service.
(p) "Post-Affiliation Years" shall mean all taxable periods
after the Closing Date during which the LBH Group was not or will not be a
member of the AMEX Group and did not or will not join the AMEX Group in the
filing of its consolidated U.S. Federal income Tax Return.
(q) "Section 11 Claims" shall mean claims for refund
attributable to items described in and filed pursuant to Section 11 of this
Agreement.
(r) "Shearson Agreement" shall mean the tax allocation
agreement, dated March 25, 1987, between AMEX and LBH, then known as Shearson
Lehman Brothers Holdings Inc.
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<PAGE> 11
(s) "Spinoff" shall mean the distribution of common shares of LBH to
the public shareholders of AMEX.
(t) "Tax Instruction 400" shall mean AMEX Tax Instruction 400, dated
January 1, 1984 (copy attached as Exhibit "A").
(u) "Tax Return" shall mean any tax return (including amended
return), report, information return, election, notice or other document filed
or to be filed with a taxing authority, including any schedules or related or
supporting information. For purposes of this Agreement, references to
"combined" Tax Returns shall include unitary Tax Returns.
(v) "U.S. Federal Income Tax Policy" shall mean the U.S. Federal
Income Tax Liability Allocation Policy of the AMEX Group, dated April 18, 1988.
Section 2. Applicable Standards.
(a) Except as otherwise specifically provided herein, this Agreement
shall supersede in all respects the U.S. Federal Income Tax Policy, the
Shearson Agreement, Tax Instruction 400 and any other procedures governing the
allocation of tax liability among the members of the AMEX Group. However, this
Agreement shall not supersede the agreements set forth on Schedule I hereto,
with respect to which AMEX shall control all matters relating to determinations
of tax liability.
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(b) Except as otherwise specifically provided hereunder, all
determinations and actions required under this Agreement will be taken by AMEX
and shall be made in good faith taking into account, among other factors, the
goal of reducing the taxes of the parties. LBH shall have the right to review
the basis for all determinations and actions taken by AMEX and LBH and its
designated agents shall have full access to the information and data which
formed the basis therefor.
Section 3. Tax Allocation for Pre-1994 Taxable Years.
(a) LBH shall be responsible for and shall indemnify AMEX against
the U.S. Federal income tax liability of the LBH Group for all taxable years
ending on or before December 31, 1993, including the "1993 Tax Liability"
(defined below), as follows: LBH shall be liable for and pay AMEX the Adjusted
Separate LBH Group Federal Tax Liability for each such Affiliation Year. AMEX
shall pay LBH but LBH shall remain liable for the Excess AMEX Group Benefits.
The 1993 Tax Liability is such U.S. Federal income tax liability for the
taxable year ending on December 31, 1993.
(b) No later than March 14, 1994, LBH shall pay to AMEX or AMEX
shall pay to LBH an amount equal to the difference between (i) the 1993 Tax
Liability determined by AMEX and (ii) (A) the sum of any payments previ-
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<PAGE> 13
ously made by LBH to AMEX with respect to the 1993 Tax Liability (B) reduced by
the sum of any payments previously made by AMEX to LBH with respect to the 1993
Tax Liability.
(c) No later than the day AMEX files the AMEX Consolidated Return
for the 1993 Taxable Year, AMEX shall determine the amount of the 1993 Tax
Liability and LBH shall pay to AMEX or AMEX shall pay to LBH an amount equal to
the difference between (i) the 1993 Tax Liability, as finally determined, based
upon the tax information contained in such return and (ii) (A) the sum of any
payments made by LBH to AMEX with respect to the 1993 Tax Liability (B) reduced
by the sum of any payments previously made by AMEX to LBH with respect to the
1993 Tax Liability. For purposes of subsections (b) and (c), LBH shall use its
best efforts to secure and provide AMEX with the most accurate and complete tax
information available with respect to the 1993 Tax Liability in accordance with
AMEX's request.
Section 4. Tax Allocation for the 1994 Taxable Year.
(a) LBH shall be responsible and pay AMEX for, and indemnify and
hold harmless AMEX against, the "1994 Tax Liability." The 1994 Tax Liability
shall be the Adjusted Separate LBH Group Federal Tax Liability for the taxable
year beginning on January 1, 1994 and ending on
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<PAGE> 14
and including the Closing Date (the "1994 Taxable Year") with regard to the
separate consolidated return computation for the LBH Group and the taxable year
of the AMEX Group ending on December 31, 1994 with regard to the AMEX
Consolidated Return computation in respect of Excess Items, if applicable.
AMEX shall pay LBH but LBH shall remain liable for the Excess AMEX Group
Benefits, if any, for the taxable year of the AMEX Group ending on December 31,
1994 if the Adjusted Separate LBH Group Federal Tax Liability is zero under the
preceding sentence.
(b) From and after the date of this Agreement, LBH shall pay to AMEX
or AMEX shall pay to LBH on the day before each due date for the payment of
quarterly estimated U.S. Federal income taxes for the taxable year of the AMEX
Group ending on December 31, 1994 and on March 14, 1995, the difference between
(i) the 1994 Tax Liability determined by AMEX and (ii) (A) the sum of any
payments previously made by LBH to AMEX with respect to the 1994 Tax Liability
(B) reduced by the sum of any payments previously made by AMEX to LBH with
respect to the 1994 Tax Liability. The amount of such estimated payments shall
be determined, to the extent relevant, based on AMEX's determination of the
ability of the AMEX Group to utilize LBH Group's deductions, losses and Credits
for the taxable year of the AMEX Group ending December 31, 1994.
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<PAGE> 15
(c) No later than the date that AMEX files the AMEX Consolidated
Return for the taxable year ending on December 31, 1994, AMEX shall determine
the amount of the 1994 Tax Liability and LBH shall pay to AMEX or AMEX shall
pay to LBH, as the case may be, the difference between (i) the 1994 Tax
Liability, as finally determined, based upon the tax information contained in
such return and (ii) (A) the sum of the amounts previously paid by LBH to AMEX
with respect to the 1994 Tax Liability (B) reduced by the sum of any payments
previously made by AMEX to LBH with respect to the 1994 Tax Liability. For
purposes of subsections (b) and (c), LBH shall use its best efforts to secure
and provide AMEX with the most accurate and complete tax information available
with respect to the 1994 Tax Liability in accordance with AMEX's request.
(d) LBH and AMEX shall cooperate to settle all tax payable accounts
on or before the Closing Date for the 1993 Tax Liability and 1994 Tax Liability
and all prior Affiliation Years pursuant to Section 3, in accordance with
AMEX's direction, based on the most accurate and complete information then
available.
(e) AMEX shall determine the amounts of income, gain, loss,
deduction, and credit of the LBH Group for the 1994 Taxable Year which are
properly includable in the AMEX Consolidated Return for the
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<PAGE> 16
taxable year of the AMEX Group ending on December 31, 1994. The amounts of
such items that are includable in the consolidated U.S. Federal income Tax
Return of the LBH Group for the Post-Affiliation Year of the LBH Group
beginning on the first day following the Closing Date shall be reported by LBH
in a manner consistent with the manner in which such items were reported for
the 1994 Taxable Year. Notwithstanding the previous sentence, for purposes of
apportioning its interest expense for foreign tax credit purposes, the LBH
Group may determine the value of its assets for such Post-Affiliation Year on a
basis more frequent than the beginning and end of the taxable year if permitted
to do so by the IRS, but only if the use of such method does not require
conformity by any member of the AMEX Group or otherwise require participation
by AMEX.
(f) Without limiting the foregoing, AMEX shall also determine the
portion of any Foreign Attribute (defined below) for the LBH Group that is
allocable to the 1994 Taxable Year, including whether the allocation of any
such Attribute is to be made by reference to the closing of the LBH Group's
books of account as of the end of the Closing Date or by any other method
(which specific authority is limited to positions that are consistent with
applicable law and regulations); provided that such portion shall not include
any amount described in Section 951(a) of the Code (relating to inclusions in
income of controlled foreign corporation earnings) or any amount described in
Section 1293(a) of the Code (relating to inclusions in income of qualified
electing fund earnings), or any indirect foreign tax credit under Section 960
of the Code for foreign income taxes deemed paid with respect to either of
these items, all as determined by AMEX; and provided, further, that, without
16
<PAGE> 17
the prior written consent of AMEX, LBH shall not be permitted to elect to
recapture an amount of taxable income from sources without the U.S. of any
member of the LBH Group greater than the minimum amount required by Section
904(f)(1) of the Code for any Affiliation Year or the Post-Affiliation Year
beginning on the first day following the Closing Date. A "Foreign Attribute"
is any item of income, gain, loss or deduction or any asset or liability
relevant to the computation of taxable income from sources without the U.S. and
any item of credit described in Section 901 of the Code (without regard to the
limitation of Section 904 of the Code). LBH shall provide AMEX with all
information it requests to make any determination under this subsection (f).
AMEX will likewise share all information with LBH necessary for LBH to
determine its share of the consolidated foreign tax credits for the 1994
Taxable Year.
Section 5. Alternative Minimum Tax.
(a) Notwithstanding any other provision in this Agreement, if, for
any Affiliation Year, the AMEX Group is liable for alternative minimum tax for
U.S. Federal income tax purposes (or any similar U.S. Federal tax) ("AMT") and
the LBH Group would be liable for AMT if it filed a Tax Return as a separate
consolidated group ("LBH Separate AMT"), LBH shall pay to AMEX an amount (the
"LBH AMT Liability") determined by AMEX equal to the
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<PAGE> 18
product of the AMT liability for the AMEX Group (the "AMEX AMT Liability") and
a fraction (x) the numerator of which is the sum of the tax preference items
and adjustments of the LBH Group relevant for purposes of the computation of
AMT (the "TPIs") and (y) the denominator of which is the sum of the TPIs of all
members of the AMEX Group for such Affiliation Year. The LBH AMT Liability for
any Affiliation Year shall not exceed the LBH Separate AMT for such Affiliation
Year.
(b) If, for any Affiliation Year, LBH has paid to AMEX the LBH AMT
Liability, AMEX shall pay to LBH its proportionate share of the minimum tax
credit for U.S. Federal income tax purposes (the "Minimum Tax Credit") for such
Affiliation Year which is actually utilized by the AMEX Group in a subsequent
Affiliation Year or the Minimum Tax Credit which the LBH Group would have used
for such year if it had filed a consolidated U.S. Federal income tax return
separately from the AMEX Group (with LBH as the common parent), if greater.
LBH's proportionate share of the Minimum Tax Credit of the AMEX Group for any
Affiliation Year shall be equal to the product of such Minimum Tax Credit and a
fraction (A) the numerator of which is the LBH AMT Liability reduced by any
amounts previously paid by AMEX to LBH in respect of the Minimum Tax Credit and
(B) the denominator of which is the AMEX AMT Liability reduced by the Minimum
Tax Credit previous-
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ly received by the AMEX Group in respect of such AMEX AMT Liability for all
relevant taxable years. In no event shall LBH be paid an amount in respect of
the Minimum Tax Credit in excess of the LBH AMT Liability.
Section 6. Carryover Items; NOL Reattribution; Use of Excess Items
in Post-Affiliation Years.
(a) Carryover Items. Within five (5) business days after LBH
realizes such Income Tax Benefit, LBH shall pay to AMEX the amount of any
Income Tax Benefit realized with respect to the amount of any Credits and any
other items apportioned to a member leaving a consolidated group pursuant to
Treas. Reg. Section 1.1502-79 which (i) reduced the amounts payable by LBH
with respect to U.S. Federal income taxes for any Affiliation Year, (ii) were
not utilized by the AMEX Group in such Affiliation Year, and (iii) are
apportioned and carried over to a Post-Affiliation Year of the LBH Group in
accordance with Treas. Reg. Section 1.1502-79 and utilized by the LBH Group in
such year (the "Carryover Items"). LBH shall notify AMEX at the time that any
such Carryover Items are reflected in the Tax Returns of any member of the LBH
Group. Prior to the Closing Date, LBH shall provide AMEX all information it
requests to prepare a schedule setting forth all potential Carryover Items.
(b) NOL Reattribution. LBH has listed on Schedule II hereto the LBH
subsidiaries, with their
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respective employer identification numbers, that have reported net operating
losses for Federal income tax purposes that arose in the taxable years
indicated, as the same may be adjusted to the Closing Date ("NOLs"). At AMEX's
request, LBH agrees to reattribute to AMEX or cause to be reattributed to AMEX
the NOLs in accordance with Treas. Reg. section 1.1502-20(g). In furtherance
thereof, LBH shall cause each of the subsidiaries listed on Schedule II to sign
the statement prepared by AMEX that is required by Treas. Reg. section
1.1502-20(g)(5)(i) to elect to reattribute their losses to AMEX and to satisfy
any other requirements for the NOLs to be reattributed to AMEX. At AMEX's
request, LBH shall provide to AMEX all such information as AMEX may, in good
faith, request to support the NOLs. In the event that any such NOL is
contested by a taxing authority, LBH shall promptly notify AMEX of such
contest, and AMEX, at its sole cost and expense, shall have the sole authority
to control and settle such contest.
(c) Use of Excess Items in Post-Affiliation Years. In the event an
Excess Item (as defined under "Adjusted Separate LBH Group Federal Tax
Liability" above) not used by the AMEX Group in an Affiliation Year, and not
apportioned to the LBH Group pursuant to Treas. Reg. section 1.1502-79, is
carried forward to a Post-Affiliation Year of the AMEX Group, if AMEX
determines
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that it has realized an Income Tax Benefit with respect to such carryforward,
AMEX shall pay to LBH an amount equal to such Income Tax Benefit within five
(5) business days after AMEX realizes such benefit. AMEX shall have full
control of the nature of all actions to be taken in connection with realizing a
benefit therefor.
Section 7. Adjustments.
(a) If an Adjustment occurs, the tax liability of LBH or
AMEX, as the case may be, pursuant to Sections 3, 4 or 5 hereof, shall be
recomputed by AMEX. As recomputed, LBH shall make payments to AMEX for an
increase in its tax liability or AMEX shall make payments to LBH for an
increase in its tax liability. For purposes of Sections 3 and 4, LBH's tax
liability shall be deemed to have increased by any Adjustment that results in
the increase in the Adjusted Separate LBH Group Federal Tax Liability or a
decrease in the Excess AMEX Group Benefits, and AMEX's tax liability shall be
deemed to have increased by any Adjustment that results in a decrease in the
Adjusted Separate LBH Group Federal Tax Liability or an increase in the Excess
AMEX Group Benefits. Payments due from LBH to AMEX shall be made no later than
one (1) business day before the due date for payment upon the Final Settlement
of the items in question, or, to the extent no payment is due, within five (5)
business days after the date of such Final
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<PAGE> 22
Settlement. Such payments shall include any interest, penalties and additions
to tax and, if applicable, any reasonable external costs for professional
services incurred by AMEX thereon. In calculating any interest payable by LBH
to AMEX hereunder, interest, if any, due from AMEX to the IRS shall first be
deemed to arise with respect to the increase in the tax liability of LBH, as
determined above. However, to the extent the increase in the tax liability of
LBH, as determined above, exceeds the amount of AMEX's tax deficiency to the
IRS, interest thereon shall be paid by LBH to AMEX at the overpayment rate
specified in Section 6621 of the Code from the date payment was due under the
Code or applicable regulations. Payments due from AMEX to LBH shall be made
(together with interest at the overpayment rate specified in Section 6621 of
the Code) within five (5) business days after AMEX receives a refund or a
credit for a refund with regard to the items in question. For any Affiliation
Year, AMEX, in its sole discretion, exercisable in good faith, may determine
whether to give effect, through any Tax Return, claim for refund or otherwise,
to items of loss, deduction or credit for the LBH Group which are greater than
those reflected on prior Tax Returns and the nature of all actions taken with
respect thereto. AMEX will be deemed to have satisfied this standard if it
rejects a request by LBH to
22
<PAGE> 23
file such a claim for refund, because, among other reasons, it determines, in
good faith, that a member of the AMEX Group will incur a detriment, financial
or otherwise, in any year affected by such claim or such claim involves an
election, method or policy that is inconsistent with that used by the AMEX
Group. If AMEX files such a claim, LBH will indemnify AMEX for any additional
taxes or loss of tax benefits incurred by a member of the AMEX Group (including
interest, penalties and additions to tax) arising from such claim.
(b) LBH shall be responsible for the payment to AMEX of the
amount allocated to the LBH Group pursuant to the tax allocation procedures in
Sections 3, 4, 5 and 6(a) as adjusted pursuant to this Section 7, if
applicable, and shall indemnify and hold AMEX harmless against all such
amounts. AMEX shall indemnify and hold the LBH Group harmless from and against
all other U.S. Federal income taxes in excess of the amount determined in the
previous sentence in respect of the Affiliation Years, including all U.S.
Federal income taxes imposed pursuant to Treas. Reg. Section 1.1502-6 with
respect to members of the AMEX Group other than members of the LBH Group.
Subject to Section 13, to be entitled to indemnification under this Section,
either party shall give notice to the other party pursuant to Section 16 of
this Agreement, and a reasonable opportunity to respond,
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<PAGE> 24
before making any payment which would cause this indemnity provision to be
applicable.
(c) If the application of Code Section 482 as between the
AMEX Group (not including the LBH Group) and the LBH Group results in an Income
Tax Detriment to the AMEX Group (not including the LBH Group) or the LBH Group,
as the case may be, the party incurring the Income Tax Detriment shall be paid
by the other party an amount equal to such Income Tax Detriment (including any
interest, penalties and additions to tax) within five (5) business days after
such Income Tax Detriment is incurred. Subject to Section 13, each party shall
notify the other at the time that such party receives notice of any claim,
deficiency or other notice by the taxing authorities with respect to an item
that could give rise to such an Income Tax Detriment or a payment pursuant to
this Section 7(c).
Section 8. Preparation of Tax Returns and Computations.
(a) AMEX shall have sole authority for the preparation and
filing of any consolidated U.S. Federal income Tax Return or combined state and
local Tax Returns, which include the items of income, gain, loss, deduction and
credit of the LBH Group for all relevant taxable periods ending prior to or
with and including the Closing Date including, but not limited to,
determination
24
<PAGE> 25
of Foreign Attributes (as defined in Section 4(f) of this Agreement). With
respect to the U.S. Federal income Tax Returns for the taxable years ending
December 31, 1993 and December 31, 1994, respectively, AMEX agrees to notify
LBH if it plans to file such tax returns reflecting data or information that is
materially different from the final data or information provided by LBH in
respect of the LBH Group in respect of these years and, in this event, subject
to filing deadlines, to give LBH an opportunity to comment on the reporting of
such data or information. In addition, with respect to any combined state and
local Tax Return for the taxable years ending December 31, 1993 and December
31, 1994, in which LBH is projected to have tax liability in excess of
$500,000, AMEX will, subject to filing deadlines, give LBH an opportunity to
review and comment on the accuracy of such returns as they relate to LBH's tax
liability. Any decisions with respect to the timing, filing, or content of the
above Tax Returns shall be made by AMEX and shall be final and binding upon the
parties hereto. LBH and the appropriate members of the LBH Group shall make or
give their consent to such elections or other matters relating to the LBH Group
as AMEX determines are necessary or advisable in connection with the filing of
any such Tax Returns.
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(b) LBH shall have sole authority for the preparation and
filing of all separate state and local Tax Returns of all members of the LBH
Group for all relevant taxable years; provided, however, that all such Tax
Returns shall be filed in a manner consistent with the treatment of items and
transactions on the relevant AMEX Consolidated Return, subject to applicable
law at the time such return is filed. LBH shall be liable for and shall
indemnify and hold AMEX harmless against all taxes required to be shown on such
Tax Returns plus any interest, penalties and additions to tax relating to such
taxes.
(c) All the computations and determinations that are required
to be made under this Agreement shall be made by AMEX. LBH and the other
members of the LBH Group shall extend such cooperation to AMEX as AMEX, in good
faith, requests in order to perform all such computations. Whenever consent,
election or other action by LBH under this Agreement will, as determined by
AMEX, not be effective without such consent, election or other action being
provided by other members of the LBH Group, upon request by AMEX, LBH shall
cause such consent, election or other action to be provided by such other
members.
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Section 9. Cooperation and Furnishing of Tax Return
Information.
(a) Subject to Section 13, AMEX and LBH each agree to
cooperate fully in connection with (i) the resolution of any tax audits,
proceedings or disputes and the preparation of any Tax Return relating to any
Affiliation Year. AMEX and LBH shall each provide the other with such
documents as the other may request which are relevant to such audits,
proceedings or disputes and make available personnel familiar with the item
which is the subject of such audit, proceeding or dispute. In this regard, the
tax department of the LBH Group shall, at the expense of LBH, continue to
perform the same functions with respect to such audits, proceedings or disputes
as they performed during the Affiliation Years with respect to such audits,
proceedings or disputes.
(b) For purposes of the preparation by AMEX of Tax Returns
for the taxable years ending on December 31, 1993 and December 31, 1994,
respectively, on or prior to such date as is specified by AMEX, LBH shall
provide AMEX with a separate consolidated return for the LBH Group, subject to
applicable limitations, schedule(s) showing the items of income, gain, loss,
deduction and credit and Foreign Attributes (as defined in Section 4(f))
attributable to the LBH Group with respect to each such taxable year and
complete workpapers together with such other
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information as AMEX may request. The information described herein shall be
consistent with any similar information provided by LBH to AMEX in respect of
prior taxable years.
Section 10. Interim Years and Post-Affiliation Years.
(a) LBH shall not (i) file or amend any Tax Return for
Interim Years, the Post-Affiliation Year beginning on the first day following
the Closing Date, or the subsequent Post-Affiliation Years ending in 1995 and
1996, in a manner inconsistent with the manner in which AMEX filed its Tax
Returns in an Affiliation Year (except as to the manner by which it determines
the value of its assets for purposes of apportioning interest expense for
foreign tax credit purposes, as previously described in Section 4(e) of the
Agreement) or (ii) make any election for any Interim Year or Post-Affiliation
Year if such election would have the effect of binding or requiring conformity
by any member of the AMEX Group for any taxable year.
(b) LBH shall be obligated to inform and disclose fully to
AMEX any actions taken or transactions undertaken in an Interim Year or
Post-Affiliation Year which can reasonably be expected to affect in any
material way the U.S. Federal income tax liability of the AMEX Group for any
Affiliation Year, including, without limitation, carryforward or carryback
claims for net operating or net capital losses, investment tax credits, or
foreign tax credits. AMEX shall likewise inform LBH of any actions which could
28
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reasonably be expected to affect, in any material way, the tax liability of LBH
in an Affiliation Year.
(c) LBH shall promptly notify AMEX of any proposed
adjustments which arise out of an audit or examination of an Interim Year or
Post-Affiliation Year Tax Return of the LBH Group and which could reasonably be
expected to affect in any material way the U.S. Federal income tax liability of
the AMEX Group for any taxable year, including, without limitation,
carryforwards or carrybacks of net operating losses, investment tax credits or
foreign tax credits, or which could result in treatment of items that is
inconsistent with the manner in which AMEX filed its Tax Returns in respect of
the LBH Group for such items in any Affiliation Year. If such adjustment
involves an administrative or judicial proceeding, LBH shall keep AMEX fully
informed of any material developments in any such proceeding. LBH shall, in
good faith, consult with AMEX concerning the appropriate actions or positions
to be taken throughout the course of such proceedings and shall allow AMEX to
participate jointly, at AMEX's own expense, in conjunction with LBH, in any
such proceeding. Except as otherwise provided in this Agreement, LBH, subject
to subsection (a) hereof, shall have full control over any judicial or
administrative proceeding relating solely to an Interim Year or
Post-Affiliation Year Tax Return of the LBH Group
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<PAGE> 30
and ultimate discretion with respect to any decisions to be made or the nature
of any action to be taken in the course thereof.
(d) The LBH Group shall not elect to be considered as not
having been a member of the AMEX Group for U.S. Federal income tax purposes or
a member of a combined group including one or more members of the AMEX Group
for state or local tax purposes for any taxable year or portion thereof during
which the LBH Group is eligible to file consolidated U.S. Federal income Tax
Returns or combined Tax Returns with one or more members of the AMEX Group,
without the prior written consent of AMEX.
Section 11. Certain Carryforwards and Carrybacks.
If the LBH Group sustains losses or generates credits for
Interim Years which may be carried forward or back to an Affiliation Year and
will generate an Income Tax Benefit, LBH may request AMEX to file a Section 11
Claim with the IRS with respect to the U.S. Federal income tax liability of the
AMEX Group for such Affiliation Year. In addition, if the LBH Group sustains
losses or generates credits in a Post-Affiliation Year which may be carried
back to an Affiliation Year and will generate an Income Tax Benefit, LBH may
request AMEX to file a Section 11 Claim with the IRS with respect to the
30
<PAGE> 31
U.S. Federal income tax liability of the AMEX Group for such Affiliation Year.
In addition, if the LBH Group sustains losses or generates credits in a
Post-Affiliation Year which may be carried back to an Affiliation Year and will
generate an Income Tax Benefit, LBH may request AMEX to file a Section 11 Claim
with the IRS with respect to the U.S. Federal income tax liability of the AMEX
Group for such Affiliation Year. AMEX shall have sole discretion to reject or
accept all requests to file carryforward or carryback claims (except for
foreign tax credit or domestic source capital loss carryback claims) and file
any amended returns or claims for refund relating thereto, which discretion may
be exercised without regard to satisfying a standard of good faith or any other
standard provided for in this Agreement or elsewhere. With regard to requests
to file foreign tax credit or domestic source capital loss carryback claims to
an Affiliation Year, AMEX shall have the sole discretion, exercised in good
faith, to reject or accept such request. AMEX will be deemed to have satisfied
this standard if it rejects such request, because, among other reasons, it
determines, in good faith, that a member of the AMEX Group will incur a
detriment, financial or otherwise, in any year affected by such claim or such
claim involves an election, method or policy that is inconsistent with that
used by the AMEX Group.
If AMEX elects to file a Section 11 Claim, AMEX shall have full
control over the Section 11 Claim and may determine in its sole discretion the
nature of all actions to be taken in connection with seeking such refund. If
AMEX realizes an Income Tax Benefit with respect to a Section 11 Claim, AMEX
shall pay to LBH an amount equal
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<PAGE> 32
to such Income Tax Benefit within five (5) business days after AMEX realizes
such Income Tax Benefit. It is understood that in no event will such payment
be due earlier than five (5) business days after the later of (i) the date the
taxable year of LBH from which such Section 11 Claim derived is closed, (ii)
the date the taxable year of AMEX to which such Section 11 Claim is carried is
closed and (iii) the date the last taxable year of AMEX from which a claim can
be carried to the taxable year in which the Section 11 Claim is carried is
closed. However, if AMEX receives payment from the IRS with respect to a
Section 11 Claim prior to the date payment is due to LBH under the preceding
sentence, AMEX will pay such amount to an independent escrow agent, selected by
AMEX, in good faith, to be held in escrow and invested in Treasury Bills until
the date payment is due to LBH under the preceding sentence, at which time the
escrow agent shall pay the escrowed funds, both principal and income (as may be
adjusted as set forth hereinafter), to LBH; provided, however, that if the
Income Tax Benefit relating to the escrowed funds is reduced, at AMEX's
direction, the portion of the escrowed funds attributable to such reduction
shall be paid to AMEX. All escrow fees shall be borne by LBH. If AMEX files a
Section 11 Claim, LBH will indemnify AMEX for any additional taxes or loss of
tax benefits incurred by a member of the AMEX Group
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<PAGE> 33
(including interest, penalties and additions to tax) arising from such claim.
AMEX shall also be entitled to reimbursement from LBH for any reasonable
external costs for professional services incurred by AMEX which are
attributable to the Section 11 Claim whether or not AMEX realizes an Income Tax
Benefit.
Section 12. State Income Tax Liabilities.
(a) If any member of the AMEX Group and any member of the LBH Group
are required to file, or if AMEX elects, pursuant to Section 8, that a member
of the AMEX Group and a member of the LBH Group shall file, combined state or
local Tax Returns for any taxable years or where any state or local taxing
authority successfully asserts such a combined filing requirement, the
allocation and settlement of amounts due between the parties shall be governed,
except as provided otherwise in this Section 12, by Tax Instruction 400, which
is incorporated herein by reference. For purposes of this Agreement, Tax
Instruction 400 will be amended to provide that if an audit adjustment results
in additional positive taxable income on a combined state return that is
attributable solely to AMEX, in a jurisdiction in which AMEX has zero
apportionment factors, AMEX will bear tax on this additional positive taxable
income, assuming an AMEX apportionment percentage equal to the percentage
reported
33
<PAGE> 34
by the AMEX Group (including members of the LBH Group) on the relevant combined
tax return as originally filed.
(b) State and/or local amended Tax Returns or claims for refund
which are in the nature of Section 11 Claims shall be governed by the
principles of Section 11 of this Agreement.
(c) Tax Return preparation and tax computations under this Section
12 shall be governed by the principles of Section 8 of this Agreement.
(d) The obligation to furnish information with respect to Tax
Returns set forth in Sections 9 and 14 of this Agreement shall apply also to
any combined state and/or local Tax Returns. In addition, AMEX will inform LBH
of any developments with respect to all state or local combined tax audits that
could materially adversely affect LBH. LBH will be permitted to meet, jointly
with AMEX, with representatives of the relevant state or local taxing
authorities with respect to any such audit.
(e) State and/or local administrative and judicial proceedings
shall be governed by the principles of Section 13.
(f) LBH shall be responsible for the payment to AMEX of the amount
allocated to the LBH Group pursuant to this Section 12 and shall indemnify and
hold AMEX harmless against all such amounts. AMEX shall indemnify and hold LBH
harmless from and against all other combined
34
<PAGE> 35
state and local income taxes in excess of the amount determined in the previous
sentence. Subject to the principles of Section 13, to be entitled to
indemnification under this Section, either party shall give notice to the other
party pursuant to Section 16 of this Agreement, and a reasonable opportunity to
respond, before making any payment which would cause this indemnity provision
to be applicable.
(g) AMEX shall have the sole authority to make determinations of
matters that are necessary to effectuate this Section 12.
Section 13. Administrative and Judicial Proceedings.
(a) AMEX and LBH hereby agree that during the course of the audit
of any taxable year to which the provisions of Section 7 may apply, they will
in good faith endeavor to discuss and resolve separately with the IRS district
agents any "LBH Issues" and "AMEX Issues" (defined below). LBH Issues are
issues relating to items of income, gain, loss, deduction, or credit that are
attributable solely to the LBH Group and that could not have material adverse
consequences for the U.S. Federal income tax liability of a member of the AMEX
Group (other than a member of the LBH Group) if resolved against the taxpayer,
as determined in good faith by AMEX. AMEX Issues are any other issues,
including issues relating to
35
<PAGE> 36
Foreign Attributes (as defined in Section 4(f) of the Agreement) of the LBH
Group, determinations as to which Foreign Attributes will be made by AMEX in
good faith.
In the event a Revenue Agent's Report ("RAR") is issued with respect
to such taxable year, and the RAR contains adjustments proposed with respect to
LBH Issues, at LBH's request, AMEX shall Protest (as defined in applicable U.S.
Treasury Regulations) the adjustments made with respect to LBH Issues. LBH
will prepare that portion of any Protest which it determines should be filed in
connection with any adjustment proposed with respect to LBH Issues and shall
limit such portion of the Protest to the defense of the specific LBH Issues
raised in the RAR, unless AMEX, in its sole discretion, determines otherwise.
After the filing of such Protest, AMEX and LBH shall jointly meet
with the representatives of the IRS responsible for disposing of the issues in
dispute and request the separate resolution of the AMEX and LBH Issues. They
shall further request that the IRS assign separate representatives to conduct
any review of or proceedings on their respective issues.
Regardless of whether the IRS agrees to resolve the issues affecting
each party or assign separate representatives to deal with the issues of each,
AMEX and LBH each will attend meetings and will prepare written pre-
36
<PAGE> 37
sentations to be made to the IRS regarding any adjustments proposed only with
respect to its respective issues. In accordance with the provisions of Section
9, AMEX and LBH shall keep each other informed, as soon as possible, of any
developments and discussions at any such meetings concerning adjustments,
whether or not formally proposed, affecting the other party.
(b) For each Affiliation Year, AMEX shall have full control over
all AMEX Issues and all LBH Issues not otherwise settled by LBH at the audit or
Appellate Level of the IRS ("LBH Unsettled Issues") if the aggregate liability
for taxes, for which LBH would be liable hereunder ("Section 13 Taxes"), with
respect to all LBH Unsettled Issues for such Affiliation Year does not exceed
$1,000,000. If the aggregate liability for Section 13 Taxes with respect to
LBH Unsettled Issues for any Affiliation Year exceeds $1,000,000, LBH shall
obtain an evaluation of the LBH Unsettled Issues ("Evaluation") from an
independent attorney experienced in the field of federal corporate taxation
and/or an independent attorney experienced in the field of state corporate
taxation or an independent attorney experienced in the fields of federal
corporate taxation and state corporate taxation, as relevant, who shall be
selected jointly by the parties. The Evaluation shall state, for the LBH
Unsettled Issues on an issue-by-issue basis, whether, in the
37
<PAGE> 38
opinion of the attorney, there is a realistic possibility of the position being
sustained on its merits, as defined in 31 CFR Section 10.34(a)(4)(i) (Proposed
Amendment, dated October 8, 1992). Any discussions with respect to the
Evaluation shall be held with both parties jointly, and such attorney shall
send a copy of the Evaluation (including any drafts thereof) to both parties
simultaneously.
If the Evaluation discloses any LBH Unsettled Issues which do not
meet the aforementioned standard, LBH shall be obligated to settle such issues
with the IRS at its own cost and expense within a reasonable period of time
after receipt of the Evaluation. If the aggregate liability for Section 13
Taxes with respect to the remaining LBH Unsettled Issues does not exceed
$1,000,000, LBH also shall be obligated to settle all such issues at its own
cost and expense within a reasonable period of time after receipt of the
Evaluation.
(c) If, for any Affiliation Year, the aggregate liability for
Section 13 Taxes with respect to the remaining LBH Unsettled Issues exceeds
$1,000,000, AMEX may select one of two options: (i) retain complete control
over and liability for the remaining LBH Unsettled Issues, or (ii) cede
complete control to LBH for the remaining LBH Unsettled Issues. In the event
that AMEX
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<PAGE> 39
selects option (ii), LBH shall assume complete responsibility and liability for
all LBH Issues, and LBH shall be liable for, but AMEX shall control the
resolution of, (A) each AMEX Issue which is not expressly set forth in the RAR
with respect to such Affiliation Year ("New AMEX Issues") and (B) each AMEX
Excess Issue. For purposes of this Section 13, an "AMEX Excess Issue" shall
mean an AMEX Issue the tax liability for which (including any related interest,
penalties and additions to tax) exceeds any proposed deficiency set forth in
the RAR with respect to such AMEX Issue or, if less, the amount of any
deficiency with respect to such AMEX Issue in an agreement with the IRS reached
during Appellate proceedings ("IRS Agreement"). LBH's liability for an AMEX
Excess Issue shall be an amount equal to the excess, if any, of the actual
liability for taxes (including any related interest, penalties and additions to
tax) with respect to such AMEX Excess Issue over the proposed deficiency in the
RAR or IRS Agreement, as the case may be.
(d) In any case where judicial proceedings are instituted, AMEX
shall be entitled to select the forum for such judicial proceedings, unless
AMEX determines, in good faith, that such proceedings involve only LBH
Unsettled Issues. In such event, LBH shall be entitled to select the forum for
judicial proceedings. Each party shall bear the costs of litigation in respect
of its own
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<PAGE> 40
issues, provided, however, that LBH shall bear the costs of litigation in
respect of New AMEX Issues.
Section 14. Books and Records.
(a) Without limiting any of the provisions of this Agreement, each
of the parties agrees that it shall retain, until the expiration of the
appropriate statutes of limitations (including any extensions), copies of any
Tax Returns for any open periods during the Affiliation Years and for any
periods after such date which might be subject to adjustment under this
Agreement, supporting work schedules and other books, records or information
which may be relevant and that it will not destroy or otherwise dispose of such
records without first providing the other party with a reasonable opportunity
to review and copy the same. Without limiting the foregoing, LBH shall
cooperate with AMEX in identifying such books, records or information and so
retain or provide to AMEX such books, records or information as may be
specified by AMEX in writing within 180 days after the Closing Date. Any
information obtained pursuant to this Agreement, or any other information
obtained by AMEX or LBH relating to the tax position of either party shall be
kept confidential by the parties hereto, except if required by a taxing
authority.
(b) LBH shall maintain and provide to AMEX upon request information
which will enable AMEX to deter-
40
<PAGE> 41
mine, clarify or verify the adjusted book and tax bases of the LBH stock held
by AMEX, LBH's assets, both tangible and intangible, including the stock of all
directly and indirectly owned subsidiaries of LBH which were members of the LBH
Group at any time during the Affiliation Years, and the adjusted book and tax
bases of all assets, both tangible and intangible, of such subsidiaries. In
addition, LBH shall maintain and provide to AMEX upon request all relevant
information for the determination of earnings and profits of any members of the
LBH Group, in accordance with applicable provisions of the Code and regulations
thereunder.
(c) Without limiting the foregoing, each of the parties hereto
agrees that it shall retain copies of any books and records in its possession
as required by any record retention agreement in effect from time to time,
between AMEX and the IRS.
Section 15. Interest. If any payments hereunder are not made
when due, interest shall accrue on the unpaid amount at the underpayment rate
in effect under Section 6621 of the Code while such amount is outstanding.
Section 16. Notices. Any payment, notice or communication
required or permitted to be given under this Agreement by either party hereto
to the other party shall be delivered personally or mailed by registered or
41
<PAGE> 42
certified mail, first class postage prepaid and return receipt requested, at
their respective addresses as stated in this Agreement, to the attention of
their respective Tax Officers. Any payment, notice or other communication
given by personal delivery or mail shall be effective upon actual receipt.
Notice deposited in the mail in accordance with the terms hereof shall be
deemed to have been delivered on the third business day following such deposit.
Any party may change any address to which a payment, notice or other
communication is to be made or given to it by giving a notice of such change of
address as provided above.
Section 17. Transfer of Smith Barney Receivables.
In connection with the transfer by a member(s) of the LBH Group
to AMEX of certain participation rights due to such member(s) by Smith Barney,
Harris Upham & Co. Incorporated (now known as Smith Barney Shearson) ("Smith
Barney") pursuant to an Additional Purchase Price Based on Revenue Agreement
dated July 31, 1993 and an Additional Purchase Price-Based on Profit
Participation Agreement dated July 31, 1993 (the "Smith Barney Receivables"),
AMEX shall pay to LBH or credit against the 1994 Tax Liability (as defined in
Section 4(a)), an amount, determined, in good faith, by AMEX, equal to (i) the
excess of the sum of (A) the fair market value of 100% of the Smith Barney
42
<PAGE> 43
Receivables on the date of transfer, as determined by a valuation by James D.
Wolfensohn Incorporated and/or Lazard Freres & Co., not taking into account the
value of such receivables in respect of which $50,000,000 was received by AMEX
in February of 1994 and (B) $50,000,000, over the tax basis of such member(s)
in the Smith Barney Receivables (the "Smith Barney Gain"), multiplied by the
Highest Tax Rate, within five (5) business days after the Closing Date and (ii)
the actual state tax liability attributable to the Smith Barney Gain,
determined, in good faith, by AMEX after referring to the relevant state tax
returns of the LBH Group as filed, net of the Federal income tax benefit
therefor (assuming Federal income taxes payable at the Highest Tax Rate) within
twenty (20) business days of AMEX's receipt of copies of said returns;
provided, however, if the Smith Barney Gain is contested by a taxing authority,
the contest and settlement of the dispute shall be within the sole authority of
AMEX; and upon Final Settlement, a corresponding adjustment to the payment
hereunder (payable together with interest, if any) will be made. If the actual
state tax liability under (ii) consists, in whole or in part, of state minimum
tax, LBH shall pay to AMEX the amount of any minimum state tax credit(s) it
utilizes in subsequent years, up to the amount of such minimum tax liability,
determined in good faith by AMEX. LBH shall provide to AMEX copies of all
relevant state tax returns for years
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<PAGE> 44
subsequent to that provided pursuant to (ii) and any other information that
AMEX, in good faith, requests relating to such credit(s).
Section 18. LBH Payment for Stock Options and Restricted Stock
Benefits.
LBH shall pay to AMEX on or before the Closing Date, or AMEX may
credit against any tax payable account, all unpaid amounts due to AMEX in
respect of stock options and restricted stock under Section 11.06 of the
Intercompany Agreement dated as of May 1, 1987, by and between AMEX and LBH
(then known as Shearson Lehman Brothers Holdings Inc.).
Section 19. Dual Consolidated Losses.
(a) Notwithstanding any other provision of this Agreement or the
provisions of any closing agreement relating to Dual Consolidated Losses
(defined below) of any member of the LBH Group, including, without limitation,
the closing agreement between AMEX, LBH (then known as Shearson Lehman Hutton
Holdings Inc.) and the IRS, dated June 11, 1991 (the "Shearson Closing
Agreement"), the closing agreement to be entered into between AMEX, Mellon Bank
Corporation ("Mellon") and the IRS pursuant to a letter agreement, dated May
21, 1993, between Lehman Brothers Inc. (then known as Shearson Lehman Brothers,
Inc.) and Mellon, or any future closing agreement entered into by AMEX, LBH and
the IRS (collectively, the "Closing Agreements"), LBH shall be solely liable
for and indemni-
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<PAGE> 45
fy AMEX against (i) any tax liability together with interest, penalties and
additions to tax (including, without limitation, the interest charge described
in or that results from the application of Treas. Regs. Section 1.1503-2 or
Treas. Regs. Section 1.1503-2A, or interest determined under any of the
Closing Agreements, including Section 7 of the Shearson Closing Agreement) that
arises from any triggering event or recapture under such regulations or Closing
Agreements, applicable to an item of deduction or loss of any current or former
member of the LBH Group (a "Dual Consolidated Loss") or from the receipt of any
payment under this Section and (ii) any costs or expenses (including, without
limitation, attorneys' and accountants' fees) incurred by AMEX in connection
with determining, avoiding or contesting such Recapture Taxes or enforcing the
provisions of this Section. All indemnifiable amounts described in this
subsection (a) shall be collectively referred to as "Recapture Taxes".
(b) Recapture Taxes shall be determined by AMEX, based, in
relevant part, on the following assumptions: (i) the amount of gross income
realized from a triggering event or recapture of a Dual Consolidated Loss
cannot be offset by any losses, deductions or credits (other than those offsets
actually permitted under Treas. Regs. Section 1.1503-2(g)(vii)(B) or (C)(2),
provided
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<PAGE> 46
that such regulations are applicable and all applicable requirements of the
regulations are fully satisfied by LBH); (ii) the amount of gross income, if
any, realized upon the receipt any payment under this Section cannot be offset
by any losses, deductions or credits; and (iii) the amounts described in (i)
and (ii) are taxable at the Highest Tax Rate and applicable effective State and
local tax rates.
(c) At LBH's request, AMEX shall cooperate in good faith to
enter into a closing agreement with the IRS of the type described in Treas.
Regs. Section 1.1503-2(g)(2)(iv)(B)(2), substantially in the form of Exhibit B
(except as otherwise required by the IRS), to the effect that Dual Consolidated
Losses will not be recaptured as a result of the Spinoff. If such a closing
agreement is not entered into for any reason or LBH fails to realize the
benefit of any closing agreement entered into, AMEX shall have no liability to
LBH under this Agreement.
(d) The parties shall provide each other with prompt notice of
any proposed adjustment by any taxing authority relating to Recapture Taxes,
and shall keep each other informed of material developments relating to such
adjustment and shall jointly deal with the taxing authority and jointly make
any decisions with regard to the contest or settlement of such adjustment.
Upon request by AMEX, LBH shall obtain an evaluation from an
46
<PAGE> 47
attorney experienced in the field of international corporate taxation, who
shall be selected jointly by the parties, that conforms to the standard for an
evaluation set forth in Section 13(b). If such evaluation does not meet such
standard, LBH shall be obligated to settle such proposed adjustment(s) within a
reasonable period of time after the receipt of the evaluation.
Section 20. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of the
counterparts together shall constitute one and the same instrument.
Section 21. Headings. Headings of sections in this Agreement
are inserted for convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
Section 22. Entire Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties. This Agreement may not be
amended or supplemented except by an instrument in writing executed by both
parties.
Section 23. Waivers. The observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) by the party entitled to enforce such
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<PAGE> 48
term, but any such waiver shall be effective only if in a writing signed by the
party against which such waiver is to be asserted. No delay on the part of any
party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof of any other right, power or privilege hereunder.
Section 24. Severability. If any one or more of the provisions
of this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement.
Section 25. Binding Effect and Assignment; Right of Offset.
This Agreement shall be binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and assigns; provided, however,
that no party may, without the consent of the other, assign any of its rights,
benefits or obligations hereunder. Notwithstanding any other provision in this
Agreement, AMEX shall have the right to offset against amounts due from AMEX to
LBH under this Agreement any amounts due from LBH to AMEX under this Agreement.
LBH will likewise
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<PAGE> 49
have the right to offset against amounts due from LBH to AMEX under this
Agreement any amounts due from AMEX to LBH under this Agreement.
Section 26. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of New York (excluding
any conflicts-of-law rule or principle that might require the application of
the laws of another jurisdiction).
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first above written.
AMERICAN EXPRESS COMPANY
By:
---------------------------
Name:
Title:
LEHMAN BROTHERS HOLDINGS INC.
By:
---------------------------
Name:
Title:
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<PAGE> 50
SCHEDULE I
AGREEMENTS NOT SUPERSEDED BY THIS TAX ALLOCATION AGREEMENT
1. The Purchase Agreement dated June 30, 1993 by and among
AMEX, Shearson Lehman Brothers Holdings Inc. (now known as
LBH) and Shearson Lehman Brothers Inc. (now known as Lehman
Brothers Inc.) relating to the sale by Shearson Lehman
Brothers Inc. to AMEX of 2,500,000 shares of common stock of
Mellon Bank Corporation ("Mellon") and warrants to purchase
an additional 3,000,000 shares of common stock of Mellon.
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SCHEDULE II
SCHEDULE OF LBH GROUP NET OPERATING LOSSES
SUBSIDIARY/ REPORTED NOLs
ID. NO. AS OF MARCH 31, 1994 TAXABLE YEAR AROSE
----------- -------------------- ------------------
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<PAGE> 52
SCHEDULE II
SCHEDULE OF LBH GROUP NET OPERATING LOSSES
<TABLE>
<CAPTION>
YEARS IN WHICH LOSSES AROSE
---------------------------------
Federal
SUBSIDIARY NAME Tax I.D.# 12/31/86 12/31/87 12/31/88
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 COMMERCE CREDIT CORP . . . . . . . . . . . . . . . . . . . . . 22-2572048
2 CANOPE CREDIT CORP . . . . . . . . . . . . . . . . . . . . . . 13-3189141 2,234,418
3 SPEAR TOWER INC(FKA EFH SPEAR TOWER) . . . . . . . . . . . . . 11-2695805 331,499 1,337,898
4 REAL ESTATE SERVICES I INC (FKA HUTTON RE SVCS I) . . . . . . . 04-2700809 1,274,615
5 LM KANSAS PARTNERS INC. (FKA EFH KANSAS PARTNERS) . . . . . . . 93-0950620 213,402 802,010
6 EF HUTTON PROPERTIES I INC . . . . . . . . . . . . . . . . . . 93-0913362 291,964 479,837
7 EFH CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . 13-2963094 452,871
8 EF HUTTON LEASING CORPORATION (FKA EF HUTTON LBO INC) . . . . . 13-3217916 414,676
9 LEHMAN REALTY CO . . . . . . . . . . . . . . . . . . . . . . . 13-2765055 372,024
10 LB DEVELOPMENT CORP . . . . . . . . . . . . . . . . . . . . . . 13-3300644 346,441
11 ULT DEVELOPMENT INC. (FKA EFH DEVELOPMENT INC) . . . . . . . . 13-3148093 275,031 37 222
12 ADVANTAGED HOUSING ASSOC INC. (FKA HUTTON ADV HOUS ASSOC . . . 11-2746757 189,499 12,662 8,311
13 BC FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 13-3510229
14 CA PACIFIC INC. (FKA EFH PACIFIC INC) . . . . . . . . . . . . . 13-3144933 32,154 36,615 71,058
15 CA WESTLAKE INC. (FKA EFH WESTLAKE) . . . . . . . . . . . . . . 95-6742169 68,828 69,226
16 ENERGY SERVICE I INC. (FKA HUTTON ENERGY SERVICES II) . . . . . 13-3153454 17,244 63,751 40,666
17 MOUNTAINVIEW HOTELS I INC. (FKA HUTTON HOTELS I INC) . . . . . 11-2772648 40,199 23,053 24,616
18 EQUIPMENT MANAGEMENT INC. (FKA HUTTON EQUIPMENT MGMT) . . . . . 13-3122097 105,750
19 ASSISTED HOUSING ASSOC INC. (FKA HUTTON ASSIST HOUSING) . . . . 11-2693080 68,048 17,937 13,637
20 LEHMAN BROTHERS HOLDINGS INC. (FKA SLH HOLDINGS) . . . . . . . 13-3216325
21 WFC CONSTRUCTION COMPANY INC . . . . . . . . . . . . . . . . . 13-3135116
22 ROBINSON HUMPHREY PROP . . . . . . . . . . . . . . . . . . . . 58-1257154 548,499
23 INTERSTATE ORLANDO INC. (FKA RH ORLANDO) . . . . . . . . . . . . 58-1518523
24 SOUTH COBB LAND INC. (FKA RH LAND) . . . . . . . . . . . . . . 58-1154765
25 INTERMODAL EQUIPMENT LEASING CORP (FKA SHEARSON LEASING CORP). . 13-2867521 98,211
26 ONE COMMERCE INC (FKA EFH COMMERCE INC) . . . . . . . . . . . . 13-3249989 97,690
27 NY REAL ESTATE SERVICES II, INC (FKA HUTTON RE SERVICES XVI) . . 11-2839017 75,369 15,660
28 SUBSIDIZED HOUSING SERVICE II INC
(FKA HUTTON SUBSID HOUS SVCS II) . . . . . . . . . . . . . . 13-3172815 35,618 20,162 25,757
29 AFC I BUILDING CORP (FKA R-H ASSOC BUILDING) . . . . . . . . . 58-1431946 53,503
30 NY REAL ESTATE SERVICES I INC. (FKA HUTTON RE SVCS XV) . . . . 11-2757441 573 6,580 48,763
31 VIEWMOUNT INC . . . . . . . . . . . . . . . . . . . . . . . . . 11-2829343 8,056 23,174 26,175
32 R-H BUILDING PARTNERS . . . . . . . . . . . . . . . . . . . . . 58-1436602 53,503
33 O.S. INTERNATIONAL . . . . . . . . . . . . . . . . . . . . . . 13-3200323 49,338
34 CA ROSEMEAD INC (FKA EFH ROSEMEAD) . . . . . . . . . . . . . . 13-3236691 49,683
35 PARTICIPATING PROPERTIES INC. (FKA HUTTON PARTICIPATING PROP). . 11-2833482 41,907
36 RJS LEASING INC (FKA HUTTON LEASING INC) . . . . . . . . . . . 22-2777307 15,775 18,895
37 EFH KC CORP . . . . . . . . . . . . . . . . . . . . . . . . . . 95-3684905 25,113 13,777
38 TE ENTERPRISES INC. (FKA HUTTON MBS ENTERPRISE INC) . . . . . . 11-2828274 5,639 29,959
39 REAL ESTATE SERVICES XIII INC. (FKA HUTTON RE SERVICES XIII) . . 11-2732999 13,225 10,796 10,515
40 BATTERY PARK CREDIT CORP . . . . . . . . . . . . . . . . . . . 13-3155271 11,362 20,884
41 CP4 REAL ESTATE SERVICES INC. (FKA HUTTON RE SERVICES XI) . . . 11-2718295 14,179 6,925
42 INVESTMENT PROPERTIES II (FKA EFH INVESTMENT PROP) . . . . . . 94-2968596 26 4,856 13,245
43 FORT BEND INC. (FKA EFH FORT BEND INC) . . . . . . . . . . . . 13-3128158 14,311 1,949
44 VENTURE INVESTMENT PRTNRS INC. (FKA HUTTON VENTURE INV PART) . . 13-3075932 4,306 3,362 5,060
45 WILDWOOD I INC. (FKA R-H WILDWOOD) .. . . . . . . . . . . . . . 58-1609956 18,930
46 VT INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95-3861337 15,159
47 NU ATLANTIC INC. (FKA EFH ATLANTIC INC) . . . . . . . . . . . . 11-2690830 4,166 8,295
48 B H VENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3440173
49 EXPLORATION SERVICES INC. (FKA HUTTON EXPLORATION SVCS) . . . . 93-0819069 5,609 1,479 3,596
50 INSURED MORTGAGE EQUITIES INC.
(FKA HUTTON INS MORT EQUITIES) . . . . . . . . . . . . . . . 11-2753383 9,520
51 SUBSIDIZED HOUSING SERVICES (FKA HUTTON SUBSID HOUS SRVCS) . . 13-3143468 2,805
52 CENTRAL FUNDING CORP . . . . . . . . . . . . . . . . . . . . . 13-3236708 9,694
53 HUTTON COMPLETION SVCS . . . . . . . . . . . . . . . . . . . . 13-3133733 7,444
54 JACKSON CAPITOL INC (FKA EFH JACKSON) . . . . . . . . . . . . . 06-1025472 4,746 4,247
55 STORAGE INC. (FKA SL STORAGE) . . . . . . . . . . . . . . . . . 13-3371553 7,963
56 SL PENINSULAR HOUSE INC . . . . . . . . . . . . . . . . . . . . 13-3266545 8,522
57 CASITAS ASSOCIATES . . . . . . . . . . . . . . . . . . . . . . 95-3842382 8,426
58 SHEARSON LEHMAN LTD INC . . . . . . . . . . . . . . . . . . . . 13-3344658
59 BROOKSON CORP . . . . . . . . . . . . . . . . . . . . . . . . . 13-2766708 7,859
60 PHOENIX LEASE PROPERTIES INC (FKA HUTTON LEASE PROP) . . . . . 11-2823188 4,610
61 OPHTHALMIC RESEARCH SERVICES I INC.
(FKA HUTTON OPTH RES SVCS I) . . . . . . . . . . . . . . . . 11-2848630 3,638
62 CAPITAL PARK REAL ESTATE SERVICES INC.
(FKA HUTTON RE SERVICES XII) . . . . . . . . . . . . . . . . 11-2718301 18 118 210
63 ROBINSON HUMPHREY ASSOC . . . . . . . . . . . . . . . . . . . . 58-1048108 6,771
64 HUTTON TECH SERVICE I . . . . . . . . . . . . . . . . . . . . . 13-3167205 584 465 542
65 XEBEC TECHNOLOGY INC. (FKA EFH TECHNOLOGY INC) . . . . . . . . 11-2782830 73 1,542
66 MORTGAGE CAPITAL INC . . . . . . . . . . . . . . . . . . . . . 74-2448058 2,387 3,535
67 INTERSTATE ORLANDO INC. (FKA R-H ORLANDO) . . . . . . . . . . . 58-1518523 4,343
68 HRH 1 INC . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-2831999 484 1,240
69 HUTTON GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . 4,458
70 HUTTON ASSET MANAGEMENT . . . . . . . . . . . . . . . . . . . . 13-3170674
71 R-H EMERSON . . . . . . . . . . . . . . . . . . . . . . . . . . 58-1688558 2,980
72 OPHTHALMIC RESEARCH SERVICES II INC.
(FKA HUTTON OPTH RES SVCS II) . . . . . . . . . . . . . . . . 11-2885559
73 HEI CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . 16-1168136 149
74 SPECIAL MEDIA INC. (FKA HUTTON MEDIA INC) . . . . . . . . . . . 11-2838544 928 2
75 HUTTON HISTORIC PROP . . . . . . . . . . . . . . . . . . . . . 11-2833896 442
76 LAUREL CENTRE INC. (FKA SHEARSON LAUREL INC) . . . . . . . . . 13-3386617
77 REAL ESTATE EQUITY PARTNERS INC
(FKA HUTTON RE EQUITY PARTNERS) . . . . . . . . . . . . . . . 11-2822870 240
78 CHP REAL ESTATE SERVICES INC. (FKA HUTTON RE SERVICES X) . . . 11-2718305 135 204 254
79 SHEARSON TEXAS INV CORP VI . . . . . . . . . . . . . . . . . . 13-2987793
80 EXPLORATION SERVICES INC. (FKA HUTTON (W.V.) EXPL SVCS) . . . . 13-3148092 206 118 197
81 MANUFACTURING HOUSING COMM I INC.
(FKA HUTTON MANUF HOUS COMM I) . . . . . . . . . . . . . . . 11-2774285 531
82 MANUFACTURING HOUSING SERVICES INC.
(FKA HUTTON MANUF HOUS SVCS) . . . . . . . . . . . . . . . . 11-2774288 164 127 213
YEARS IN WHICH LOSSES AROSE
---------------------------------
TOTAL
REPORTED
NOLs
AS OF
SUBSIDIARY NAME 8/9/90 12/31/90 12/31/92 12/31/93
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 COMMERCE CREDIT CORP . . . . . . . . . . . . . . . . . . . 2,276,819 2,276,819
2 CANOPE CREDIT CORP . . . . . . . . . . . . . . . . . . . . 2,234,418
3 SPEAR TOWER INC(FKA EFH SPEAR TOWER) . . . . . . . . . . . 1,669,396
4 REAL ESTATE SERVICES I INC (FKA HUTTON RE SVCS I) . . . . . 29,333 1,303,948
5 LM KANSAS PARTNERS INC. (FKA EFH KANSAS PARTNERS) . . . . . 1,015,412
6 EF HUTTON PROPERTIES I INC . . . . . . . . . . . . . . . . 16,061 787,862
7 EFH CORPORATION . . . . . . . . . . . . . . . . . . . . . . 628 453,499
8 EF HUTTON LEASING CORPORATION (FKA EF HUTTON LBO INC) . . . 414,676
9 LEHMAN REALTY CO . . . . . . . . . . . . . . . . . . . . . 524 372,548
10 LB DEVELOPMENT CORP . . . . . . . . . . . . . . . . . . . . 1,936 348,377
11 ULT DEVELOPMENT INC. (FKA EFH DEVELOPMENT INC) . . . . . . 2,060 277,350
12 ADVANTAGED HOUSING ASSOC INC. (FKA HUTTON ADV HOUS ASSOC . 2,662 213,134
13 BC FACILITIES . . . . . . . . . . . . . . . . . . . . . . . 166,826 166,826
14 CA PACIFIC INC. (FKA EFH PACIFIC INC) . . . . . . . . . . . 2,833 142,660
15 CA WESTLAKE INC. (FKA EFH WESTLAKE) . . . . . . . . . . . . 138,054
16 ENERGY SERVICE I INC. (FKA HUTTON ENERGY SERVICE II) . . . 6,780 128,441
17 MOUNTAINVIEW HOTELS I INC. (FKA HUTTON HOTELS I INC) . . . 21,562 109,430
18 EQUIPMENT MANAGEMENT INC. (FKA HUTTON EQUIPMENT MGMT) . . . 1,015 106,765
19 ASSISTED HOUSING ASSOC INC. (FKA HUTTON ASSIST HOUSING) . . 3,123 102,746
20 LEHMAN BROTHERS HOLDINGS INC. (FKA SLH HOLDINGS) . . . . . 11,910,845 11,910,845
21 WFC CONSTRUCTION COMPANY INC . . . . . . . . . . . . . . . 4,390,824 4,390,824
22 ROBINSON HUMPHREY PROP . . . . . . . . . . . . . . . . . . 2,297,194 2,845,694
23 INTERSTATE ORLANDO INC. (FKA RH ORLANDO) . . . . . . . . . . 7,774 1,389,476 1,397,250
24 SOUTH COBB LAND INC. (FKA RH LAND) . . . . . . . . . . . . 263,835 263,835
25 INTERMODAL EQUIPMENT LEASING CORP (FKA SHEARSON LEASING CORP) 1,009 99,220
26 ONE COMMERCE INC (FKA EFH COMMERCE INC) . . . . . . . . . . 4 97,695
27 NY REAL ESTATE SERVICES II, INC (FKA HUTTON RE SERVICES XVI) 2,065 93,093
28 SUBSIDIZED HOUSING SERVICE II INC
(FKA HUTTON SUBSID HOUS SVCS II) . . . . . . . . . . . . 5,625 87,162
29 AFC I BUILDING CORP (FKA R-H ASSOC BUILDING) . . . . . . . 9,582 63,086
30 NY REAL ESTATE SERVICES I INC. (FKA HUTTON RE SVCS XV) . . 4,230 60,147
31 VIEWMOUNT INC . . . . . . . . . . . . . . . . . . . . . . . 57,405
32 R-H BUILDING PARTNERS . . . . . . . . . . . . . . . . . . . 53,503
33 O.S. INTERNATIONAL . . . . . . . . . . . . . . . . . . . . 2,039 51,377
34 CA ROSEMEAD INC (FKA EFH ROSEMEAD) . . . . . . . . . . . . 49,683
35 PARTICIPATING PROPERTIES INC. (FKA HUTTON PARTICIPATING PROP) 2,065 43,971
36 RJS LEASING INC (FKA HUTTON LEASING INC) . . . . . . . . . 4,707 39,377
37 EFH KC CORP . . . . . . . . . . . . . . . . . . . . . . . . 38,890
38 TE ENTERPRISES INC. (FKA HUTTON MBS ENTERPRISE INC) . . . . 2,452 38,050
39 REAL ESTATE SERVICES XIII INC. (FKA HUTTON RE SERVICES XIII) 1,668 36,204
40 BATTERY PARK CREDIT CORP . . . . . . . . . . . . . . . . . 11 32,257
41 CP4 REAL ESTATE SERVICES INC. (FKA HUTTON RE SERVICES XI) . 4,939 26,043
42 INVESTMENT PROPERTIES II (FKA EFH INVESTMENT PROP) . . . . 3,344 21,471
43 FORT BEND INC. (FKA EFH FORT BEND INC) . . . . . . . . . . 3,535 19,795
44 VENTURE INVESTMENT PRTNRS INC. (FKA HUTTON VENTURE INV PART) 6,552 19,280
45 WILDWOOD I INC. (FKA R-H WILDWOOD) . . . . . . . . . . . . . 18,930
46 VT INC . . . . . . . . . . . . . . . . . . . . . . . . . . 15,159
47 NU ATLANTIC INC. (FKA EFH ATLANTIC INC) . . . . . . . . . 1,242 13,703
48 B H VENTURE . . . . . . . . . . . . . . . . . . . . . . . . 13,504 13,504
49 EXPLORATION SERVICES INC. (FKA HUTTON EXPLORATION SVCS) . . 2,073 12,757
50 INSURED MORTGAGE EQUITIES INC.
(FKA HUTTON INS MORT EQUITIES) . . . . . . . . . . . . . 2,715 12,236
51 SUBSIDIZED HOUSING SERVICES (FKA HUTTON SUBSID HOUS SRVCS) 6,931 9,736
52 CENTRAL FUNDING CORP . . . . . . . . . . . . . . . . . . . 9,694
53 HUTTON COMPLETION SVCS . . . . . . . . . . . . . . . . . . 1,576 9,020
54 JACKSON CAPITOL INC (FKA EFH JACKSON) . . . . . . . . . . . 8,992
55 STORAGE INC. (FKA SL STORAGE) . . . . . . . . . . . . . . . 564 8,526
56 SL PENINSULAR HOUSE INC . . . . . . . . . . . . . . . . . . 8,522
57 CASITAS ASSOCIATES . . . . . . . . . . . . . . . . . . . . 8,426
58 SHEARSON LEHMAN LTD INC . . . . . . . . . . . . . . . . . . 8,218 8,218
59 BROOKSON CORP . . . . . . . . . . . . . . . . . . . . . . . 7,859
60 PHOENIX LEASE PROPERTIES INC (FKA HUTTON LEASE PROP) . . . 2,803 7,413
61 OPHTHALMIC RESEARCH SERVICES I INC.
(FKA HUTTON OPTH RES SVCS I) . . . . . . . . . . . . . . 3,305 6,943
62 CAPITAL PARK REAL ESTATE SERVICES INC.
(FKA HUTTON RE SERVICES XII) . . . . . . . . . . . . . . 6,443 6,789
63 ROBINSON HUMPHREY ASSOC . . . . . . . . . . . . . . . . . . 6,771
64 HUTTON TECH SERVICE I . . . . . . . . . . . . . . . . . . . 4,770 6,360
65 XEBEC TECHNOLOGY INC. (FKA EFH TECHNOLOGY INC) . . . . . . 4,707 6,322
66 MORTGAGE CAPITAL INC . . . . . . . . . . . . . . . . . . . 5,922
67 INTERSTATE ORLANDO INC. (FKA R-H ORLANDO) . . . . . . . . . 336 4,680
68 HRH 1 INC . . . . . . . . . . . . . . . . . . . . . . . . . 2,904 4,627
69 HUTTON GUARANTY . . . . . . . . . . . . . . . . . . . . . . 4,458
70 HUTTON ASSET MANAGEMENT . . . . . . . . . . . . . . . . . . 4,269 4,269
71 R-H EMERSON . . . . . . . . . . . . . . . . . . . . . . . . 586 3,566
72 OPHTHALMIC RESEARCH SERVICES II INC.
(FKA HUTTON OPTH RES SVCS II) . . . . . . . . . . . . . . 3,296 3,296
73 HEI CORPORATION . . . . . . . . . . . . . . . . . . . . . . 2,473 2,622
74 SPECIAL MEDIA INC. (FKA HUTTON MEDIA INC) . . . . . . . . . 1,663 2,594
75 HUTTON HISTORIC PROP . . . . . . . . . . . . . . . . . . . 2,064 2,506
76 LAUREL CENTRE INC. (FKA SHEARSON LAUREL INC) . . . . . . . 2,061 2,061
77 REAL ESTATE EQUITY PARTNERS INC
(FKA HUTTON RE EQUITY PARTNERS) . . . . . . . . . . . . . 1,655 1,896
78 CHP REAL ESTATE SERVICES INC. (FKA HUTTON RE SERVICES X) . 1,258 1,851
79 SHEARSON TEXAS INV CORP VI . . . . . . . . . . . . . . . . 1,849 1,849
80 EXPLORATION SERVICES INC. (FKA HUTTON (W.V.) EXPL SVCS) . . 1,238 1,760
81 MANUFACTURING HOUSING COMM I INC.
(FKA HUTTON MANUF HOUS COMM I) . . . . . . . . . . . . . 1,227 1,759
82 MANUFACTURING HOUSING SERVICES INC.
(FKA HUTTON MANUF HOUS SVCS) . . . . . . . . . . . . . . 1,250 1,753
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
YEARS IN WHICH LOSSES AROSE
------------------------------------
Federal
SUBSIDIARY NAME Tax I.D.# 12/31/86 12/31/87 12/31/88
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
83 AIRCRAFT DEPOSITARY INC.(FKA HUTTON AIRCRAFT DEPOSITARY INC) . . . . . . . . 84-1055926 86 84
84 LEHMAN CMO INC (FKA SHEARSON LEHMAN CMO) . . . . . . . . . . . . . . . . . . 77-2022794
85 SHEARSON SOUTH OLIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3497750
86 COMMERCE SQUARE CORP (FKA SHEARSON MONROE STREET) . . . . . . . . . . . . . . 15-3500399
87 SHEARSON SUNBELT PROP XI . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3055640
88 SM6 LONESTAR PROPERTIES INC. (FKA SHEARSON LONESTAR PROP XII) . . . . . . . . 13-3113165
89 SM7 APARTMENT INVESTORS INC. (FKA SHEARSON APARTMENT INV XIV) . . . . . . . . 13-3157245
90 AREA ASSIGNOR CORP (FKA HUTTON/AREA ASSIGNOR) . . . . . . . . . . . . . . . . 11-2772115 229 381
91 AREA DEPOSITARY CORP (FKA HUTTON/AREA DEPOS) . . . . . . . . . . . . . . . . 11-2772114 207 381
92 EIP HOLDINGS INC (FKA HUTTON EIP HOLDINGS, INC.) . . . . . . . . . . . . . . 11-2875995 46
93 DRA MANAGEMENT INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-1131994 174
94 ETHANOL SERVICES INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3148091 69 18 21
95 POLARIS INDUSTRIES HOLD . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-2880725 55
96 CA VICTORY INC. (FKA SHEARSON/VICTORY INC) . . . . . . . . . . . . . . . . . 13-3460807
97 HUTTON CREDIT PROP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-2868796 22
98 BURLINGTON INVESTORS INC . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3320851
99 ROCKHILL INVESTORS INC . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3347432
100 STAMFORD REAL ESTATE CORP . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3237146
101 HRH DEPOSITARY INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-2832000 30 241
102 LIBERTY GP II INC. (FKA SHEARSON LIBERTY II INC) . . . . . . . . . . . . . . 13-3457047
103 SM4 REAL ESTATE INVESTORS INC. (FKA SHEARSON RE INVESTORS X) . . . . . . . . 13-3046179
104 REAL ESTATE INVESTORS INC. (FKA HUTTON REAL ESTATE INV) . . . . . . . . . . . 11-2859752
105 LIBERTY GP INC. (FKA SHEARSON LIBERTY/GP) . . . . . . . . . . . . . . . . . . 13-3544543
106 STAMFORD TOWERS INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3351803
107 NOVACORP/GP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3312326
108 FREEDOM GP INC (FKA SHEARSON FREEDOM INC) . . . . . . . . . . . . . . . . . . 13-3544607
109 UNION SQUARE GP/CORP (FKA SHEARSON UNION SQ/GP) . . . . . . . . . . . . . . . 13-3355700
110 REGIONAL MALLS INC. (FKA SHEARSON REG MALLS DEPOS) . . . . . . . . . . . . . 13-3452131
111 CA VICTORY INC (FKA SHEARSON/VICTORY ASSIGNOR) . . . . . . . . . . . . . . . 13-3460805
112 SENIOR INCOME DEPOSITARY INC. (FKA SL SENIOR DEPOSITARY CORP) . . . . . . . . 13-3377755
113 MANHATTAN BEACH COMM'L PROP III DEPOS. INC. (FKA SL COMM PROP DEPOS III) . . 13-3422993
114 SL CABLE SERVICES II INC . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3462862
115 CG ZERO COUPON DEPOSITARY CORP (FKA SHEARSON ZERO COUP DEPOS) . . . . . . . . 13-3372169
116 UNION SQUARE DEPOSITARY CORP (FKA SHEARSON UNION SQ DEPOS) . . . . . . . . . 13-3429423
117 PRIN GROWTH MORT INV DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . 13-3484490
118 STAMFORD TOWERS DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3370390
119 MALIBU CANYON INC. (FKA SHEARSON/MALIBU CANYON INC) . . . . . . . . . . . . . 13-3312317
120 EHP DEPOSITARY CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3429405
121 WARREN ATLANTIC INC (FKA SLH ATLANTIC) . . . . . . . . . . . . . . . . . . . 13-3510236
122 MIDWEST CENTERS DEPOSITARY INC. (FKA SHEARSON ESC CORP) . . . . . . . . . . . 13-3377756
123 HERITAGE PARK INC. (FKA SHEARSON HERITAGE PARK II) . . . . . . . . . . . . . 13-3386611
124 CA CLAREMONT INC. (FKA SLH CLAREMONT INC) .. . . . . . . . . . . . . . . . . 13-3499597
125 SHEARSON CAPITAL PRESERV. & RESTRUCT. (FKA SHEARSON GROWTH PART II) . . . . . 13-3544545
126 LAUREL CENTRE DEPOSITARY . . . . . . . . . . . . . . . . . . . . . . . . . . PENDING
127 SHEARSON PARTIC PART . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3555155
128 PRINCIPAL GROWTH DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . . . PENDING
129 AMERICAN ENTERTAINMENT DEPOSITARY CORP (FKA SHEARSON ENTER DEPOS) . . . . . . 13-3341422
130 PDF 86 DEPOSITARY CORP (FKA SLB DEPOSITARY INC) . . . . . . . . . . . . . . . 13-3364047
131 AMERICAN ENTERTAINMENT DEPOS CORP II (FKA SL ENTER DEPOS CORP II) . . . . . . 13-3429426
132 MEDICAL OFFICE PROPERTIES DEPOSITARY INC. (FKA SL COMMERCIAL PROP DEPOS) . . 95-4201219
133 WARNER CENTER INC. (FKA SHEARSON WARNER CENTER INC) . . . . . . . . . . . . . 13-3318686
134 NJ SOMERSET INC (FKA SLH SOMERSET INC) ... . . . . . . . . . . . . . . . . . 13-3499606
135 LAJOLLA GP INC. (FKA SHEARSON LAJOLLA) . . . . . . . . . . . . . . . . . . . 13-3377757
136 TEXAS SELF STORAGE INC. (FKA SHEARSON SELF STORAGE INC.) . . . . . . . . . . 13-3046543
137 PACIFIC VILLAGE INC. (FKA SHEARSON PACIFIC VILLAGE) . . . . . . . . . . . . . 13-3347393
138 PROMETHEUS II INC. (FKA SL PROMETHEUS II) . . . . . . . . . . . . . . . . . . 13-3312320
139 PLAYA BLANCA INC. (FKA SHEARSON PLAYA BLANCA INC) .. . . . . . . . . . . . . 13-3429119
140 CREEKSIDE INC (FKA SHEARSON CREEKSIDE) . . . . . . . . . . . . . . . . . . . 13-3334623
141 HERITAGE PARK INC. (FKA SHEARSON HERITAGE PARK INC) . . . . . . . . . . . . . 13-3300619
142 PROMETHEUS GP INC. (FKA SL PROMETHEUS I) . . . . . . . . . . . . . . . . . . 13-3288629
143 INDIAN OAKS INC. (FKA SHEARSON INDIAN OAKS) . . . . . . . . . . . . . . . . . 13-3300611
144 SL/AE REALTY INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-2690773
145 CAMDEN MANAGEMENT CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-1058737
146 KM-1 REAL ESTATE COMPANY VII (FKA SHEARSON RE COMPANY VII) . . . . . . . . . 13-3039688
147 LEHMAN ABS CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3447441
148 BEVERLY HILLS PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3593558
149 FOSTER & MARSHALL LEASING . . . . . . . . . . . . . . . . . . . . . . . . . . 91-1137125
150 SL MONUMENT CIRCLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-3297843
151 SHEARSON CELLULAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " "
152 SLM SERIES TWO DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . " "
153 SHEARSON RESIDUALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " "
154 SL TLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " " 241,503
----------------------------------
1,652,520 1,355,769 8,658,210
==================================
</TABLE>
<TABLE>
<CAPTION>
YEARS IN WHICH LOSSES AROSE
-------------------------------
TOTAL
REPORTED NOLS
SUBSIDIARY NAME 8/9/90 12/31/90 12/31/92 AS OF 12/31/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
83 AIRCRAFT DEPOSITARY INC.(FKA HUTTON AIRCRAFT DEPOSITARY INC) . . . . . . . . 1,567 1,736
84 LEHMAN CMO INC (FKA SHEARSON LEHMAN CMO) . . . . . . . . . . . . . . . . . . 1,729 1,729
85 SHEARSON SOUTH OLIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,729 1,729
86 COMMERCE SQUARE CORP (FKA SHEARSON MONROE STREET) . . . . . . . . . . . . . . 1,703 1,703
87 SHEARSON SUNBELT PROP XI . . . . . . . . . . . . . . . . . . . . . . . . . . 1,673 1,673
88 SM6 LONESTAR PROPERTIES INC. (FKA SHEARSON LONESTAR PROP XII) . . . . . . . . 1,673 1,673
89 SM7 APARTMENT INVESTORS INC. (FKA SHEARSON APARTMENT INV XIV) . . . . . . . . 1,673 1,673
90 AREA ASSIGNOR CORP (FKA HUTTON/AREA ASSIGNOR) . . . . . . . . . . . . . . . . 1,048 1,658
91 AREA DEPOSITARY CORP (FKA HUTTON/AREA DEPOS) . . . . . . . . . . . . . . . . 1,044 1,632
92 EIP HOLDINGS INC (FKA HUTTON EIP HOLDINGS, INC.) . . . . . . . . . . . . . . 1,433 1,479
93 DRA MANAGEMENT INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 1,415
94 ETHANOL SERVICES INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,234 1,342
95 POLARIS INDUSTRIES HOLD . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,234 1,289
96 CA VICTORY INC. (FKA SHEARSON/VICTORY INC) . . . . . . . . . . . . . . . . . 1,260 1,260
97 HUTTON CREDIT PROP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,234 1,256
98 BURLINGTON INVESTORS INC . . . . . . . . . . . . . . . . . . . . . . . . . . 1,233 1,233
99 ROCKHILL INVESTORS INC . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,233 1,233
100 STAMFORD REAL ESTATE CORP . . . . . . . . . . . . . . . . . . . . . . . . . . 1,233 1,233
101 HRH DEPOSITARY INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 827 1,098
102 LIBERTY GP II INC. (FKA SHEARSON LIBERTY II INC) . . . . . . . . . . . . . . 1,085 1,085
103 SM4 REAL ESTATE INVESTORS INC. (FKA SHEARSON RE INVESTORS X) . . . . . . . . 874 874
104 REAL ESTATE INVESTORS INC. (FKA HUTTON REAL ESTATE INV) . . . . . . . . . . . 810 810
105 LIBERTY GP INC. (FKA SHEARSON LIBERTY/GP) . . . . . . . . . . . . . . . . . . 727 727
106 STAMFORD TOWERS INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659 659
107 NOVACORP/GP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652 652
108 FREEDOM GP INC (FKA SHEARSON FREEDOM INC) . . . . . . . . . . . . . . . . . . 538 538
109 UNION SQUARE GP/CORP (FKA SHEARSON UNION SQ/GP) . . . . . . . . . . . . . . . 383 383
110 REGIONAL MALLS INC. (FKA SHEARSON REG MALLS DEPOS) . . . . . . . . . . . . . 377 377
111 CA VICTORY INC (FKA SHEARSON/VICTORY ASSIGNOR) . . . . . . . . . . . . . . . 377 377
112 SENIOR INCOME DEPOSITARY INC. (FKA SL SENIOR DEPOSITARY CORP) . . . . . . . . 377 377
113 MANHATTAN BEACH COMM'L PROP III DEPOS. INC. (FKA SL COMM PROP DEPOS III) . . 377 377
114 SL CABLE SERVICES II INC . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
115 CG ZERO COUPON DEPOSITARY CORP (FKA SHEARSON ZERO COUP DEPOS) . . . . . . . . 377 377
116 UNION SQUARE DEPOSITARY CORP (FKA SHEARSON UNION SQ DEPOS) . . . . . . . . . 377 377
117 PRIN GROWTH MORT INV DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
118 STAMFORD TOWERS DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
119 MALIBU CANYON INC. (FKA SHEARSON/MALIBU CANYON INC) . . . . . . . . . . . . . 377 377
120 EHP DEPOSITARY CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
121 WARREN ATLANTIC INC (FKA SLH ATLANTIC) . . . . . . . . . . . . . . . . . . . 377 377
122 MIDWEST CENTERS DEPOSITARY INC. (FKA SHEARSON ESC CORP) . . . . . . . . . . . 377 377
123 HERITAGE PARK INC. (FKA SHEARSON HERITAGE PARK II) . . . . . . . . . . . . . 377 377
124 CA CLAREMONT INC. (FKA SLH CLAREMONT INC) . . . . . . . . . . . . . . . . . 377 377
125 SHEARSON CAPITAL PRESERV. & RESTRUCT. (FKA SHEARSON GROWTH PART II) . . . . . 377 377
126 LAUREL CENTRE DEPOSITARY . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
127 SHEARSON PARTIC PART . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
128 PRINCIPAL GROWTH DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
129 AMERICAN ENTERTAINMENT DEPOSITARY CORP (FKA SHEARSON ENTER DEPOS) . . . . . . 377 377
130 PDF 86 DEPOSITARY CORP (FKA SLB DEPOSITARY INC) . . . . . . . . . . . . . . . 377 377
131 AMERICAN ENTERTAINMENT DEPOS CORP II (FKA SL ENTER DEPOS CORP II) . . . . . . 377 377
132 MEDICAL OFFICE PROPERTIES DEPOSITARY INC. (FKA SL COMMERCIAL PROP DEPOS) . . 377 377
133 WARNER CENTER INC. (FKA SHEARSON WARNER CENTER INC) . . . . . . . . . . . . . 377 377
134 NJ SOMERSET INC (FKA SLH SOMERSET INC) . . . . . . . . . . . . . . . . . . . 377 377
135 LAJOLLA GP INC. (FKA SHEARSON LAJOLLA) . . . . . . . . . . . . . . . . . . . 352 352
136 TEXAS SELF STORAGE INC. (FKA SHEARSON SELF STORAGE INC.) . . . . . . . . . . 352 352
137 PACIFIC VILLAGE INC. (FKA SHEARSON PACIFIC VILLAGE) . . . . . . . . . . . . . 352 352
138 PROMETHEUS II INC. (FKA SL PROMETHEUS II) . . . . . . . . . . . . . . . . . . 352 352
139 PLAYA BLANCA INC. (FKA SHEARSON PLAYA BLANCA INC) . . . . . . . . . . . . . . 352 352
140 CREEKSIDE INC (FKA SHEARSON CREEKSIDE) . . . . . . . . . . . . . . . . . . . 352 352
141 HERITAGE PARK INC. (FKA SHEARSON HERITAGE PARK INC) . . . . . . . . . . . . . 352 352
142 PROMETHEUS GP INC. (FKA SL PROMETHEUS I) . . . . . . . . . . . . . . . . . . 352 352
143 INDIAN OAKS INC. (FKA SHEARSON INDIAN OAKS) . . . . . . . . . . . . . . . . . 352 352
144 SL/AE REALTY INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 352
145 CAMDEN MANAGEMENT CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 292
146 KM-1 REAL ESTATE COMPANY VII (FKA SHEARSON RE COMPANY VII) . . . . . . . . . 248 248
147 LEHMAN ABS CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 194
148 BEVERLY HILLS PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 80 80
149 FOSTER & MARSHALL LEASING . . . . . . . . . . . . . . . . . . . . . . . . . . 72 72
150 SL MONUMENT CIRCLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,955 3,955
151 SHEARSON CELLULAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
152 SLM SERIES TWO DEPOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 377
153 SHEARSON RESIDUALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 705
154 SL TLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,503
------------------------------------------------
14,655,161 4,662,433 3,666,295 34,650,388
================================================
</TABLE>
<PAGE> 54
[LOGO]
Exhibit A
TAX INSTRUCTION
<TABLE>
<S> <C> <C> <C> <C> <C>
Subject: Issue Date: Number:
State Income Tax Allocation 1-1-84 400
Issued by: Effective Date: Page:
Corporate Tax Department 1-1-84 1 Of 3
</TABLE>
Introduction
American Express Company (Parent) and certain of its subsidiaries,
U.S. and foreign, file combined state income tax returns and pay the related
taxes in those states requiring combined filing. Because of the differing
levels of business activity of the subsidiaries in these states, the tax
liability of the Amexco group, after application of apportionment factors, will
be different from the sum of the stand-alone liability of the subsidiaries
included in the combined return. Therefore, the establish a fair distribution
of the state tax expense related to combined returns, and to reflect such
distribution in the actual tax payments, the following policy guidelines are to
be followed to ensure the above goals.
Segment Affected: All
Definitions
I. Unit: A directly owned subsidiary of American Express Company,
together with all subsidiaries (U.S. and foreign) of such
directly owned subsidiary.
Instructions
A. These guidelines apply only to tax liability and payments associated with
states or localities that require combined tax return flings by Parent and
its Units. Other state and local tax liabilities and payments will
continue to be set up and paid under existing procedures.
B. All combined tax liabilities will be allocated among Parent and the Units
based on the stand-alone liability (after giving effect to all stand-alone
apportionment factors) of Parent and the Units. See Exhibit I for an
example of such allocation.
C. To the extent a Unit ha no stand-alone tax liability (due to operating
loss carryovers that are used in the combined return, etc.). it will not
be included in the tax allocations calculation, nor receive any financial
statement or cash benefit. (See Exhibit I).
<PAGE> 55
[LOGO]
TAX INSTRUCTION
<TABLE>
<S> <C> <C> <C> <C> <C>
Subject: Issue Date: Number:
State Income Tax Allocation 1-1-84 400
Issued by: Effective Date: Page:
Corporate Tax Department 1-1-84 2 Of 3
</TABLE>
D. The quarterly estimated tax payments will be calculated by the Corporate
Tax Department and will be based upon information supplied by the Units.
To the extent a payment is made by Parent to the taxing authority,
reimbursement from the Units will be made pursuant to the Section B
calculation as applied to the information utilized to make the quarterly
combined return estimated tax calculation. Payment by the Units to Parent
is due upon billing.
E. For purposes of monthly tax accruals prior to the first estimated tax
payment calculation, the Units should accrue based upon budgeted tax
liability. The Corporate Tax Department will compute the budgeted tax
liability and perform the tax allocation calculation and notify the Units
of the required accrual in sufficient time to be recorded on the books of
account. The remaining monthly accruals will be based upon the estimated
tax calculations. Each Unit should be accruing based upon the tax rate to
which the combined group is subject even though the individual unit would
have been subject to a different rate on a stand-alone basis.
F. Upon the filing of the combined return, the final allocation will be
calculated by the Corporate Tax Department and final billing of the
Units will occur. Settlements of all payments due to Parent are due upon
billing.
G. Any tax payment due as a result of an audit adjustment or an amended
return filing will be billed to the Units whose operations gave rise
to the adjustment or amended return. To the extent the adjustment or
amended return item(s) can not be attributed to a specific Unit or Units,
the additional tax liability will be allocated pro-rata to the Units who
were included in the original allocation calculation for the taxable year.
The above guidelines will also apply to reductions in tax liability.
Interest expense/income associated with these payments will also be
allocated in a similar manner.
H. Nothing in these guidelines is to be interpreted as policy for allocation
of liability or payment among the Unit subsidiaries. Such "second level"
allocation may be carried out pursuant to Unit guidelines.
I. The Units will continue to be responsible for the financial statement
presentation of the taxes as they apply to the Unit.
J. The responsibility for interpreting these guidelines lies with the Vice
President - Taxes in the Corporate Tax Department.
<PAGE> 56
[LOGO]
TAX INSTRUCTION
<TABLE>
<S> <C> <C> <C> <C> <C>
Subject: Issue Date: Number:
State Income Tax Allocation 1-1-84 400
Issued by: Effective Date: Page:
Corporate Tax Department 1-1-84 3 Of 3
</TABLE>
COMBINED STATE/LOCAL TAX ALLOCATION POLICY
EXAMPLE OF CALCULATION DESCRIBED IN SECTION B
<TABLE>
<CAPTION>
Stand-Alone Combined
Unit Liability Liability
- ---- --------- ---------
<S> <C> <C>
TRS 100
Bank -0-
Insurance (150)
Investment 600
IDS 50
Other (200)
-----
Total 400 300
===== ===
</TABLE>
ALLOCATION OF COMBINED LIABILITY
<TABLE>
<CAPTION>
Stand-Alone Allocated
Units Liability % Liability
- ----- --------- - ---------
<S> <C> <C> <C>
TRS 100 13.3 39.0
Investment 600 80.0 240.0
IDS 50 6.7 20.1
--- ----- -----
750 100.0 300.0
=== ===== =====
</TABLE>
<PAGE> 57
Exhibit B
DEPARTMENT OF THE TREASURY - INTERNAL REVENUE SERVICE
CLOSING AGREEMENT ON FINAL DETERMINATION
COVERING SPECIFIC MATTERS
Under section 7121 of the Internal Revenue Code of 1986, as amended (the
"Code"), American Express Company ("Amex"), a Delaware corporation with its
principal place of business at American Express Tower, World Financial Center,
New York, New York, EIN 13-4922250; Lehman Brothers Holdings Inc. ("Lehman"),
a Delaware corporation with its principal place of business at American Express
Tower, World Financial Center, New York, New York, EIN 13-3216325; and the
Commissioner of Internal Revenue (the "Commissioner") hereby make the following
closing agreement (the "Closing Agreement") based on the representations made
by Amex and Lehman in paragraphs one through twenty four:
WHEREAS:
(1) Lehman was until May 31, 1994 a wholly-owned subsidiary of Amex.
(2) Lehman Brothers Inc. ("LBI"), EIN 13-2518466, a Delaware corporation,
is a wholly-owned subsidiary of Lehman.
(3) LBI has operated or currently operates branches in Belgium, Chile,
France. Germany, Holland, Monaco, Singapore, Spain, Switzerland,
Taiwan and the U.K. LBI's branches are engaged in the securities
business.
(4) Lehman Brothers Japan Inc. ("LBJ"), EIN 13-3348105, a Delaware
corporation, is a wholly owned subsidiary of Lehman.
(5) LBJ operates a branch in Japan which is engaged in the securities
business.
(6) Lehman Brothers Europe Inc. ("Europe Inc."), EIN 13-2989628, a
Delaware corporation, is a wholly owned subsidiary of LBI.
(7) Europe Inc. has operated or currently operates branches in Bahrain,
Belgium, Dubai, France, Greece, Kuwait, Lebanon and Switzerland.
Europe Inc.'s branches are engaged in the securities business.
(8) Amex and the members of the affiliated group of which it is the
common parent (the "Amex Group") are calendar year taxpayers for
Federal income tax purposes.
(9) Amex and Lehman, together with their affiliates, filed a consolidated
federal income tax return for the period January 1 to May 14, 1987.
<PAGE> 58
(10) On May 15, 1987, Lehman ceased to be a member of the Amex Group.
(11) Lehman, together with its affiliates (the "Lehman Group"), filed a
separate U.S. tax return for the period of May 15 to December 31,
1987.
(12) Certain foreign branches of LBI, LBJ and Europe Inc. (the "Branches")
incurred net operating losses in 1987 totaling $26,317,938 (see
Schedule A). Of this amount, $5,217,648 was included on the Federal
income tax return of the Amex Group, filed for the period January 1
to May 14, 1987, and $21,100,290 was included on the Federal income
tax return of the Lehman Group, filed for the period May 15 to
December 31, 1987. The Lehman Group had a net operating loss in its
taxable year ending December 31, 1987.
(13) Amex timely filed the certification required under Treas. Regs.
Section 1.1503-2A(d)(3) (the "Certification") for the Branches'
1987 net operating losses incurred for the period January 1 to May
14, 1987 and Lehman timely filed the Certification for the Branches'
net operating losses incurred for the period May 15 to December 31,
1987.
(14) In 1988, the Branches incurred net operating losses of $14,554,614,
which were included on the 1988 Federal consolidated income tax
return of the Lehman Group (see Schedule B). The Lehman Group had a
net operating loss in 1988. Lehman timely filed the Certification
for the Branches' 1988 losses.
(15) In 1989, the Branches incurred net operating losses of $992,001 which
were included on the 1989 Federal consolidated income tax return of
the Lehman Group (see Schedule C). Lehman timely filed the
Certification for the Branches' 1989 losses.
(16) On August 10, 1990, Lehman rejoined the Amex Group.
(17) The Branches incurred net operating losses in 1990 of $9,976,281 (see
Schedule D). Of this amount, $1,034,069 was included on the Federal
income tax return of the Lehman Group, filed for the period January 1
to August 9, 1990, and $8,942,212 was included on the Federal income
tax return of the Amex Group, filed for the period August 10 to
December 31, 1990.
(18) Lehman timely filed the Certification for the Branches' net operating
losses incurred for the period of January 1 to August 9, 1990 and
Amex timely filed the Certification for the Branches' net operating
losses incurred for the period August 10 to December 31, 1990.
(19) In 1991, the Branches incurred net operating losses of $11,430,679
(see Schedule E) which were included on the Federal income tax return
of the Amex Group. Amex timely filed the Certification for the
Branches' 1991 losses.
<PAGE> 59
(20) In 1992, the Branches incurred net operating losses of $7,705,468
(see Schedule F) which were included on the Federal income tax return
of the Amex Group. Amex timely filed the Certification for the
Branches' 1992 losses and also timely filed the election and
agreement described in Treas. Reg. Section 1.1503-2(g)(2) with
respect to the losses.
(21) As of the date of this Closing Agreement, the amount of net operating
losses incurred by the Branches for the 1993 taxable year has not as
yet been determined. If the Branches incur net operating losses for
1993, Amex intends to file the election and agreement described in
Treas. Reg. Section 1.1503-2(g)(2).
(22) On May 31, 1994 (the "Spin-off Date"), Amex distributed pro rata to
its shareholders all of its Common Stock in Lehman in a transaction
intended to qualify as a tax-free spin-off under Sec. 355 (the
"Spin-off").
(23) As of the date of this Closing Agreement, the amount of net operating
losses incurred by the Branches for the 1994 taxable year ending on
the Spin-off Date has not as yet been determined. If the Branches
incur net operating losses for the taxable year ending on the
Spin-off Date, Amex intends to file the election and agreement
described in Treas. Reg. Section 1.1503-2(g)(2) with respect to
such period.
(24) Amex has made the election described in Treas. Reg. Section
1.1503-2(h)(2)(ii) to replace all Certifications filed with respect to
the Branches with an agreement described in Treas. Reg. Section
1.1503-2(g)(2)(i).
NOW THEREFORE, Amex, Lehman, and the Commissioner agree that for Federal
income tax purposes:
(1) The Branches have been separate units as defined in Treas. Reg.
Section 1.1503-2(c)(3)(A) at all times since December 31, 1986.
(2) The disaffiliation of Lehman from the Amex Group shall not be
considered a triggering event and the following losses shall not be
subject to recapture under Treas. Reg. Section 1.1503-2(g)(2)(vii),
except as provided in paragraph (3) below:
(a) the net operating losses incurred by the Branches in 1987 in the
amount of $26,317,938;
(b) the net operating losses incurred by the Branches in 1988 in the
amount of $14,554,614;
(c) the net operating losses incurred by the Branches in 1989 in the
amount of $992,001;
(d) the net operating losses incurred by the Branches in 1990 in the
amount of $9,976,281;
<PAGE> 60
(e) the net operating losses incurred by the Branches in 1991 in the
amount of $11,430,679;
(f) the net operating losses incurred by the Branches in 1992 in the
amount of $7,705,468;
(g) the net operating losses, if any, incurred by the Branches in
1993;
(h) the net operating losses, if any, incurred by the Branches in
1994 through the Spin-off Date;
provided, however. that if the amount of any of the foregoing losses
(the "Branch Losses") is adjusted by the Internal Revenue Service,
judicial authority or otherwise in a final determination of taxes of
such periods, the provisions of this Closing Agreement shall apply
mutatis mutandis to such final, adjusted loss amounts.
(3) The Amex Group and the Lehman Group shall be jointly and severally
liable for the total amount of any recapture of the Branch Losses
required by Treas. Reg. Section 1.1503-2(g)(2)(vii)(A)(1), plus
the interest charge described in Treas. Reg. Section
1.1503-2(g)(2)(vii)(A)(2), if there is a triggering event described in
Treas. Reg. Section 1.1503-2(g)(2)(iii) occuring on or after the
Spin-off Date.
(4) The Lehman Group shall treat any potential recapture amount under
Treas. Reg. Section 1.1503-2(g)(2)(vii) as unrealized built-in gain
for purposes of Section 384(a) of the Code, subject to any applicable
exceptions thereunder.
(5) The Lehman Group shall file an agreement described in Treas. Reg.
Section 1.1503-2(g)(2)(i) with its timely filed income tax return for 1994,
signed under penalties of perjury by the person who signs the tax return of the
Lehman Group.
This Closing Agreement is final and conclusive except that: (a)the matter
it relates to may be reopened in the event of fraud, malfeasance, or
misrepresentation of material fact; (b)it is subject to the Code sections that
expressly provide that effect be given to their provisions (including any
stated exception for Code Section 7122) notwithstanding any other law or rule
of law; and (c)if it relates to a tax period ending after the date of this
Closing Agreement, it is subject to any law, enacted after that date, that
applies to that tax period.
<PAGE> 61
By signing, the parties signify that they have read and agreed to the
terms of this document.
Signed this ____ day of_____________, 1994.
AMERICAN EXPRESS COMPANY
By:
-----------------------------
Title:
--------------------------
LEHMAN BROTHERS HOLDINGS INC.
By:
-----------------------------
Title:
--------------------------
COMMISSIONER OF INTERNAL REVENUE
By:
-----------------------------
Title:
--------------------------
<PAGE> 62
Lehman Brothers Holdings Inc. Schedule A
Certified Branch Losses
1987
<TABLE>
<CAPTION>
Company Country 1st Period 2nd Period Total
Per Branch
<S> <C> <C> <C> <C>
Lehman Brothers Inc. - Brussels Belgium 0
Lehman Brothers Inc. - Santiago Chile (385,920) (385,920)
Lehman Brothers Inc. - Paris France 0
Lehman Brothers Inc. - Frankfurt Germany (71,458) (71,458)
Lehman Brothers Inc. - Hamburg Germany (880,249) (880,249)
Lehman Brothers Inc. - Amsterdam Holland 0
Lehman Brothers Inc. - Monte Carlo Monaco (3,211,150) (3,211,150)
Lehman Brothers Inc. Singapore 0
Lehman Brothers Inc. - Madrid Spain 0
Lehman Brothers Inc. - Zurich Switzerland 0
Lehman Brothers Inc. - Lausanne Switzerland 0
Lehman Brothers Inc. - Geneva Switzerland 0
Lehman Brothers Inc. - Basle Switzerland (35,369) (49,800) (85,169)
Lehman Brothers Inc. Taiwan 0
Lehman Brothers Inc. - Commodity UK (2,882,576) (2,882,576)
Lehman Brothers Inc. UK (676,349) (676,349)
----------------------------------- ---------- ----------- -----------
Sub - Total (35,369) (8,157,502) (8,192,871)
----------------------------------- ---------- ----------- -----------
Lehman Brothers Japan Inc. Japan (5,182,279) (12,942,788) (18,125,067)
----------------------------------- ---------- ----------- -----------
Sub - Total (5,182,279) (12,942,788) (18,125,067)
----------------------------------- ---------- ----------- -----------
Lehman Brothers Europe Inc. Bahrain 0
Lehman Brothers Europe Inc. - Brussels Belgium 0
Lehman Brothers Europe Inc. Dubai 0
Lehman Brothers Europe Inc. - Paris France 0
Lehman Brothers Europe Inc. - Athens Greece 0
Lehman Brothers Europe Inc. Kuwait 0
Lehman Brothers Europe Inc. - Beirut Lebanon 0
Lehman Brothers Europe Inc. - Geneva Switzerland 0
------------------------------------ ---------- ----------- -----------
Sub - Total 0 0 0
------------------------------------ ---------- ----------- -----------
------------------------------------ ---------- ----------- -----------
Total Per Year (5,217,648) (21,100,290) (26,317,938)
------------------------------------ ---------- ----------- -----------
</TABLE>
<PAGE> 63
Lehman Brothers Holdings Inc. Schedule B
Certified Branch Losses
1988
<TABLE>
<CAPTION>
Company Country 1988
<S> <C> <C>
Lehman Brothers Inc. - Brussels Belgium (1,314,637)
Lehman Brothers Inc. - Santiago Chile
Lehman Brothers Inc. - Paris France (2,499,148)
Lehman Brothers Inc. - Frankfurt Germany (331,558)
Lehman Brothers Inc. - Hamburg Germany (414,519)
Lehman Brothers Inc. - Amsterdam Holland (440,869)
Lehman Brothers Inc. - Monte Carlo Monaco
Lehman Brothers Inc. Singapore
Lehman Brothers Inc. - Madrid Spain
Lehman Brothers Inc. - Zurich Switzerland
Lehman Brothers Inc. - Lausanne Switzerland
Lehman Brothers Inc. - Geneva Switzerland
Lehman Brothers Inc. - Basle Switzerland
Lehman Brothers Inc. Taiwan
Lehman Brothers Inc. - Commodity UK
Lehman Brothers Inc. UK
----------
Sub-Total (5,000,731)
------------------------------------ ----------
Lehman Brothers Japan Inc. Japan (6,422,565)
----------
Sub-Total (6,422,565)
------------------------------------ ----------
Lehman Brothers Europe Inc. Bahrain (827,586)
Lehman Brothers Europe Inc. - Brussels Belgium (697,715)
Lehman Brothers Europe Inc. Dubai (665,665)
Lehman Brothers Europe Inc. - Paris France
Lehman Brothers Europe Inc. - Athens Greece (481,811)
Lehman Brothers Europe Inc. Kuwait 0
Lehman Brothers Europe Inc. - Beirut Lebanon (3,966)
Lehman Brothers Europe Inc. - Geneva Switzerland (454,575)
Sub-Total (3,131,318)
------------------------------------ -----------
Total Per Year (14,554,614)
------------------------------------ -----------
</TABLE>
<PAGE> 64
Lehman Brothers Holdings Inc. Schedule C
Certified Branch Losses
1989
<TABLE>
<CAPTION>
Company Country 1989
<S> <C> <C>
Lehman Brothers Inc. - Brussels Belgium
Lehman Brothers Inc. - Santiago Chile
Lehman Brothers Inc. - Paris France
Lehman Brothers Inc. - Frankfurt Germany
Lehman Brothers Inc. - Hamburg Germany
Lehman Brothers Inc. - Amsterdam Holland (243,459)
Lehman Brothers Inc. - Monte Carlo Monaco
Lehman Brothers Inc. Singapore
Lehman Brothers Inc. - Madrid Spain
Lehman Brothers Inc. - Zurich Switzerland
Lehman Brothers Inc. - Lausanne Switzerland
Lehman Brothers Inc. - Geneva Switzerland
Lehman Brothers Inc. - Basle Switzerland
Lehman Brothers Inc. Taiwan
Lehman Brothers Inc. - Commodity UK
Lehman Brothers Inc. UK
Sub-Total (243,459)
------------------------------------ --------
Lehman Brothers Japan Inc. Japan
Sub-Total 0
------------------------------------
Lehman Brothers Europe Inc. Bahrain
Lehman Brothers Europe Inc. - Brussels Belgium
Lehman Brothers Europe Inc. Dubai
Lehman Brothers Europe Inc. - Paris France
Lehman Brothers Europe Inc. - Athens Greece (731,524)
Lehman Brothers Europe Inc. Kuwait (67)
Lehman Brothers Europe Inc. - Beirut Lebanon (28)
Lehman Brothers Europe Inc. - Geneva Switzerland (16,923)
Sub-Total (748,542)
------------------------------------ --------
Total Per Year (992,001)
------------------------------------ --------
</TABLE>
<PAGE> 65
Lehman Brothers Holdings Inc. Schedule D
Certified Branch Losses
1990
<TABLE>
<CAPTION>
Company Country 1st Period 2nd Period Total
Per Branch
<S> <C> <C> <C> <C>
Lehman Brothers Inc. - Brussels Belgium 0
Lehman Brothers Inc. - Santiago Chile 0
Lehman Brothers Inc. - Paris France 0
Lehman Brothers Inc. - Frankfurt Germany (1,941,659) (1,941,659)
Lehman Brothers Inc. - Hamburg Germany 0
Lehman Brothers Inc. - Amsterdam Holland (228,411) (10,953) (239,364)
Lehman Brothers Inc. - Monte Carlo Monaco 0
Lehman Brothers Inc. Singapore 0
Lehman Brothers Inc. - Madrid Spain 0
Lehman Brothers Inc. - Zurich Switzerland (564,799) (812,453) (1,377,252)
Lehman Brothers Inc. - Lausanne Switzerland (33,266) (33,266)
Lehman Brothers Inc. - Geneva Switzerland (662,822) (662,822)
Lehman Brothers Inc. - Basle Switzerland (235,768) (131,966) (367,734)
Lehman Brothers Inc. Taiwan 0
Lehman Brothers Inc. - Commodity UK 0
Lehman Brothers Inc. UK 0
---------- ----------
Sub-Total (1,028,978) (3,593,119) (4,622,097)
------------------------------------ ---------- ---------- ----------
Lehman Brothers Japan Inc. Japan (1,579,865) (1,579,865)
---------- ---------- ----------
Sub-Total ( 0) (1,579,865) (1,579,865)
------------------------------------ ---------- ---------- ----------
Lehman Brothers Europe Inc. Bahrain (5,091) (3,064) (8,155)
Lehman Brothers Europe Inc. - Brussels Belgium 0
Lehman Brothers Europe Inc. Dubai (1,050,970) (1,050,970)
Lehman Brothers Europe Inc. - Paris France (2,715,194) (2,715,194)
Lehman Brothers Europe Inc. - Athens Greece 0
Lehman Brothers Europe Inc. Kuwait 0
Lehman Brothers Europe Inc. - Beirut Lebanon 0
Lehman Brothers Europe Inc. - Geneva Switzerland 0
Sub-Total (5,091) (3,769,228) (3,774,319)
------------------------------------ ---------- ---------- ----------
Total Per Year (1,034,069) (8,942,212) (9,976,281)
------------------------------------ ---------- ---------- ----------
</TABLE>
65
<PAGE> 66
<TABLE>
<CAPTION>
Lehman Brothers Holdings Inc.
Certified Branch Losses Schedule E
1991
Company Country 1991
<S> <C> <C>
Lehman Brothers Inc. -- Brussels Belgium
Lehman Brothers Inc. -- Santiago Chile
Lehman Brothers Inc. -- Paris France
Lehman Brothers Inc. -- Frankfurt Germany
Lehman Brothers Inc. -- Hamburg Germany
Lehman Brothers Inc. -- Amsterdam Holland
Lehman Brothers Inc. -- Monte Carlo Monaco
Lehman Brothers Inc. Singapore (437,476)
Lehman Brothers Inc. -- Madrid Spain
Lehman Brothers Inc. -- Zurich Switzerland (860,343)
Lehman Brothers Inc. -- Lausanne Switzerland
Lehman Brothers Inc. -- Geneva Switzerland
Lehman Brothers Inc. -- Basie Switzerland
Lehman Brothers Inc. Taiwan
Lehman Brothers Inc. -- Commodity UK
Lehman Brothers Inc. UK
Sub-Total (1,297,819)
Lehman Brothers Japan Inc. Japan (10,076,262)
Sub-Total (10,076,262)
Lehman Brothers Europe Inc. Bahrain
Lehman Brothers Europe Inc. -- Brussels Belgium
Lehman Brothers Europe Inc. Dubai (56,598)
Lehman Brothers Europe Inc. -- Paris France
Lehman Brothers Europe Inc. -- Athens Greece
Lehman Brothers Europe Inc. Kuwait
Lehman Brothers Europe Inc. -- Beirut Lebanon
Lehman Brothers Europe Inc. -- Geneva Switzerland
Sub-Total (56,598)
Total Per Year (11,430,679)
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
Lehman Brothers Holdings Inc.
Certified Branch Losses Schedule F
1992
Company Country 1992
<S> <C> <C>
Lehman Brothers Inc. -- Brussels Belgium (243,632)
Lehman Brothers Inc. -- Santiago Chile
Lehman Brothers Inc. -- Paris France (2,780,082)
Lehman Brothers Inc. -- Frankfurt Germany (89,726)
Lehman Brothers Inc. -- Hamburg Germany
Lehman Brothers Inc. -- Amsterdam Holland
Lehman Brothers Inc. -- Monte Carlo Monaco
Lehman Brothers Inc. Singapore (160,779)
Lehman Brothers Inc. -- Madrid Spain (444,557)
Lehman Brothers Inc. -- Zurich Switzerland (108,986)
Lehman Brothers Inc. -- Lausanne Switzerland (564)
Lehman Brothers Inc. -- Geneva Switzerland (466,092)
Lehman Brothers Inc. -- Basie Switzerland (4,151)
Lehman Brothers Inc. Taiwan (1,756,464)
Lehman Brothers Inc. -- Commodity UK
Lehman Brothers Inc. UK
Sub-Total (6,055,033)
Lehman Brothers Japan Inc. Japan
Sub-Total 0
Lehman Brothers Europe Inc. Bahrain
Lehman Brothers Europe Inc. -- Brussels Belgium
Lehman Brothers Europe Inc. Dubai (726,019)
Lehman Brothers Europe Inc. -- Paris France
Lehman Brothers Europe Inc. -- Athens Greece (924,416)
Lehman Brothers Europe Inc. Kuwait
Lehman Brothers Europe Inc. -- Beirut Lebanon
Lehman Brothers Europe Inc. -- Geneva Switzerland
Sub-Total (1,650,435)
Total Per Year (7,705,468)
</TABLE>
<PAGE> 1
INTERCOMPANY AGREEMENT
INTERCOMPANY AGREEMENT, dated as of May __, 1994, between
Lehman Brothers Holdings Inc., a Delaware corporation ("Holdings"), and
American Express Company, a New York corporation ("American Express").
In contemplation of the distribution to holders of common
shares of American Express of all outstanding shares of common stock of
Holdings held by American Express, the parties hereto have agreed as follows:
SECTION 1: Definitions.
As used in this Agreement, the following terms shall have the
meanings ascribed to such terms below (all other initially capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Registration Statement):
"Actions" has the meaning specified in Section 3.1(a).
"Amexco" means American Express and/or its subsidiaries (other
than Holdings and its subsidiaries), as the context requires.
"AMEX Group" means the affiliated group of corporations (as
constituted from time to time), within the meaning of Section 1504 of the Code,
including American Express, of which American Express is the common parent.
"Code" means the Internal Revenue Code of 1986, as amended.
Any reference to the Code and Treasury Regulations promulgated thereunder
includes any successor provision thereto.
"Comfort Letters" means, collectively, (i) the letter, dated
March 9, 1986, of American Express to the Japanese Minister of Finance relating
to the activities in Japan of Shearson Lehman Brothers Asia, Inc., (ii) the
letters, dated May 2, 1991 and September 28, 1993 of American Express, in each
case to Governor Mieno of the Bank of Japan, relating to requests for current
transaction accounts at the Bank of Japan for certain LBHI
<PAGE> 2
entities and (iii) any and all other letters or agreements from Amexco to
similar effect.
"Common Stock" means the common stock, par value $0.10 per
share, of Holdings.
"Deferred Compensation Plans" means, collectively, LBHI's
Executive and Select Employees Plan and Voluntary Deferred Compensation Plan,
the Lehman Brothers Kuhn Loeb Deferred Compensation Plans and certain other
deferred compensation programs, as set forth in the DCP Guarantee.
"DCP Guarantee" means the guarantee of Amexco, dated August
10, 1990 pursuant to which Amexco agreed to guarantee certain payments under
the Deferred Compensation Plans.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FIFO Basis" means, with respect to any competing Unrelated
Claims, a basis whereby insurance proceeds are collected upon the success of a
claim, with each such successful claim being paid in full until the limit of
the applicable insurance policy is met.
"Guarantees" means, collectively, the WFC Guarantee and the
DCP Guarantee.
"Highest Tax Rate," with respect to any type of income for a
particular taxable year, means the highest Federal income tax rate that would
apply to that particular type of income for such year.
"Intercompany Long Distance Agreements" means, collectively,
the Agreements, dated July 29, 1993 and October 14, 1993, respectively, among
Amexco and LBHI, relating to the Long Distance Agreements.
"IRS" means the U.S. Internal Revenue Service.
"LB Co-tenants" means, collectively, Lehman Brothers Inc.,
Lehman Brothers Securities Inc. and Lehman Commercial Paper Inc.
2
<PAGE> 3
"LBHI" means Holdings and/or its subsidiaries, as the context
requires.
"LBHI Group" means each of (A) Holdings, its subsidiaries and
any predecessor corporations and (B) any corporation which at any time would
have been or is entitled to file a consolidated U.S. Federal Income Tax Return
with any of the corporations described in (A) as the common parent.
"L/D Letter" means the letter in the form attached hereto as
Exhibit A relating to the Intercompany Long Distance Agreements.
"Long Distance Agreements" means, collectively, (i) the Tariff
12, Option 3 and the 1993 Agreement for Virtual Telecommunications Network
Services between American Express and American Telephone and Telegraph Company,
and (ii) the Contract Tariff and Agreement for Special Customer
Telecommunications Services, dated October 14, 1994, between American Express
and MCI Telecommunications Corporation.
"Losses" has the meaning specified in Section 3.1(a).
"1987 Intercompany Agreement" means the Intercompany
Agreement, dated as of May 1, 1987, by and between American Express and
Holdings, together with all exhibits and attachments thereto.
"Non-discriminatory Basis" means, with respect to any
modification, elimination or reduction in any benefits or services granted or
provided to LBHI employees and Amexco employees, a basis for such modification,
elimination or reduction which treats as one group LBHI employees and Amexco
employees.
"Pre-Distribution Basis" means, with respect to any services,
a basis for the determination and allocation of the costs and expenses incurred
in providing such services which is substantially the same as that used by the
parties hereto in connection with the same or substantially similar services
immediately prior to the Distribution Date.
3
<PAGE> 4
"Prospectuses" means the Distribution Prospectus and the
Offering Prospectus, whether preliminary, interim or final, as amended or
supplemented.
"Registration Statement" means the Registration Statement of
Holdings on Form S-1 (File No. 33-52977) covering the registration of the
Distribution and the Offering, together with all exhibits, schedules and pre-
and post-amendments thereto.
"Related Claims" means claims against an Amexco insurance
policy made by each of Amexco and/or its insured parties, on the one hand, and
LBHI and/or its insured parties, on the other hand, filed in connection with
Losses suffered by each of Amexco and LBHI arising out of the same underlying
event(s).
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Allocation Agreement" shall mean the Tax Allocation
Agreement, dated May __, 1994, between American Express and Holdings.
"Tax Return" shall mean any tax return (including any amended
return), report, information return, election, notice or other document filed
or to be filed with a governmental taxing authority, including any schedules or
related or supporting information.
"TIC Agreement" means the Restated and Amended Agreement of
Tenants-In-Common, dated as of May __, 1994, by and among American Express,
American Express Bank Ltd., American Express Travel Related Services Company,
Inc. and the LB Co-Tenants.
"Unrelated Claims" means claims against an Amexco insurance
policy made by each of Amexco and/or its insured parties, on the one hand, or
LBHI and/or its insured parties, on the other hand, filed in connection with
losses suffered by each of Amexco and LBHI arising out of unrelated and
separate events.
"WFC" means the premises located at 3 World Financial Center,
New York, New York 10285.
4
<PAGE> 5
"WFC Guarantee" means the guarantees of Amexco set forth in
the indentures governing the terms of the WFC Indebtedness pursuant to which
Amexco agreed to guarantee the obligations of the LB Co-Tenants under the WFC
Indebtedness.
"WFC Indebtedness" means, collectively, the notes representing
the approximately $649 million aggregate original principal amount of
indebtedness issued by the LB Co-tenants and the $175 million original
principal amount of indebtedness issued by American Express, in each case to
finance the WFC.
SECTION 2: Allocation of Costs and Expenses; Other Agreements.
2.1 Costs and Expenses. Holdings shall pay for all fees,
costs and expenses incurred in connection with the Distribution, the Offering
and the other Concurrent Transactions, including, but not limited to, any and
all fees, costs and expenses related to (a) the preparation, printing and
filing of the Registration Statement, including all fees and expenses of
complying with applicable federal, state or foreign securities laws and
domestic or foreign securities exchange rules and regulations, together with
fees and expenses of counsel retained to effect such compliance, (b) the
preparation and negotiation of all of the documentation related to all of the
Concurrent Transactions, (c) the preparation, printing and distribution of each
of the Prospectuses, (d) the preparation and execution or filing of any and all
further documents, agreements, forms, applications, contracts or consents
associated with the Concurrent Transactions and (e) the listing of the Common
Stock on any domestic or foreign securities exchange, except that American
Express shall pay for all of the fees, costs and expenses incurred in
connection with (i) the preparation and delivery of a legal opinion from
Skadden, Arps, Slate, Meagher & Flom to American Express regarding certain tax
matters relating to the Distribution, (ii) the preparation and filing of the
Section 355 Ruling Request made by American Express to the IRS regarding the
Distribution, including all fees and expenses of counsel associated therewith,
(iii) the preparation, negotiation and delivery to American Express of written
opinions from each of Lazard Freres & Co. and James D. Wolfensohn
5
<PAGE> 6
Incorporated, financial advisors to American Express, regarding the
Distribution (together with certain fees associated with the Distribution
payable to such financial advisors as described in the Registration Statement)
and (iv) the merger of Lehman Capital Corporation with and into Holdings.
2.2 Other Agreements. In connection with the
Registration Statement, Holdings shall:
(a) furnish to American Express such number of
copies of the Registration Statement and Prospectuses (including any documents
referred to therein) as American Express may reasonably request and a copy of
any and all transmittal letters or other correspondence with the Securities and
Exchange Commission (the "SEC") or any other governmental agency or self-
regulatory body or other body having jurisdiction (including any securities
exchange) relating to the Offering or the Distribution;
(b) use its best efforts to qualify the Common Stock
covered by the Registration Statement (collectively, the "Securities") for
offer and sale under the securities, "blue sky" or similar laws of such
jurisdictions as American Express shall reasonably request and use its best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, except that Holdings shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to subject itself to taxation
in any such jurisdiction, or to consent to general service of process in any
such jurisdiction;
(c) furnish to American Express, addressed to it,
dated the Distribution Date, a "cold comfort" letter signed by the independent
public accountants who have certified Holdings' financial statements included
in the Registration Statement, covering substantially the same matters with
respect to the Registration Statement (and the Prospectuses) as are customarily
covered in accountants' letters delivered to underwriters in underwritten
public offerings of securities;
(d) furnish unlegended certificates representing
ownership of the Securities being sold and
6
<PAGE> 7
distributed in such denominations as shall be requested by American Express;
(e) promptly inform American Express (i) of the date
on which the Registration Statement or any post- effective amendment thereto
becomes effective and (ii) of any request by the SEC, any securities exchange,
government agency, self- regulatory body or other body having jurisdiction for
any amendment of or supplement to the Registration Statement or Prospectuses;
(f) until such time as all of the Securities have
been disposed of in accordance with the intended method of disposition by
American Express set forth in the Registration Statement (and the expiration of
any prospectus delivery requirements in connection therewith), keep effective
and maintain any registration, qualification or approval obtained in connection
with the Offering or the Distribution, and amend or supplement the Registration
Statement or Prospectuses to the extent necessary in order to comply with
applicable securities laws and immediately notify American Express of any such
amendment or supplement;
(g) use its best efforts to have the Securities
listed on the New York Stock Exchange, Inc.; and
(h) promptly notify American Express of the
happening of any event as a result of which the Registration Statement or
either Prospectus includes an untrue statement of any material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and prepare, file as appropriate and furnish
to American Express as promptly as possible as many copies as American Express
shall request of a supplement thereto or amendment thereof which shall correct
such untrue statement or eliminate such omission.
SECTION 3: Business and Registration Statement
Indemnification.
3.1 General Cross Indemnification. (a) Amer-ican
Express agrees to indemnify and hold harmless LBHI and each of the officers,
directors, employees and agents
7
<PAGE> 8
of LBHI against any and all costs and expenses arising out of third party
claims (including, without limitation, attorneys' fees, interest, penalties and
costs of investigation or preparation for defense), judgments, fines, losses,
claims, damages, liabilities, demands, assessments and amounts paid in
settlement (collectively, "Losses"), in each case, based on, arising out of,
resulting from or in connection with any claim, action, cause of action, suit,
proceeding or investigation, whether civil, criminal, administrative,
investigative or other (collectively, "Actions"), based on, arising out of,
pertaining to or in connection with (i) any action or inaction (A) on or prior
to the Distribution Date, on the part of Amexco or any of its officers,
directors, employees, fiduciaries or agents, if such action or inaction does
not involve or relate to any business conducted by LBHI and (B) subsequent to
the Distribution Date, on the part of Amexco or any of its officers, directors,
employees, fiduciaries or agents, (ii) any breach by American Express of this
Agreement or any breach by Amexco of any agreement between Amexco and LBHI and
(iii) any item described on Schedule A hereto.
(b) Holdings agrees to indemnify and hold harmless Amexco and
each of the officers, directors, employees and agents of Amexco against any and
all Losses, in each case, based on, arising out of, resulting from or in
connection with any Actions, based on, arising out of, pertaining to or in
connection with (i) any action or inaction on the part of LBHI or any of its
officers, directors, employees, affiliates, fiduciaries or agents, (ii) any
breach by Holdings of this Agreement or any breach by LBHI, of any agreement
between Amexco and LBHI, (iii) any item described on Schedule B hereto and (iv)
the use of the Marks (as defined in the 1987 Intercompany Agreement) by LBHI.
Except as otherwise provided in Schedule B with respect to
clause (iii) of Section 3.1(b), the indemnity agreement contained in this
Section 3.1 shall be applicable whether or not any Action or the facts or
transactions giving rise to such Action arose prior to, on or subsequent to the
date of this Agreement.
3.2 Indemnification by Holdings With Respect to the
Registration Statement. Holdings agrees to indemnify and hold harmless Amexco,
each of its officers and
8
<PAGE> 9
directors, and each person, if any, who controls any of the foregoing persons
within the meaning of Section 15 of the Securities Act from and against any and
all Losses, joint or several, to which they or any of them may become subject,
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, as and when incurred, insofar as
such Losses (or Actions in respect thereof) arise out of, or are based upon,
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, or in the Prospectuses, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or arise out of or are based upon any violation by Holdings of the
Securities Act, any blue sky laws, securities laws or other applicable laws of
any state or country in which the securities covered by the Registration
Statement are offered or distributed and relating to action or inaction
required of Holdings in connection with such offering or distribution, and
agrees to promptly reimburse each such indemnified party, as and when incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Losses; provided, however, that (i)
Holdings will not be liable in any such case to the extent that any such Losses
arise out of, or are based upon, any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to Holdings by Amexco
specifically for use in connection with the preparation thereof and (ii) such
indemnity with respect to the Prospectuses shall not inure to the benefit of
Amexco (or any person controlling Amexco) if the person asserting any such
Losses purchased or received Common Stock from Amexco and such person did not
receive a copy of the applicable Prospectus at or prior to the confirmation of
the sale of the Common Stock (or, in the case of the Distribution Prospectus,
at or prior to the time delivery thereof is required by law) to such person in
any case where such delivery is required by the Securities Act and the untrue
statement or omission of a material fact contained in the Prospectus was
corrected in the final version of such Prospectus, unless such failure to
deliver such final Prospectus was a result of noncompliance by Holdings with
its obligations under this Agreement.
9
<PAGE> 10
3.3 Indemnification by American Express With Respect to
the Registration Statement. American Express agrees to indemnify and hold
harmless LBHI, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls LBHI within the
meaning of Section 15 of the Securities Act from and against any and all
Losses, joint or several, to which they or any of them may become subject,
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, as and when incurred, insofar as
such Losses (or Actions in respect thereof) arise out of, or are based upon,
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, or in the Prospectuses, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that the same
was made therein in reliance upon and in conformity with written information
furnished to Holdings by Amexco specifically for use in connection with the
preparation thereof, or arise out of or are based upon any violation or alleged
violation by American Express of the Act, any blue sky laws, securities laws or
other applicable laws of any state or country in which the securities covered
by the Registration Statement are offered or distributed and relating to action
or inaction required of American Express in connection with such offering or
distribution, and agrees to promptly reimburse each such indemnified party, as
and when incurred, for any legal or other expense reasonably incurred by them
in connection with investigating or defending any such Losses.
3.4 Procedure for Indemnification. Promptly after
receipt by an indemnified party under this Section 3 of notice of the
commencement of any Action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 3,
notify the indemnifying party in writing of the commencement thereof, but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 3. In case any such Action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
10
<PAGE> 11
indemnifying party will be entitled to participate therein and, to the extent
that it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such Action include both the
indemnified party and the indemnifying party and either (i) the indemnifying
party or parties and the indemnified party or parties mutually agree or (ii)
representation of both the indemnifying party or parties and the indemnified
party or parties by the same counsel is inappropriate under applicable
standards of professional conduct due to actual or potential differing
interests between them, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such Action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such Action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 3 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
Action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. If the
indemnified party employs separate counsel, it will not enter into any
settlement agreement which is not approved by the indemnifying party, such
approval not to be unreasonably withheld. If the indemnifying party so assumes
the defense thereof, it may not agree to any settlement of any such claim or
action as the result of which any remedy or relief, other than monetary damages
for which the indemnifying party shall be responsible hereunder, shall be
applied to or against the indemnified party, without the prior written consent
of the indemnified party. If the indemnifying party does not assume the
defense thereof, it shall be bound by any settlement to which the indemnified
party
11
<PAGE> 12
agrees, irrespective of whether the indemnifying party consents thereto. In
any Action as to which the indemnifying party has assumed the defense thereof
with counsel satisfactory to the indemnified party, the indemnified party shall
continue to be entitled to participate in the defense thereof, with counsel of
its own choice, but, except as set forth above, the indemnifying party shall
not be obligated hereunder to reimburse the indemnified party for the costs
thereof.
The parties hereto shall, and shall cause their respective
subsidiaries to, cooperate with each other in a reasonable manner with respect
to access to unprivileged information and similar matters in connection with
any Action.
3.5 Contribution. If the indemnification provided for in
this Section 3 shall for any reason be unavailable to any indemnified party in
respect of any Loss, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such Loss in such proportion as shall
be appropriate to reflect the relative fault of the indemnifying party or
parties, on the one hand, and the indemnified party or parties, on the other
hand, with respect to the facts and circumstances which resulted in such Loss,
as well as any other relevant equitable considerations. With respect to the
indemnification provided for in Section 3.2 and 3.3, the relative fault shall
be determined by reference to whether the untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party on the one hand or
the indemnified party on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission, but not by reference to Amexco's or any other
indemnified party's stock ownership in Holdings. The amount paid or payable by
an indemnified party as a result of any Loss shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such Action. With respect to
any Loss described in Section 3.2 or 3.3, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution
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from any person who was not guilty of such fraudulent misrepresentation.
The provisions of this Section 3 are for the benefit of, and
are intended to create third party beneficiary rights in favor of, each of the
indemnified parties referred to herein.
SECTION 4: Separate Return Provision.
(a) Notwithstanding any other provision in this Agreement or
in the Tax Allocation Agreement, in the event there is a final determination
("Final Determination"), pursuant to Section 1313 of the Code, that Holdings is
not a member of the AMEX Group because of its failure to satisfy the
requirements under Section 1504 of the Code for any taxable year, commencing on
or after August 10, 1990 and ending on or before the Distribution Date ("LBHI
Consolidation Years"), in which American Express filed a consolidated U.S.
Federal income tax return which included Holdings as a member ("Separate Return
Event"), the obligations of the parties will be as set forth below:
American Express will be liable for and will
indemnify LBHI against Incremental Taxes (as defined below) determined, in good
faith, by American Express, of the AMEX Group and the LBHI Group, and related
interest and penalties, if any, less Holdings' share of the liability for such
items. Holdings will be liable for and will indemnify Amexco against (i) fifty
percent (50%) of the first One Hundred Million Dollars ($100,000,000) of
Incremental Taxes and (ii) a share of all such interest and penalties as its
share of Incremental Taxes under (i) bears to total Incremental Taxes.
"Incremental Taxes" means additional U.S. Federal income taxes
actually incurred by the AMEX Group and the LBHI Group for the LBHI
Consolidation Years, which result from the Separate Return Event, or such other
amounts as are paid in final settlement of an assertion of a Separate Return
Event, all as determined, in good faith, by American Express. Such Incremental
Taxes will be computed in good faith by American Express by comparing the U.S.
Federal income tax liability of the AMEX Group for the year(s) in question,
which would have
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been payable if the LBHI Group were consolidated, with the sum of (i) the
actual U.S. Federal income tax liability of the AMEX Group for the year(s) in
question and (ii) the actual U.S. Federal income tax liability of the LBHI
Group in filing a return(s) separately from the AMEX Group for the year(s) in
question.
(b) If any member of the LBHI Group utilizes a Tax
Benefit Item (as defined below) in connection with a Separate Return Event, in
any year, Holdings shall pay to American Express the value of such Tax Benefit
Item, as set forth below, with related interest received thereon from the IRS
up to the amount of Amexco's share of the Incremental Taxes and related
interest and penalties, all as determined in good faith by American Express. A
"Tax Benefit Item" is any item of loss, deduction or credit of any member of
the LBHI Group that was not used by the AMEX Group or LBHI Group as a result of
a Separate Return Event as set forth in (a) above, as determined in good faith
by American Express. The value of Tax Benefit Items shall be equal to the sum
of (i) the credits so utilized (or to the extent they cannot be so utilized,
their utilization as deductions, to the extent allowable by law, valued at the
amount of the credits so utilized multiplied by the Highest Tax Rate) and (ii)
deductions and losses, not otherwise included in (i), so utilized multiplied by
the Highest Tax Rate. The use of Tax Benefit Items in any taxable year will be
deemed to be proportionate to each party's share of the liability for
Incremental Taxes and related interest and penalties, as described above and
determined in good faith by American Express.
Holdings shall act in good faith to reduce the taxes of the
parties, by, among other items, taking actions, in good faith, after
consultation with American Express, to have the LBHI Group utilize the Tax
Benefit Items as soon as feasible on a current, carryforward or carryback
basis. Such actions shall include amending Tax Returns and filing claims for
refund as appropriate. Notwithstanding anything in this Agreement or the Tax
Allocation Agreement to the contrary, if a Separate Return Event occurs, the
LBHI Group shall not be entitled to carry back or carry forward any Tax Benefit
Items to the consolidated return of which American Express is the common
parent.
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(c) Payments for Incremental Taxes and related interest
and penalties shall be made no later than one (1) business day before the due
date for payment upon the Final Determination or final settlement of the items
in question. Payments for Tax Benefit Items and related interest shall be made
within five (5) business days after a Final Determination or final settlement
of the items in question, provided, however, if any member of the LBHI Group is
paid or receives credit for such items before such determination or settlement,
Holdings shall pay the value of such items and related interest to American
Express promptly after receipt or credit, which will be subject to adjustment
upon such determination or settlement.
(d) Each of the parties shall give notice to the other
party within five (5) business days of any notice or communication from a
taxing authority relating to the issue of a possible Separate Return Event.
American Express will control, in good faith, all audits, litigation and other
administrative and judicial proceedings and other matters relating to such
issue and any issues relating to the ability of the LBHI Group to file a
separate consolidated U.S. Federal income tax return with Holdings as common
parent ("LBHI Reconsolidation"). Holdings shall fully cooperate with all good
faith requests made by Amexco in respect of any such proceedings or matters and
shall not allow any member of the LBHI Group to make any communication, take
any position or file any Tax Return relating to these issues without the prior
written approval of American Express, which approval will be exercised in good
faith. American Express will keep Holdings informed of any material
developments in any such proceedings, and will, in good faith, consult with
Holdings concerning the appropriate actions and positions to be taken in such
proceedings. Notwithstanding the foregoing, American Express will have
ultimate discretion, to be exercised in good faith, with respect to any
decisions to be made or the nature of any actions to be taken in the course
thereof. In furtherance of the foregoing, in the event of a Separate Return
Event, at the direction of American Express, Holdings shall file a request and
use its best efforts to obtain IRS approval for the LBHI Reconsolidation at the
earliest possible date.
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(e) Each of the parties shall have the right to review
the basis for all determinations and actions taken by the other party, and each
party and its designated agents shall have full access to the information and
data which formed the basis therefor. Pursuant to the good faith request of
American Express, Holdings shall provide American Express, from time to time,
with detailed data and other information relating to the proposed and actual
utilization of Tax Benefit Items. Each of the parties agrees that it shall
retain, until the expiration of the appropriate statutes of limitation
(including any extensions), copies of any Tax Returns for any open periods
pertaining to the subject matter of this Section 4, supporting work schedules
and other books, records or information which may be relevant and that it will
not destroy or otherwise dispose of such records without first providing the
other party with a reasonable opportunity to review and copy the same. Any
information so obtained shall be kept confidential by the parties hereto,
except if required by a taxing authority or for the filing of a Tax Return.
(f) If any payments under this Section 4 are not made
when due, interest shall accrue on the unpaid amount at the underpayment rate
in effect under Section 6621 of the Code while such amount is outstanding.
(g) The obligations of either party under this Section 4
shall automatically terminate upon the institution by the other party of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under the United States Bankruptcy Code or any other applicable Federal
or State law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
similar official) of such party or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the
admission by it, in writing, of its inability to pay debts as they generally
become due, or the taking of corporate action by such party in furtherance of
such action.
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SECTION 5: Termination of 1987 Intercompany Agreement; Provision
of Information.
5.1 Termination of 1987 Intercompany Agreement. American
Express and Holdings hereby agree that the 1987 Intercompany Agreement is
superseded in its entirety by this Agreement and that the 1987 Intercompany
Agreement, including the license of the Marks contained therein, is in all
respects of no further force or effect. Holdings shall, and shall cause each
of its subsidiaries to, execute all additional documents which American Express
may reasonably request, as being required in order to perfect, maintain, defend
or terminate any right of any party in the Marks in any country of the world,
as determined by American Express in its sole discretion; provided that
Holdings shall not be so obligated if the execution of such document(s) would
result in material expense to or liability of LBHI.
5.2 Provision of Information. From and after the
Distribution Date, Holdings shall promptly provide to American Express such
financial and other information with respect to Holdings, which information is
reasonably necessary in order for Amexco to comply with its reporting
obligations under the Exchange Act.
SECTION 6: Inapplicability of Restrictions on Transfer.
American Express and Holdings hereby agree that all
restrictions on the sale, assignment, pledge or other transfer of the Common
Stock held by Amexco, pursuant to all agreements between them as entered into
prior to the date hereof, are of no further force or effect.
SECTION 7: Insurance.
7.1 Return of Premiums. Holdings shall be entitled to
receive upon receipt by American Express or directly from its insurers (a)
approximately $312,000 representing a return of premiums for property insurance
as a result of the sale of Shearson to Primerica Corporation, (b) approximately
$1.2 million or 20% of the total returned premiums, whichever is greater,
representing a return of premiums for commutation of the 1986 to 1991 National
Indemnity Directors and Officers policy,
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and (c) any additional return of premiums received by Amexco as a result of the
sale of Shearson, The Boston Company, SLHMC or as a result of the Distribution
(other than any return of premiums related to LBHI's ceasing to participate in
Amexco's 1993-94 comprehensive crime insurance policy); each of which amounts
if received by American Express shall be paid promptly following receipt.
7.2 Amexco Policies. On and after the Distribution Date,
American Express shall, in connection with any LBHI claim under an Amexco
insurance policy, instruct the applicable insurance carrier to negotiate with,
accept proof of loss and pay such claim directly to LBHI. The parties hereto
acknowledge that claims arising out of an occurrence or event which occurred
prior to the Distribution Date may be filed by LBHI against "occurrence-based"
insurance policies of Amexco following the Distribution Date, in accordance
with the terms of such policies. Amexco and LBHI each agree to provide
necessary releases to resolve claim settlements.
7.3 Collection. Amexco and LBHI will use their reasonable
best efforts to collect under their respective available insurances before
seeking indemnification, where allowed.
7.4 Workers Compensation. LBHI shall take all actions
necessary to secure a program of workers' compensation insurance of the scope
customarily obtained by corporations similarly situated, which program shall be
in effect no later than the Distribution Date. LBHI agrees that each workers'
compensation claim under Amexco's workers' compensation program brought by a
current or former LBHI employee shall be transferred to the LBHI workers'
compensation program no later than the Distribution.
7.5 Related Claims. In the event that Amexco and LBHI file
Related Claims, each of Amexco and LBHI shall receive a pro rata amount of the
available insurance proceeds, based on the relationship the loss incurred by
each such party bears to the total loss to both such parties from the event(s)
underlying the Related Claims.
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7.6 Unrelated Claims. To the extent that the limits of an
insurance policy preclude payment in full of Unrelated Claims filed by Amexco
and LBHI, the insurance proceeds available shall be paid to Amexco and/or LBHI
on a FIFO Basis.
7.7 Optima/FCH. Notwithstanding anything in this Agreement
to the contrary, in the event a global settlement of the 1991-1992 Amexco
directors and officers insurance policy ( the "D&O Policy") under which certain
claims relating to the activities of First Capital Holdings Inc. and its
subsidiaries ("FCH") and certain claims relating to Amexco's Optima business
are pending, is made with Amexco and LBHI, whereby the carriers of such policy
pay an aggregate amount for all outstanding claims thereunder without
allocating the payment to specific claims (i) Amexco shall receive from the
proceeds of such settlement an aggregate amount of $7,993,630 and (ii) LBHI
shall receive either directly from such carriers or from Amexco to the extent
such payments are first made to Amexco by the carriers the remaining proceeds
of such settlement.
7.8 WFC. Each of Amexco and LBHI shall provide insurance
relating to the WFC to the extent required by the TIC Agreement.
This Section 7 shall not apply to insurance matters relating
to employee benefit arrangements.
SECTION 8: Certain Litigation.
8.1 Balcor W/C Claims. Holdings hereby assumes
responsibility for managing and paying any workers' compensation claims (i)
which have been brought by current and former employees of The Balcor Company
and its subsidiaries ("Balcor") and (ii) which were covered under AIG policies
during the three-year period from September 30, 1987 to September 30, 1990
(each a "Balcor W/C Claim").
8.2 FCH Claims. American Express hereby agrees that,
notwithstanding anything in this Agreement to the contrary, LBHI shall have the
right to make any and all claims on behalf of Amexco against the D&O Policy or
any similar Amexco policy with respect to any Losses relating to Item 2 on
Schedule B.
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8.3 Amexco, on the one hand, and LBHI, on the other hand,
shall pay for the respective fees, costs and expenses incurred by them in
connection with a pending matter regarding the Money Market Preferred Stock of
American Express.
8.4 Each of Amexco, on the one hand, and LBHI, on the other
hand, shall pay for 50% of all Losses arising out of the Wikins Action that is
currently pending.
SECTION 9: Credit Union/Check Cashing Services.
On and after the Distribution Date, American Express will
cooperate with LBHI with a view to enabling LBHI to be named as a party, at no
cost to American Express, with respect to credit union services provided at the
WFC. American Express will not object to a representative of Holdings serving
on the board of directors of such credit union.
SECTION 10: American Express Guarantees; Other Matters.
10.1 Guarantee Fee. In consideration for American Express
maintaining the WFC Guarantee, commencing on the last day of the fiscal quarter
of Holdings in which the Balcor Notes are paid in full and on the last day of
each fiscal quarter thereafter, Holdings shall pay to American Express a fee
equal to the product of (a) 0.15625% multiplied by (b) LBHI's proportionate
share of the daily weighted average balance of the principal amount (or, in the
case of indebtedness issued with original issue discount, the accreted value)
of WFC Indebtedness outstanding during such fiscal quarter. In consideration
for American Express maintaining the DCP Guarantee, commencing on the last day
of the fiscal quarter of Holdings in which the Distribution occurs and on the
last day of each fiscal quarter thereafter, Holdings shall pay to American
Express a fee equal to the product of (x) 0.15625% multiplied by (y) the daily
weighted average amount due under the Deferred Compensation Plans during such
fiscal quarter. If LBHI delivers to Amexco an unconditional release of
Amexco's obligations under a Guarantee, signed by all of the parties to such
Guarantee and such other parties as Amexco may reasonably determine is required
to validly effect such a release, in form and
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substance reasonably satisfactory to Amexco, then LBHI's fee obligation with
respect to such Guarantee pursuant to this Section shall terminate, subject to
LBHI paying to American Express any theretofore unpaid fees in respect of such
Guarantee for any fiscal quarter prior to and including the fiscal quarter in
which such release is delivered.
10.2 WFC Indemnification. In connection with the financing
of the LB Co-Tenants' interests in WFC, American Express has unconditionally
guaranteed the obligations of the LB Co-tenants to third parties under the WFC
Indebtedness (collectively, the "Obligations"). In addition, the LB Co-tenants
have certain obligations to make payments pursuant to the TIC Agreement. LBHI
agrees to indemnify and hold harmless American Express in respect of (a) all
amounts that American Express shall pay on behalf of the LB Co-tenants under
the TIC Agreement and (b) all amounts paid (including any fees, expenses,
penalties and interest) by American Express based on or resulting from any such
guarantees. This indemnification shall be unaffected by any disposition by any
of the LB Co-tenants of all or any part of their interests in the WFC (except
to Amexco or any wholly-owned subsidiary of Amexco) and by any limitation of
liability or limitations as to recourse against the LB Co-tenants provided in
any of the Obligations.
10.3 LB Guarantee. Lehman Brothers Inc. ("LB")has issued a
Sole Recourse Note and Loan Agreement to American Express, dated December 4,
1987, in the principal amount of $74,917,500. At or prior to the Distribution,
Holdings shall execute and deliver to American Express its guarantee and
indemnity of the foregoing obligations of LB, such guarantee to be in such form
as reasonably requested by American Express and such guarantee to provide that
payment will be made by Holdings without regard to and notwithstanding any
subordination or limited recourse or other provisions in the notes limiting the
obligations of LB.
10.4 Stock Options and Restricted Stock Unit Awards. Under
the 1979 and 1989 Long-Term Incentive Plans of American Express, certain
officers and key employees of LBHI have received nonqualified stock options to
purchase American Express common shares (2 individuals) and restricted stock
unit awards (3 individ-
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uals). Holdings shall pay to American Express upon the exercise of such
nonqualified stock options, amounts equal to the income realized for federal
income tax purposes by the individual holders of such nonqualified stock
options as a result of such event (option exercise), multiplied by the highest
marginal federal corporate income tax rate in effect at such time. Holdings
shall pay to American Express, upon the expiration of the respective restricted
periods of such restricted stock unit awards, amounts equal to $41.48 per share
multiplied by the number of shares issued under such restricted stock unit
awards (such amounts being subject to adjustment in accordance with the
provisions of such plans and such awards). It is understood that the amounts
so paid represent amounts paid to purchase American Express common shares for
the employees of LBHI, and any reporting with respect to such payments for tax
purposes shall be consistent therewith.
10.5 Restricted Stocks Awards
Amounts pre-paid by LBHI stock awards granted under
the 1989 long-Term Incentive Plans of American Express will be refunded to LBHI
American Express following the cancellation of such awards on the Distribution
Date.
10.6 National Medical Examiners Matter
In connection with Aetna Life Insurance Company's
successful suit against National Medical Examiners, American Express recieved
a recovery as part of their partcipation in the Aetna contract. LB's share of
the payment will be mutually agreed by LB and American Express reflecting LB's
proportionate share of the claims experience.
SECTION 11: Communications.
11.1 Long Distance Carriers. On and after the Distribution
Date, LBHI shall continue to be covered by the Long Distance Agreements. In
connection therewith, American Express will consent to permit LBHI to be so
covered under such agreements. All costs and charges incurred under the Long
Distance Agreements shall be allocated pursuant to the terms of the
Intercompany Long Distance Agreements and the L/D Letter. On or prior to the
Distribution Date, American Express and Holdings shall execute the L/D Letter.
11.2 LBHI is in the process of obtaining for itself at the
WFC telephone equipment and services comparable to Amexco's Systems 85 and is
in the process, with Amexco's assistance, of migrating from the Systems 85 to a
NYNEX Intellipath system. On and after the Distribution Date, (i) for a period
of six months thereafter, American Express will continue to provide to LBHI
such assistance and services as LBHI shall reasonably require or request to
complete such migration in a timely manner, and (ii) LBHI shall continue to pay
Amexco on a Pre-Distribution Basis for those Amexco Systems 85 services or
equipment which it obtains or utilizes.
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SECTION 12: Purchasing.
LBHI will continue to be covered under the IBM Master Volume
Purchase Agreement, dated September 23, 1991 (and as updated and renewed by
letter agreement dated January 22, 1992), between International Business
Machines Corporation ("IBM") and American Express, through September 30, 1994
and thereafter Amexco shall have no obligation to LBHI in connection therewith.
In connection therewith, American Express shall consent to permit LBHI to (i)
be so covered and (ii) obtain IBM's compliance therewith.
SECTION 13: Temporary Clerical Services.
American Express will use its reasonable efforts to enter
into, on or prior to the Distribution Date, purchasing agreements for temporary
clerical services with one or more vendors, which agreements would permit LBHI,
until May 1, 1995, to be covered thereunder in its own capacity with direct
obligations to the temporary clerical services agencies and not through
American Express, provided that (a) after May 1, 1995 Amexco shall have no
obligation to LBHI in connection therewith and (b) American Express shall not
be required to enter into any such agreement if, after exercising its
reasonable efforts, American Express determines that permitting LBHI to be so
covered under such agreement would directly increase American Express' costs
thereunder.
SECTION 14: Technology Transfer and Licensing Agreements.
Amexco and LBHI hereby agree to enter into, on or about the
Distribution Date, certain licensing and transfer of ownership agreements,
regarding certain software and other related materials acquired or developed by
LBHI which are to be licensed or transferred to Amexco, by entering into
separate Supplements to the Master Intercompany Intellectual Property and
Technology Sharing Agreement, dated as of January 2, 1991, among certain Amexco
entities and LBHI.
SECTION 15: Aviation Services.
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LBHI shall have the right to continue to use Amexco aircraft
and related aviation services until June 30, 1994 on the same basis as it did
prior to the Distribution Date and after June 30, 1994, Amexco shall have no
obligation to LBHI in connection therewith. The costs and expenses incurred in
connection with providing such services shall be determined and allocated on a
Pre-Distribution Basis. Until December 31, 1994 and upon LBHI's request, the
staff of Amexco's aviation department will provide, at no additional cost to
LBHI, advice to LBHI relating to obtaining alternative aviation services.
SECTION 16: Equal Employment Opportunity Reporting.
On or before September 1, 1994, Holdings shall cause the
appropriate federal agency or agencies to be notified that as of the
Distribution Date, LBHI will no longer file EEOC-1 reports through or in
conjunction with Amexco. Other than with respect to its reporting obligations
for 1994 and prior years, following the Distribution Date, LBHI shall no longer
be required to deliver EEOC-1 reports to Amexco.
SECTION 17: Employee Scholarships.
LBHI will continue to participate in the Amexco scholarship
grant selection program (the "SGP") for 1994. Thereafter, LBHI shall no longer
participate in the SGP. On and after the Distribution Date, Holdings will
assume responsibility for the cost and administration of all scholarships
granted to LBHI applicants under the SGP, including those selected under the
1994 SGP. Until September 30, 1997, American Express shall provide LBHI with
such support and assistance as it may reasonably request or require to complete
such transfer of responsibilities to LBHI in an appropriate manner. Holdings
and American Express shall jointly approve any communications to LBHI
scholarship recipients related to such change in responsibilities.
SECTION 18: Comfort Letters.
LBHI acknowledges that Amexco intends to withdraw the Comfort
Letters and agrees that Amexco shall not
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be liable in any way to LBHI as a result of such withdrawal.
SECTION 19: Cultural Affairs.
Until December 31, 1994, LBHI shall be entitled to continue to
participate in all Amexco sponsored cultural events and programs and receive
culture card benefits on the same basis as it did prior to the Distribution
Date. American Express and Holdings shall cooperate in obtaining an
appropriate credit for LBHI in respect of each Amexco grant or sponsorship in
which LBHI participated and which continues after 1994.
SECTION 20: Philanthropy.
LBHI has paid its proportionate share of 1994 contributions to
the American Express Foundation and will continue to participate in the
American Express Foundation programs for 1994 and American Express will cause
the American Express Foundation to allocate funds in 1994 to LBHI sponsored
projects on the same basis as prior to the Distribution Date; provided,
however, that to the extent appropriate, on and after the Distribution Date,
gifts or grants made in 1994 will be made jointly in the names of designees of
American Express and Holdings.
SECTION 21: General Provisions.
21.1 Force Majeure. Neither American Express nor Holdings
shall be liable for any failure to perform, or for any delay in performance
attributable to any cause or circumstance beyond its reasonable control. Each
such party, however, shall be obligated to take all commercially reasonable
action necessary in order to resume the services which it provides to the other
hereunder in a prompt fashion.
21.2 Notices. Unless otherwise indicated, all notices
required under the terms and provisions hereof shall be in writing, either
delivered by hand, by mail (postage prepaid), or by facsimile and any such
notice shall be effective when received at the address specified below.
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If to LBHI: Lehman Brothers Holdings Inc.
Three World Financial Center
New York, New York 10285
Attention: Chief Legal Officer
Facsimile No. ( ) __________
If to Amexco: American Express Company
American Express Tower
World Financial Center
200 Vesey Street
New York, New York 10285
Attention: General Counsel
Facsimile No. ( ) __________
or at such other address as such party may designate from time to time by
notice duly given in accordance with the provisions hereof.
21.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
21.4 Relationship. Neither this Agreement nor any
transaction hereunder shall be deemed to create a partnership or joint venture,
affiliate or agency relationship between the parties.
21.5 Amendment; Waivers. No failure or delay on the part of
any party hereto in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. No waiver of any provision of this Agreement nor consent
to any departure therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. This Agreement
shall not be amended or modified unless such amendment or modification is in
writing and signed by American Express and Holdings.
21.6 Successors and Assigns. Neither party hereto may assign
or transfer its rights and obligations under this Agreement without the other's
written consent.
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This Agreement shall inure to the benefit of and be binding upon the parties
hereto, their respective successors and their permitted assigns.
21.7 Severability. In the event that any part of this
Agreement is declared by any court or other judicial or administrative body to
be null, void or unenforceable, said provision shall survive to the extent it
is not so declared, and all of the other provisions of this Agreement shall
remain in full force and effect.
21.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
21.9 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter. Except
as otherwise expressly set forth herein, this Agreement supersedes all prior
agreements and understandings between American Express and Holdings with
respect to the subject matter hereof. The parties hereto acknowledge, however,
that there exist other independent agreements between them regarding other
subject matter, each of which shall remain in full force and effect in
accordance with its respective terms, unless otherwise terminated or modified
hereby.
21.10 Further Assurances, Etc. Subject to the specific terms
of this Agreement, each of American Express and Holdings shall (a) make,
execute, acknowledge and deliver such other instruments and documents and take
all such other actions as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby and (b) endeavor to resolve any matter arising as a result of the
cessation of the parent/subsidiary relationship of American Express and
Holdings which is not specifically addressed in this Agreement or any
contemporaneous agreement.
21.11 Section Headings. The section headings and subheadings
in this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
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IN WITNESS WHEREOF, this Agreement has been duly signed as of
the date first above written by the duly authorized representatives of the
parties hereto.
AMERICAN EXPRESS COMPANY LEHMAN BROTHERS HOLDINGS INC.
By_______________________ By__________________________
Name: Name:
Title: Title:
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Schedule A
(Section 3.1(a))
1. All Losses arising out of any Action relating to any
business or other activities conducted by Balcor in which LBHI is named as a
parent company or control person of Balcor (including, without limitation,
Ralph Majeski, et. al. v. Balcor Entertainment Company, Ltd., et. al. and Paul
Williams and Beverly Kennedy, et. al. v. Balcor Pension Investors et. al.).
2. Losses incurred by LBHI in connection with its guaranties
of Balcor's obligations relating to the Westview Mall.
3. Losses incurred by LBHI in connection with its guaranties
of Balcor's obligations relating to FNMA loans made with respect to properties
known as Chestnut Ridge I and II, Country Court, Walnut Springs, Deerfield,
Meadows, Timber Creek, Town Oaks South and Hedges.
4. Losses incurred by LBHI in connection with its indemnities
for environmental liabilities provided to Continental Bank on behalf of Balcor
for loan pools known as Lexington, 5th Ave. Venture Plaza, Finberg and Realty
Friends.
A-1
<PAGE> 30
Schedule B
(Section 3.1(b))
1. Consistent with past practices of LBHI and Amexco,
all Losses arising out of any Action relating to any business or other
activities conducted by LBHI in which American Express is named as a parent or
control person of LBHI.
2. All Losses arising out of any Action relating to FCH
(including any derivative suit brought by the shareholders of American
Express).
3. Losses arising out of any Action relating to any
business or other activities conducted by Balcor in which the conduct of any
LBHI or Shearson broker is directly at issue (i.e., it is alleged that such
broker misrepresented the features of a particular Balcor product); provided
that the indemnification provided pursuant to this item 5 shall only be to the
extent to which such broker's conduct constitutes the basis for liability.
Holdings and American Express shall cooperate in a manner consistent with past
practice to determine on a case by case basis the percentage of any Losses for
which Holdings shall be required to indemnify Amexco pursuant to the preceding
sentence.
4. Losses arising out of any Action relating to any material
misstatement in or omission from information provided to American Express
pursuant to Section 5.2.
B-1
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER STATE SECURITIES
LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE INVESTMENT AGREEMENT DATED AS
OF APRIL 15, 1987 BY AND AMONG AMERICAN EXPRESS COMPANY ("PARENT") AND
LEHMAN BROTHERS HOLDINGS INC. (FORMERLY NAMED SHEARSON LEHMAN HUTTON
HOLDINGS INC.) ("COMPANY"), ON THE ONE HAND, AND NIPPON LIFE INSURANCE
COMPANY (INVESTOR"), ON THE OTHER HAND (THE "INVESTMENT AGREEMENT"), THE
1990 AGREEMENT, DATED AS OF JUNE 12, 1990, BY AND BETWEEN PARENT AND
INVESTOR, AS ADOPTED BY COMPANY IN THE COMPANY AGREEMENT, DATED AS OF
AUGUST 10, 1990 AND THE 1994 AGREEMENT, DATED AS OF MAY __, 1994, BY AND
AMONG PARENT, COMPANY AND INVESTOR AND IN SECTION 12 HEREOF. A COPY OF
SUCH CONDITIONS WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST AND WITHOUT CHARGE. THESE SECURITIES MAY NOT BE RESOLD OR
TRANSFERRED UNLESS SUCH CONDITIONS ARE COMPLIED WITH AND UNLESS REGISTERED
OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS.
WARRANT
to Purchase
[3,306,346]*
Shares
of
Common Stock (par value $.10 per share)
of
LEHMAN BROTHERS HOLDINGS INC.
Initial Price: $[35.0345]** per share
__________________________________
* To be adjusted to equal 10,398,221 multiplied by the actual Reverse Split
Ratio to be determined as of the Record Date for the Distribution.
** To be adjusted to equal $11.14 divided by the actual Reverse Split Ratio
to be determined as of the Record Date for the Distribution.
<PAGE> 2
This certifies that, for value received, NIPPON LIFE INSURANCE
COMPANY, a mutual insurance company organized under the laws of Japan
("Investor"), or its registered assigns (each, a "Holder") is entitled to
purchase, subject to the provisions of this Warrant and the 1990 Agreement (as
defined below), from LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation
("Company"), at any time on or after the date hereof and on or before the
Expiration Date, an aggregate of [3,306,346]* (the "Warrant Number") fully paid
and nonassessable shares of Common Stock, par value $.10 per share ("Company
Common Stock"), of the Company at a purchase price of $[35.0345]** per share
(as adjusted from time to time as hereinafter set forth, the "Warrant Price").
As used herein, the term "Expiration Date" means with respect to all or a
portion of the Warrant, as the case may be, the earlier of (i) the date fixed
for acceleration of this Warrant by the Company pursuant to Section 10 and (ii)
April 15, 1996. The Warrant Number and the Warrant Price
__________________________________
* To be adjusted to equal 10,398,221 multiplied by the actual Reverse Split
Ratio to be determined as of the Record Date for the Distribution.
** To be adjusted to equal $11.14 divided by the actual Reverse Split Ratio
to be determined as of the Record Date for the Distribution.
2
<PAGE> 3
are subject to adjustment from time to time as hereinafter set forth. This
Warrant is the Company Warrant referred to in Section 2.2 of the 1990
Agreement, dated as of June 12, 1990, by and between Parent and Investor, as
adopted by the Company in the Company Agreement, dated as of August 10, 1990
(the 1990 Agreement, as adopted, the "1990 Agreement").
Section 1. Definitions. Except as otherwise specified
herein, defined terms herein, which may be identified by the capitalization of
the first letter of each principal word thereof, have the meanings assigned to
them in the 1990 Agreement, as in effect on the date hereof.
Section 2. Exercise of Warrant. Subject to the provisions
hereof, this Warrant may be exercised, at any time on or after the date hereof
and on or before the Expiration Date (with respect to all or that portion of
the Warrant which has not been accelerated pursuant to Section 10), by
presentation and surrender hereof to Company at the office or agency of Company
maintained for that purpose pursuant to Section 11 (the "Warrant office or
agency"), with the Purchase Form annexed hereto duly executed and accompanied
by payment to Company, for the account of Company, of the Warrant Price for the
number
3
<PAGE> 4
of shares specified in such form. Company shall keep at the Warrant office or
agency a register for the registration and registration of transfer of
Warrants. The Warrant Price for the number of shares of Company Common Stock
specified in the Purchase Form shall be payable in United States dollars by
bank check or wire transfer of immediately available funds to an account
designated by Company for this purpose.
Upon receipt by Company of this Warrant at the Warrant office or
agency, in proper form for exercise, Holder shall be deemed to be the holder of
record of the shares of Company Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Company shall then be closed
or that certificates representing such shares of Company Common Stock shall not
then be actually delivered to Holder. Company shall pay all expenses, and any
and all stamp or similar taxes that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2,
except that Company shall not be required to pay any tax which may be payable
in respect off any transfer involved in the issue and delivery of shares of
Company Common Stock in a name other than that of Holder who shall have
surrendered the same in exercise of the sub-
4
<PAGE> 5
scription right evidenced thereby and no such issuance or delivery shall be
made unless and until the person requesting such issuance has paid to the
Company such tax or has established to the satisfaction of the Company that
such tax has been paid.
All shares of Company Common Stock issued upon exercise of
this Warrant shall be duly authorized and validly issued, fully paid and
nonassessable.
Section 3. Reservation of Shares; Preservation of Rights of
Holder. Company hereby agrees that there shall be reserved for issuance and/or
delivery upon exercise of this Warrant, free from preemptive rights, such
number of shares of authorized but unissued or treasury shares of Company
Common Stock, or other stock or securities deliverable pursuant to paragraph
(g) of Section 7, as shall be required for issuance or delivery upon exercise
of this Warrant. Company further agrees that it will not, by amendment of its
Restated Certificate of Incorporation or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by the
Company. Without limiting the generality of the
5
<PAGE> 6
foregoing, Company agrees that before taking any action which would cause an
adjustment reducing the Warrant Price below the then par value of Company
Common Stock issuable upon exercise hereof, Company will from time to time take
all such action which may be necessary in order that Company may validly and
legally issue fully paid and nonassessable shares of such Company Common Stock
at the Warrant Price as so adjusted.
Section 4. Fractional Shares. Company shall not be required
to issue fractional shares of Company Common Stock upon exercise of this
Warrant but shall pay for such fraction of a share in cash or by certified or
official bank check at the Warrant Price.
Section 5. Loss of Warrant. Upon receipt by Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnifi- cation, and upon surrender and cancellation
of this Warrant, if mutilated, Company will execute and deliver a new Warrant
of like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of Company, whether
or not this Warrant so lost,
6
<PAGE> 7
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
Section 6. Rights of the Investor. Holder shall not, by
virtue hereof, be entitled to any rights of a shareholder in Company.
Section 7. Antidilution Provisions. The Warrant Price and
the Warrant Number shall be subject to adjustment from time to time as provided
in this Section 7.
(a) In case Company shall pay or make a dividend or other
distribution on any class of capital stock of Company in Company Common Stock,
the Warrant Price in effect at the opening of business on the day following the
date fixed for the determi- nation of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such Warrant
Price by a fraction of which the numerator shall be the number of shares of
Company Common Stock outstanding at the close of business on the date fixed for
such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the date fixed for such determination. In the
7
<PAGE> 8
event that such distribution is not so made, (i) the Warrant Price shall again
be adjusted to be the Warrant Price which would then be in effect if such date
fixed for determination of stockholders entitled to receive such distribution
had not been fixed, and (ii) Holder shall have the option of reversing any
exercise of this Warrant made after such record date in contemplation of such
distribution (and thereby re-establishing this Warrant to the extent so
exercised) by returning to Company any Company Common Stock, cash and other
securities or property which had been received on such exercise; provided, that
the option set forth in this clause (ii) shall be exercisable only
prospectively by a written instrument delivered to Company at the time this
Warrant is so exercised, which instrument shall state that Holder revokes such
exercise of this Warrant if such distribution is not so made. For the purposes
of this paragraph (a), the number of shares of Company Common Stock at any time
outstanding shall not include shares held in the treasury of Company but shall
include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Company Common Stock. Company will not pay any dividend
or make any distribution on shares of Company Common Stock held in the treasury
of Company.
8
<PAGE> 9
(b) In case Company shall issue rights or warrants to all
holders of Company Common Stock entitling them to subscribe for or purchase
shares of Company Common Stock at a price per share less than (i) if Company
shall have outstanding at the time of such issuance and for a period of at
least 30 trading days immediately prior to such issuance Public Company Stock,
the Average Market Price of Company Common Stock or (ii) if otherwise, the Fair
Market Value per share of Company Common Stock, on the date fixed for the
determination of stockholders entitled to receive such rights or warrants, the
Warrant Price in effect at the opening of business on the day following the
date fixed for such determination shall be reduced by multiplying such Warrant
Price by a fraction of which the numerator shall be the number of shares of
Company Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Company Common Stock which the
aggregate of the offering price of the total number of shares of Company Common
Stock so offered for subscription or purchase would purchase at such Average
Market Price or Fair Market Value, as the case may be, and the denominator
shall be the number of shares of Company Common Stock outstanding at the close
of business on the
9
<PAGE> 10
date fixed for such determination plus the number of shares of Company Common
Stock so offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. In the event that such issuance is not so
made, (i) the Warrant Price shall again be adjusted to be the Warrant Price
which would then be in effect if such date fixed for determination of
stockholders entitled to receive such rights or warrants had not been fixed,
and (ii) Holder shall have the option of reversing any exercise of this Warrant
made after such record date in contemplation of such issuance (and thereby
re-establishing this Warrant to the extent so exercised) by returning to
Company any Company Common Stock, cash and other securities or property which
had been received on such exercise; provided, that the option set forth in
this clause (ii) shall be exercisable only prospectively by a written
instrument delivered to Company at the time this Warrant is so exercised, which
instrument shall state that Holder revokes such exercise of this Warrant if
such issuance is not so made. For the purposes of this paragraph (b), the
number of shares of Company Common Stock at any time outstanding shall not
include shares held in the treasury
10
<PAGE> 11
of Company. Company agrees that it will not issue any rights or warrants in
respect of shares of Company Common Stock held in the treasury of Company. For
purposes of this paragraph (b), "Fair Market Value" per share of Company Common
Stock on any date means the fair market value thereof on the date in question,
which either (A) shall be determined jointly by Company and Investor or (B) if
Investor and Company cannot agree, shall be reasonably determined in good faith
by the Board of Directors of Company.
(c) In case outstanding shares of Company Common Stock shall
be subdivided into a greater number of shares of Company Common Stock, the
Warrant Price in effect at the opening of
11
<PAGE> 12
business on the day following the date upon which such subdivision becomes
effective shall be proportionately reduced, and conversely, in case outstanding
shares of Company Common Stock shall each be combined into a smaller number of
shares of Company Common Stock, the Warrant Price in effect at the opening of
business on the day following the date upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as
the case may be, to become effective immediately after the opening of business
on the day following the date upon which such subdivision or combination
becomes effective.
(d) In case Company shall, by dividend or otherwise,
distribute to all holders of Company Common Stock evidences of its indebtedness
or assets (including securities, but excluding (i) any rights or warrants
referred to in paragraph (b) of this section 7, (ii) any dividend or
distribution paid in cash or other property out of the Adjusted Retained
Earnings of Company and (iii) any dividend or distribution referred to in
paragraph (a) of this Section 7), then either (at the option of Company) (I)
Company shall elect to include in such distribution Holder (as of the record
date for such distribution) as if Holder had exercised this Warrant for Company
Common Stock immediately prior to such record date (such exercise assumed to be
made at the Warrant Price in effect without regard to the adjustment provided
in the following clause (II)), or (II) the Warrant Price shall be adjusted so
that the same shall equal the price determined by multiplying the Warrant Price
in effect immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the Fair Market Price per share of
12
<PAGE> 13
Company Common Stock on the date fixed for such determination less the fair
market value (as determined jointly by Company and Investor, or an independent,
internationally recognized investment banking firm selected by them if they are
unable to reach agreement) on such date of the portion of the assets or
evidences of indebtedness so distributed applicable to one share of Company
Common Stock and the denominator shall be the Fair Market Price per share of
Company Common Stock, such adjustment to become effective immediately prior to
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution. In the
event that such distribution is not so made, (i) the Warrant Price shall again
be adjusted to be the Warrant Price which would then be in effect if such date
fixed for determination of stockholders entitled to receive such distribution
had not been fixed, and (ii) Holder shall have the option of reversing any
exercise of this Warrant made after such record date in contemplation of such
distribution (and thereby re-establishing this Warrant to the extent so
exercised) by returning to Company any Company Common Stock, cash and other
securities or property which had been received on such exercise; provided, that
the option set forth in
13
<PAGE> 14
this clause (ii) shall be exercisable only prospectively by a written
instrument delivered to Company at the time this Warrant is so exercised, which
instrument shall state that Holder revokes such exercise of this Warrant if
such distribution is not so made. If Company makes an election under clause
(I) of this paragraph (d) with respect to any such distribution payable on this
Warrant (an "Elected Company Dividend"), Company may in lieu of such
distribution elect to pay the fair market value (determined as provided above)
of such Elected Company Dividend in cash (the "Cash Equivalent") or elect to
defer payment of such Elected Company Dividend or the Cash Equivalent to the
Holder and hold such amount (and any amounts subsequently paid or earned in
respect of such deferred Elected Company Dividend or Cash Equivalent) in trust
for the Holder until this Warrant is exercised; provided, that payment to the
Holder shall be made promptly upon exercise; and provided, further, that any
such deferred Elected Company Dividend or Cash Equivalent applicable to any
portion of this Warrant shall not be payable and shall be released to Company
and no longer held in trust for the Holder with respect to such portion after
this Warrant has expired. Any cash to be held in trust for Holder as a
deferred Elected Company Dividend
14
<PAGE> 15
or Cash Equivalent shall be invested by Company in U.S. government treasury
bills. For purposes of this paragraph (d): "Adjusted Retained Earnings" shall
mean the retained earnings of Company as of the date of such dividend or
distribution plus $500,000,000 and any dividend paid after the Closing Date
(which has been debited against retained earnings) on any preferred stock of
Company outstanding on the Closing Date; and "Fair Market Price" per share of
Company Common Stock on any date means the fair market value thereof on the
date in question, determined (i) jointly by Company and Investor or (ii) if
Investor and Company cannot so agree, by an independent, internationally
recognized investment banking firm selected by Investor and Company which
determination in any such case shall include the value attributable to any
assets or securities to be distributed to the holders of Company Common Stock.
(e) The reclassification (including any reclassification upon
a consolidation or merger in which Company is the continuing corporation, but
not including any transactions for which an adjustment is provided in paragraph
(g) below) of Company Common Stock into securities including other than Company
Common Stock shall be deemed to involve (i) a distribution of such securities
15
<PAGE> 16
other than Company Common Stock to all holders of Company Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of stockholders entitled to receive such distribution"
and "the date fixed for such determination" within the meaning of paragraph (d)
of this Section 7), and (ii) a subdivision or combination, as the case may be,
of the number of shares of Company Common Stock outstanding immediately prior
to such reclassification into the number of shares of Company Common Stock
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the date upon which such subdivision
becomes effective" or "the date upon which such combination becomes effective,"
as the case may be, and "the date upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section 7).
(f) Company may make such reductions in the Warrant Price, in
addition to those required by paragraphs (a), (b), (c), (d) and (e) of this
Section 7, as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
16
<PAGE> 17
(g) In case of any consolidation of Company with, or merger
of Company into, any other Person, any merger of another Person into Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Company Common Stock) or any
sale or transfer of all or substantially all of the assets of Company, the
Person formed by such consolidation or resulting from such merger or which
acquires such assets, as the case may be, shall execute and deliver to the
Holder a new Warrant satisfactory in form and substance to Holder, providing
that the Holder shall have the right thereafter, during the period such Warrant
shall be outstanding to exercise such Warrant only into the kind and amount (if
any) of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by a holder of the number of shares of Company Common
Stock of the Company into which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. If the
holders of the Company Common Stock may elect from choices the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer, then for the purpose of this Section 7 the kind and
amount of securi-
17
<PAGE> 18
ties, cash and other property receivable upon such consolidation, merger, sale
or transfer shall be deemed to be the choice specified by Holder, which
specification shall be made by Holder by the later of (i) 20 Business Days
after Holder is provided with a final version of all information required by
law or regulation to be furnished to holders of Company Common Stock concerning
such choice, or if no such information is required, 20 Business Days after
Company notified Holder of all material facts concerning such specification and
(ii) the last time at which holders of Common Stock are permitted to make their
specification known to Company. If Holder fails to make any specification,
Holder's choice shall be deemed to be whatever choice is made by a plurality of
holders of Common Stock not affiliated with Company or the other Person to the
merger or consolidation or, if no such holders exist, as specified by the Board
of Directors of the Company in good faith. Such new Warrant shall provide for
adjustments which, for events subsequent to the effective date of such new
Warrant, shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The above provisions of this paragraph (g)
shall similarly apply to successive consolidations, mergers, sales or
transfers.
18
<PAGE> 19
(h) Whenever there shall be any change in the Warrant Price
hereunder, then there shall be an adjustment (to the nearest hundredth of a
share) in the number of shares of Company Common Stock purchasable upon
exercise of this Warrant, which adjustment shall become effective at the time
such change in the Warrant Price becomes effective and shall be made by
multiplying the number of shares of Company Common Stock purchasable upon
exercise of this Warrant immediately before such change in the Warrant Price by
a fraction the numerator of which is the Warrant Price immediately before such
change and the denominator of which is the Warrant Price immediately after such
change. Any Elected Company Dividend or Cash Equivalent then being held in
trust by Company shall, following such adjustment, continue to be so held for
distribution with respect to the adjusted number of shares of Company Common
Stock.
(i) No adjustment in the Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least 5% in
such price; provided, however, that any adjustments which by reason of this
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. Notwithstanding the foregoing, any
adjust-
19
<PAGE> 20
ment required by this subsection (i) shall be made no later than the earlier of
three years from the date of the transaction which mandates such adjustment or
the expiration of the right to exercise the Warrant or a portion thereof.
(j) In any case in which this Section 7 shall require that an
adjustment shall become effective immediately after a record date for an event,
Company may defer until the occurrence of such event (i) issuing to Holder, if
the Warrant is exercised after such record date and before the occurrence of
such event, the additional Company Common Stock (and associated Elected Company
Dividend or Cash Equivalent, if any) issuable upon such exercise by reason of
the adjustment required by such event over and above Company Common Stock (and
associated Elected Company Dividend or Cash Equivalent, if any) issuable upon
such exercise before giving effect to such adjustment and (ii) paying to Holder
any amount in cash in lieu of a fractional share of Company Common Stock
pursuant to Section 4 above; provided, that, upon request of Holder, Company
shall deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's rights to receive such additional Company Common
20
<PAGE> 21
Stock and such cash, upon the occurrence of the event requiring such
adjustment.
Section 8. Notice of Adjustment of Warrant Price. Whenever
the Warrant Price is adjusted as herein provided, Company shall compute the
adjusted Warrant Price in accordance with Section 7 and shall prepare a
certificate signed by the Treasurer of Company (or other responsible financial
officer) setting forth the adjusted Warrant Price and showing in reasonable
detail the facts upon which such adjustment is based, and such certificate
shall forthwith be filed at the Warrant office or agency of Company and a copy
sent by air mail as soon as practicable to Holder (other than Investor) at its
last address as it shall appear upon the register provided for in Section 2 or
to such other address, otherwise as provided in Section 13.
Section 9. Notice Regarding Dividends, Subscription Rights,
Reclassifications, Dissolutions. In case:
(a) Company shall declare a dividend (or any other
distribution) on Company Common Stock payable otherwise than in cash
out of its Adjusted Retained Earnings; or
21
<PAGE> 22
(b) Company shall authorize the granting to the holders of
Company Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(c) of any reclassification of Company Common Stock (other
than a subdivision or combination of its outstanding shares of Company
Common Stock), or of any consolidation or merger to which Company is a
party and for which approval of any stockholders of Company is
required, or of the sale or transfer of all or substantially all of
the assets of Company; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of Company;
then Company shall cause to be filed at its Warrant office or agency, and
shall cause to be air mailed to Holder at its last address as it shall appear
upon the register provided for in Section 2, at least 30 days (or 15 days in
any case specified in clause (a) or (b) above) prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution or
issuance of rights or warrants, or, if a
22
<PAGE> 23
record is not to be taken, the date as of which the holders of Company Common
Stock of record to be entitled to such dividend, distribution or rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is expected that
holders of Company Common Stock of record shall be entitled to exchange their
shares of Company Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
Section 10. Acceleration of Expiration Date. Company may at
its option, and upon at least 60 days' and not more than 75 days' prior written
notice to the Holder, accelerate expiration of that portion of this Warrant set
forth below:
<TABLE>
<CAPTION>
Number of Shares As to
Which Warrant Expires
<S> <C>
From the Closing Date
to and including
August 10, 1991 . . . . up to (i) 0.2 times (ii) the Warrant Number minus the number of shares of Company Warrant
Common Stock issued prior to the date fixed for acceleration.
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
thereafter to
and including
August 10, 1992 . . . . up to (i) 0.4 times (ii) the Warrant Number minus the number of shares of Company Warrant
Common Stock issued or accelerated prior to the date fixed for acceleration.
thereafter to
and including
August 10, 1993 . . . . up to (i) 0.6 times (ii) the Warrant Number minus the number of shares of Company Warrant
Common Stock issued or accelerated prior to the date fixed for acceleration.
thereafter to
and including
August 10, 1994 . . . . up to (i) 0.8 times (ii) the Warrant Number minus the number of shares of Company Warrant
Common Stock issued or accelerated prior to the date fixed for acceleration.
thereafter . . . . . . . up to the Warrant Number minus the number of shares of Company Warrant Common Stock issued or
accelerated prior to the date fixed for acceleration.
</TABLE>
provided, however, Company shall not have the right to require such an
acceleration unless (i) there is Public Company Common Stock outstanding on the
date upon which notice of acceleration is first given and such redemption is
effected, and (ii) the closing price (determined in
24
<PAGE> 25
the manner provided in the definition of "Average Market Price" set forth in
Exhibit 1 to the Investment Agreement) of Company Common Stock has equaled or
exceeded 135% of the then current Exercise Price on at least twenty (20) of
thirty (30) consecutive trading days ending not earlier than the Business Day
prior to the day on which notice of acceleration is first given; and provided,
further, that the effective date of any acceleration pursuant to this Section
10 shall be delayed (but in no event more than one year) to the extent
necessary for the Holder or Company to effect compliance with any laws or
regulations applicable to the exercise of Holder's right to exercise this
Warrant. The notice of expiration shall state the Warrant Price as of the date
thereof. Upon any such expiration in part, the Company shall, if requested by
Holder, issue a new Warrant representing the unexpired portion upon receipt of
this Warrant.
Section 11. Maintenance of Office or Agency. Company will
maintain an office or agency in the Borough of Manhattan, The City of New York,
where this Warrant may be presented or surrendered for split-up, combination,
registration of transfer, or exchange and where
25
<PAGE> 26
notices and demands to or upon Company in respect of the Warrant may be served.
Section 12. Assignments or Transfers. Unless Holder is
Parent or one of its Affiliates, Holder may not (i) transfer, sell or otherwise
assign this Warrant to any Person other than Investor, Company or Parent, or an
Affiliate of any of them, or (ii) request that shares of Company Common Stock
be issued upon exercise of this Warrant to any Person other than Investor,
Company or Parent, or an Affiliate of any of them, unless transfer of such
Company Common Stock is permitted to such person under Section 7.3 of the 1990
Agreement, in each case without the prior written consent of Company.
Section 13. Notices. Notices under this Warrant to Company
and Investor shall be provided in the manner, and to the addresses of Company
and Investor, set forth in the Company Agreement.
26
<PAGE> 27
Section 14. Governing Law. This Warrant shall be governed
by, and interpreted in accordance with, the laws of the State of New York,
without regard to principles of conflicts of law.
Dated: Amended and LEHMAN BROTHERS
Restated as of HOLDINGS INC.
May __, 1994
(Seal)
By
-------------------------
ATTEST:
- -----------------------
Secretary
27
<PAGE> 28
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _________ shares of Company Common
Stock, par value $.10 per share, of LEHMAN BROTHERS HOLDINGS INC. and hereby
makes payment of $____________ in payment of the Warrant Price thereof.
Dated: , 19 .
-------------------- --
Instructions for Registration of Stock
Name
---------------------------------------------
(please typewrite or print in block letters)
Address
------------------------------------------
28
<PAGE> 1
LEHMAN BROTHERS INC.
VOLUNTARY DEFERRED
COMPENSATION PLAN
AS AMENDED EFFECTIVE JANUARY 1, 1991
AND SUBSEQUENTLY AMENDED THROUGH JULY 31, 1993
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
Deferred Compensation Account Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
Deferred Compensation Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V
Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI
Payment of Deferred Compensation; Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VIII
Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XI
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 3
LEHMAN BROTHERS INC.
VOLUNTARY DEFERRED
COMPENSATION PLAN
AS AMENDED EFFECTIVE JANUARY 1, 1991 AND SUBSEQUENTLY
AMENDED THROUGH JULY 31, 1993
ARTICLE I
Definitions
1.1 As used in this Plan, the following terms shall have
the meanings hereinafter set forth:
"Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Beneficiary" means any person(s) or legal entity(ies)
designated by the Participant or otherwise in accordance with Section 11.8.
"Bonus" means the bonus paid by the Employer to an Officer,
Branch Manager or Key Employee during any Plan Year.
"Branch Manager" means a person employed by the Employer as
the Manager of a domestic branch office.
"Cause" means willful misconduct, dishonesty, conviction of a
felony, persistent incompetence or habitual or gross negligence in the
performance of a Participant's duties to the Company other than as a result of
total or partial incapacity due to disability, persistent failure to abide by
the policies and regulations of the Company or American Express Company, or
such other similar conduct as determined by the Committee in its sole
discretion.
"CBT" means the Chicago Board of Trade.
"CEA" means the Commodity Exchange Act, as in effect from time
to time.
"CFTC" means the Commodity Futures Trading Commission.
"Commissions" means the gross commissions credited by the
Employer for sales made by a Financial Consultant for any Plan Year.
<PAGE> 4
"Committee" means the Employee Benefit Plans Committee of the
Company which administers the Plan in accordance with ARTICLE IX.
"Company" means Lehman Brothers Inc., a Delaware
corporation, and its successors and assigns.
"Deferred Compensation Account" means the account established
and maintained under the Plan for a Participant for each Participation Year.
"Disability" means (a) prior to the Restatement Date,
disability as defined under the Lehman Brothers Inc. Long-Term
Disability Plan, and (b) on or subsequent to the Restatement Date, termination
of a Participant's employment with the Company by reason of total and permanent
disability, determined in accordance with the Lehman Brothers Inc.
Long-Term Disability Plan, as in effect from time to time.
"Effective Date" means January 1, 1979.
"Eligible Employee" means, with respect to any Plan Year, an
Officer, Branch Manager, Financial Consultant or Key Employee. Notwithstanding
the foregoing, an Eligible Employee shall not, with respect to any Plan Year,
include any such person who, for such Plan Year, is classified as an "Eligible
Employee" under any other "Voluntary Deferred Compensation Plan" maintained by
the Company (or who would, for such Plan Year, be so classified under any other
such Voluntary Deferred Compensation Plan had such other such Plan not
previously been terminated).
"Employer" means the Company and any subsidiary or affiliate
thereof which shall be designated by the Committee as a participating employer
under the Plan.
"Exchange" means the New York Stock Exchange, Inc.
"Financial Consultant" means a person employed by the Employer
as a Financial Consultant.
"Financial Hardship" means severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or a dependent, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The circumstances that
will constitute a Financial Hardship will depend upon the facts of each case
and will be determined by the Committee in its sole discretion, but
distributions may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement
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<PAGE> 5
or compensation by insurance or otherwise or (ii) by liquidation of the
Participant's assets, to the extent the liquidation of such assets would not
itself cause severe financial hardship.
"Installments" means substantially equal installments payable
annually as of the last day of the applicable calendar quarter and as of the
anniversary thereof in each succeeding year over a period certain not to exceed
15 years, as elected by a Participant in accordance with Section 6.1.
"Interest" on a Deferred Compensation Account shall have the
meaning set forth in Section 4.3.
"Key Employee" means a highly-compensated key employee of the
Employer other than an Officer, Branch Manager or Financial Consultant
designated by the Committee as such.
"NASD" means the National Association of Securities Dealers,
Inc.
"Officer" means an officer of the Employer as defined in the
Employer's By-Laws.
"Participant" for any Plan Year means an Eligible Employee who
elects to participate in the Plan in accordance with ARTICLE II.
"Participation Year" means each Plan Year for which a
Participant elects to participate in the Plan.
"Plan" means the Lehman Brothers Inc. Voluntary Deferred
Compensation Plan, as embodied herein and as amended from time to time.
"Plan Year" means the calendar year beginning on the Effective
Date and each succeeding calendar year the Plan remains in effect.
"Restatement Date" means January 1, 1991.
"Retirement" means (a) prior to the Restatement Date, a
Participant's retirement from employment with the Company under (i) the
provisions of the Company's Retirement Plan, or (ii) some other arrangement,
but only if approved in advance by the Committee, and (b) on or after the
Restatement Date, termination of a Participant's employment with the Company as
a result of his retirement, determined pursuant to the provisions of the
Lehman Brothers Holdings Inc. Retirement Plan, as in effect from time
to time.
"Rule" means Rule 15c3-l under the Act.
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<PAGE> 6
"Salary" means the basic salary paid to an Officer, Branch
Manager or Key Employee for any Plan Year by the Employer.
"SEC" means the Securities and Exchange Commission.
"Separation from Service" means termination of a Participant's
employment with his Employer or the Company by reason of Retirement,
Disability, death or otherwise.
"SIPA" means the Securities Investor Protection Act of 1970,
as in effect from time to time.
1.2 Wherever any words are used herein in the masculine
gender, they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form, they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
ARTICLE II
Participation
2.1 (a) Prior to the December 4 preceding a Plan Year, or
such other date(s) as determined by the Committee, each Eligible Employee may
elect to participate in the Plan for the Plan Year by written notice to the
Committee, which notice must specify, subject to the provisions of Sections 2.2
and 6.1, the percentage of Salary, Commissions and Bonus to be deferred and the
time and form of payment; provided, however, that the Committee may establish
procedures and forms which are applicable to all Eligible Employees under which
Eligible Employees may elect to participate in the Plan on a prospective basis
as of some other date(s) specified in such procedures.
(b) Notwithstanding paragraph (a) of this
Section, an Eligible Employee who is first employed by the Employer during any
Plan Year may elect to participate in the Plan for such Plan Year by written
notice to the Committee otherwise consistent with Section 2.1(a) not later than
15 days after his date of employment.
(c) Notwithstanding the other provisions of this
Section 2.1, upon application of any Participant and approval thereof by the
Committee, the Participant may at any time during a Participation Year revoke,
by reason of Financial Hardship, his election to participate in the Plan for
such Participation Year. Upon such revocation, any amount credited to his
Deferred
-4-
<PAGE> 7
Compensation Account for such year shall be paid to him without interest as
soon as practicable thereafter.
2.2 (a) The elections pursuant to Section 2.1 may
defer any whole number percentage of the Eligible Employee's Salary,
Commissions and Bonus; provided, however, that the maximum amount which may be
deferred for any Plan Year is 50% of an Eligible Employee's Salary, Commissions
and Bonus for such Plan Year, unless the Committee determines and establishes
some other percentage and/or specific dollar amount applicable to all elections
under the Plan.
(b) In the event an Eligible Employee's
Separation from Service occurs prior to the end of any Participation Year, his
election to participate in the Plan for such Participation Year shall be deemed
revoked and any amount credited to the Deferred Compensation Account for such
Plan Year shall be paid to him (or his Beneficiary) without Interest as soon as
practicable thereafter.
2.3 Notwithstanding anything herein to the contrary, a
Participant ceases to be a Participant on the date of his Separation from
Service; provided, however, that if a Participant continues to be employed by
an affiliate or subsidiary of the Company, he shall not incur a Separation from
Service until such time as he incurs a Separation from Service with such
affiliate or subsidiary.
ARTICLE III
Deferred Compensation Account Credits
3.1 The Committee shall cause to be credited to each
Participant's Deferred Compensation Account for a Participation Year the
amounts which he elected to defer in accordance with Section 2.1 as of the
effective date of deferral, in accordance with such rules and procedures as
shall be established by the Committee.
3.2 Notwithstanding any provisions herein to the contrary,
the Committee in its sole discretion may suspend any and all contributions
under the Plan for such period of time as it determines.
ARTICLE IV
Deferred Compensation Accounts
4.1 The Committee shall establish and maintain a Deferred
Compensation Account for each Participant for each Participation
-5-
<PAGE> 8
Year commencing on and after the Effective Date. Notwithstanding any of the
provisions of this ARTICLE IV, the subordination provisions contained herein in
ARTICLE VIII shall become effective as to any Deferred Compensation Account for
a Participation Year on the December 31 following commencement of that
Participation Year.
4.2 Interest shall be credited on amounts credited to each
Deferred Compensation Account as of the last day of each calendar quarter from
the effective date of deferral to the last day of the calendar quarter
immediately preceding the date on which such amounts are distributed to the
Participant at an annual rate equal to the average 30-day U.S. Treasury Bill
rate during such quarter and such interest shall be compounded annually
commencing with the first day of each Plan Year; provided, however, that (a) if
Section 6.2 is applicable, no interest shall be credited to the Participant's
Deferred Compensation Account after the last day of the calendar quarter in
which his Separation from Service occurred until such time as payment is made,
and (b) if Section 2.2(b) is applicable, no Interest shall be credited to
the Participant's Deferred Compensation Account for the applicable
Participation Year.
ARTICLE V
Vesting
5.1 Except as otherwise provided in Section 5.2, a
Participant shall at all times be fully vested in his Deferred Compensation
Account for any Participation Year.
5.2 Effective as of the Restatement Date, and
notwithstanding anything herein to the contrary, a Participant shall forfeit
his Deferred Compensation Account, including all earnings credited to such
Deferred Compensation Account, if the Participant is terminated for Cause;
provided, however, that in such event the Committee may decide, in its sole
discretion, whether the Participant shall continue to be vested in any portion
of the Deferred Compensation Account.
ARTICLE VI
Payment of Deferred Compensation; Withdrawals
6.1 At the time an Eligible Employee elects to become a
Participant for any Participation Year, he shall also elect in writing to the
Committee, on a form provided by the Committee, to have his Deferred
Compensation Account for such year paid (a) in a lump sum as soon as
practicable following the second anniversary of the last day of the applicable
Participation Year or (b) as soon as
-6-
<PAGE> 9
practicable following the last day of the calendar quarter coincident with or
next following the date which is six months following his Separation of Service
as a result of his Retirement, Disability of death, in a single lump sum or, in
the event of a Separation of Service on account of Retirement, Installments (as
indicated on such election).
6.2 Notwithstanding the provisions of Section 6.1, if a
Participant's Separation from Service occurs other than by reason of
Retirement, Disability or death, payment of the amounts credited to his
Deferred Compensation Accounts for all Participation Years preceding the
current Participation Year shall be made in a lump sum as soon as practicable
after the last day of the calendar quarter in which the first anniversary of
his Separation from Service occurs and no Installment payments, if applicable,
shall be made during the one-year period prior to such date.
6.3 If a Participant fails to make a timely election in
accordance with procedures established by the Committee and on the form
provided by the Committee, a Participant shall have the amount credited to his
Deferred Compensation Account for each Participation Year paid to him in
accordance with clause (b) of Section 6.1.
6.4 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, distributions of a Participant's Deferred
Compensation Accounts shall commence as soon as practicable following the
commencement of distributions to the Participant under the Lehman Brothers
Holdings Inc. Retirement Plan, even if the Participant has made a previous
election to defer payment and even if the Participant has not otherwise
incurred a Retirement, Disability, death, or other Separation from Service,
with the form of payments being made in the manner elected by the Participant
in accordance with the provisions of Section 6.1; provided, however, that no
such distribution of an amount held in the Participant's Deferred Compensation
Account shall occur until the date which is one year following the last day of
the Plan Year in which such amount was credited to such Deferred Compensation
Account.
6.5 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, any amounts payable hereunder may be retained
by the Company in the event the Participant owes the Company any funds at the
time such Participant is otherwise entitled to receive amounts credited to his
Deferred Compensation Account.
6.6 Plan payments shall not be included in the calculation of
Financial Consultant production levels or be utilized for any
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<PAGE> 10
similar purpose, and all such payments shall be considered cash compensation to
the Participant when paid, subject to all applicable federal, state and local
income taxes and withholding.
6.7 Amounts paid under the Plan shall not be eligible for
further deferral under the Plan.
6.8 If a Participant dies, his Beneficiary shall be entitled
to receive, as soon as administratively practicable after the date of his
death, the payment of his Deferred Compensation Account, with such payment
being made in the form elected by the Participant in accordance with the
provisions of Section 6.1, less any applicable federal, state and local income
taxes and withholding, if any.
6.9 No Interest or other earnings shall be paid on any amount
payable under the Plan for the period commencing on the last day of the
calendar quarter in which payment is required to be made and ending on the date
payment is actually made.
6.10 No payments shall be required or made if, in the opinion
of the Committee, such payment would not comply with the rules and regulations
of the NASD, the SEC, the CBT, any state securities regulatory authority, or
any other applicable law, rule or regulation, or the Participant is subject to
the provisions of Section 11.4.
6.11 Notwithstanding anything herein to the contrary, a
Participant may request and receive a hardship distribution, provided the
Participant is able to demonstrate, to the satisfaction of the Committee, that
he has suffered a Financial Hardship. A hardship distribution request must be
made on the form provided by the Committee and is subject to the rules
established by the Committee governing hardship distributions. The amount
distributed cannot exceed the lesser of (a) the Participant's Deferred
Compensation Account, or (b) the amount necessary to satisfy the Participant's
Financial Hardship. No distribution may be made prior to the time the
Committee approves the distribution, and payment is subject to the provisions
of Section 8.3.
6.12 Any Participant who transfers to the employ of a
subsidiary or affiliate of the Company and who later incurs a Separation from
Service with such subsidiary or affiliate shall receive a distribution of his
Deferred Compensation Account, in accordance with the provisions of this
ARTICLE VI, upon a termination of employment with such subsidiary or affiliate.
6.13 Any payment made to a Participant or his Beneficiary or
estate pursuant to the terms of the Plan shall constitute a
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<PAGE> 11
complete discharge of the obligations of the Company and the Committee with
respect thereto.
6.14 Notwithstanding any other provision of the Plan to the
contrary, to the extent that, with respect to any Plan Year, any person is
ineligible to participate in this Plan, no amounts shall be paid to such person
(or his beneficiary) under this Plan. In that event, and to that extent, the
entire amount, if any, which such person (or his beneficiary) is entitled to
receive, in lieu of any amounts under this Plan, shall be determined
exclusively under the terms of such other "Voluntary Deferred Compensation
Plan," if any, then maintained by the Company in which such person is a
participant.
ARTICLE VII
Funding
7.1 All amounts credited under the Plan shall come solely
from the general assets of the Company.
7.2 All amounts credited to Participants' Deferred
Compensation Accounts shall, at all times, (a) be subordinated debt of the
Company, (b) be dealt with in all respects as capital of the Company, (c) be
subject to the risk of the Company's business, and (d) may be deposited in an
account or accounts in the Company's name in any bank or trust company.
ARTICLE VIII
Subordination Provisions
8.1 The Company's obligation to pay amounts credited to a
Participant's Deferred Compensation Account on the date such payment is
otherwise due and payable in accordance with the terms of the Plan (the "Fixed
Payment Date") shall be suspended and shall not mature for any period of time
during which after giving effect to such payment (together with (a) the payment
of any other obligation of the Company payable at or prior to such payment and
(b) the return of any Secured Demand Note as defined in the Rule as in effect
at the time such payment is to be made and the collateral therefor held by the
Company and returnable at or prior to such payment):
(i) If the Company is not operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the aggregate indebtedness
of the Company would exceed 1200 per centum of its
net capital (or its "adjusted net capital" as defined
in the
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<PAGE> 12
regulations under the CEA) as those terms are defined
in the Rule as in effect at the time payment is to be
made or such lesser per centum as may be made
applicable to the Company from time to time by the
Exchange (or other domestic exchange, board of trade,
clearing association or similar organization of which
the Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(ii) if the Company is operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the net capital of the
Company (or its "adjusted net capital" as defined in
the regulations under the CEA) would be less than the
greater of (x) 5 per centum of aggregate debit items
computed in accordance with Exhibit A to Rule 15c3-3
under the Act or any successor rule as in effect at
the time payment is to be made, (y) if the Company is
registered as a futures commission merchant with the
CFTC, 6 per centum of the funds required to be
segregated pursuant to the CEA and the regulations
promulgated thereunder and the foreign futures or
foreign options secured amounts, less the market
value of commodity options purchased by option
customers on or subject to the rules of a contract
market or foreign board of trade; provided, however,
the deduction for each option customer shall be
limited to the amount of customer funds in such
option customer's account(s) and the foreign futures
and foreign options secured amounts (if greater), or
(z) such greater per centum as may be made applicable
to the Company from time to time by the Exchange (or
any other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
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<PAGE> 13
(iv) if the Company guarantees, endorses, carries or
clears specialist or market maker transactions in
options listed on a national securities exchange or
facility of a national securities association, the
amounts required to be deducted and maintained as
required by the provisions of paragraphs (a)(6)(v),
(a)(7)(iv) or (c)(2)(x)(b)(l) of the Rule would
exceed 1000 per centum of its net capital (or its
"adjusted net capital" as defined in the regulations
under the CEA), as defined in the Rule as in effect
at the time such payment is made or such lesser per
centum as may be made applicable to the Company by
the Exchange (or any other domestic exchange, board
of trade, clearing association or similar
organization of which the Company is a member) or a
domestic governmental agency or body having
appropriate authority.
During any such suspension the Company shall, as promptly as
is consistent with the protection of its customers, reduce its business to a
condition whereby the amounts the payment of which has been suspended could be
paid (together with (c) the payment of any other obligation of the Company
payable at or prior to the payment of such amounts and (d) the return of any
Secured Demand Note and the collateral therefor held by the Company or
returnable at or prior to the payment of such amounts) without the Company's
net capital being below the applicable minimums set forth above in this Section
8.1 or its "adjusted net capital" being below the amount required as aforesaid,
at which time the Company shall pay the amounts credited to a Participant's
Deferred Compensation Account the payment of which has been suspended
(including Interest thereon calculated pursuant to the terms of the Plan, if
any) on not less than five (5) days' prior written notice to the Exchange and
the CBT. The first day on which under this ARTICLE VIII the Company has an
obligation to pay amounts is hereinafter referred to as the "payment date."
If, pursuant to the terms hereof, the Company's obligation to pay amounts
credited to a Participant's Deferred Compensation Account is suspended, the
Company recognizes and agrees that the Company may be summarily suspended by
the Exchange. The Company agrees that, if its obligation to pay amounts
credited to a Participant's Deferred Compensation Account is ever suspended for
a period of six (6) months, it will promptly take whatever steps are necessary
to effect a rapid and orderly complete liquidation of its business.
8.2 If payment is made of all or any part of the amounts
credited to a Participant's Deferred Compensation Account on the payment date
and if immediately after any such payment the Company's net capital is less
than the applicable minimums set forth above in Section 8.1, the Participant by
electing to participate agrees irrevocably, for himself, his beneficiaries,
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<PAGE> 14
heirs and assigns (whether or not the Participant had any knowledge or notice
of such fact at the time of any such payment) to repay to the Company, its
successors or assigns, the sum so paid, to be held by the Company pursuant to
the provisions hereof as if such payment had never had been made; provided,
however, that any suit for the recovery of any such payment must be commenced
within two (2) years of the date of such payment.
8.3 No payment of all or any portion of amounts credited to
a Participant's Deferred Compensation Account shall be made prior to the Fixed
Payment Date (whether as a consequence of Financial Hardship or otherwise, any
such payment being herein called a "Prepayment") unless at least one year has
passed from the effective date of the deferral and the Company shall have
received the prior written permission of the Exchange after consultation with
the SEC if the Exchange deems such consultation appropriate and the prior
written permission of the CBT. Furthermore, no Prepayment shall be made if
after giving effect thereto (and to all other payments of principal of
outstanding subordination agreements of the Company, including the return of
any Secured Demand Note and the collateral therefor held by the Company, the
maturity or accelerated maturity of which are scheduled to occur within six (6)
months after the date such Prepayment is to occur, or on or prior to the date
on which the Participant has elected to receive payment of the amounts credited
to his Deferred Compensation Account disregarding such proposed payment,
whichever date is earlier) without reference to any projected profit or loss of
the Company:
(i) if the Company is not operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the aggregate indebtedness
of the Company would exceed 1000 per centum of its
net capital (or its "adjusted net capital" as defined
in the regulations under the CEA), as those terms are
defined in the Rule as in effect at the time
Prepayment is to be made; or such lesser per centum
as may be made applicable to the Company from time to
time by the Exchange (or any other domestic exchange,
board of trade, clearing association or similar
organization of which the Company is a member) or a
domestic governmental agency or body having
appropriate authority; or
(ii) if the Company is operating pursuant to such
alternative net capital requirement, its net capital
(or its "adjusted net capital" as defined in the
regulations under the CEA) would be less than the
greater of: (x) 5 per centum of aggregate debit items
as those terms are defined in Exhibit A to Rule
15c3-3 of the Act or any successor rule as in effect
at such time; (y) if the
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<PAGE> 15
Company is registered as a futures commission
merchant with the CFTC, 6 per centum of the funds
required to be segregated pursuant to the CEA and the
regulations promulgated thereunder and the foreign
futures or foreign options secured amounts, less the
market value of commodity options purchased by option
customers on or subject to the rules of a contract
market or foreign board of trade;provided, however,
the deduction for each option customer shall be
limited to the amount of customer funds in such
option customer's account(s) and foreign futures and
foreign options secured amounts (if greater); or (z)
such greater per centum as may be made applicable to
the Company from time to time by the Exchange (or any
other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market transactions in options
listed on a national securities exchange or facility
of a national securities association, the amounts
required to be deducted and maintained as required by
the provisions of paragraphs (a)(6)(v), (a)(7)(iv) or
(c)(2)(x)(b)(l) of the Rule would exceed 1000 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule as in effect at the time
such payment is made or such lesser per centum as may
be made applicable to the Company by the Exchange (or
any other exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority.
If Prepayment is made of all or any part of the amounts
credited to a Participant's Deferred Compensation Account on or
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<PAGE> 16
prior to the Fixed Payment Date, and if the Company's net capital is less than
the amount required to permit such payment pursuant to the previously cited
provisions of this Section 8.3, the Participant agrees irrevocably by electing
to participate in the Plan (whether or not such Participant had any knowledge
or notice of such fact at the time of any such Prepayment) to repay the
Company, its successors or assigns, the sum so paid to be held by the Company
pursuant to the provisions hereof as if such Prepayment had never been made;
provided, however, that any suit for the recovery of any such Prepayment must
be commenced within two (2) years of the date of such Prepayment.
8.4 A Participant, by making an election to participate in
this Plan, irrevocably agrees that the obligations of the Company under the
Plan with respect to the payment of amounts credited to a Participant's
Deferred Compensation Account are and shall be subordinate in right of payment
and subject to the prior payment or provision for payment in full of all claims
of all other present and future creditors of the Company whose claims are not
similarly subordinated (claims under the Plan shall rank pari passu with claims
similarly subordinated) and to claims which are now or hereafter expressly
stated in the instruments creating such claims to be senior in right of payment
to claims arising under the Plan, arising out of any matter or event occurring
prior to the payment date of the amounts credited to that Participant's
Deferred Compensation Account under the Plan. In the event of the appointment
of a receiver or trustee of the Company or in the event of its insolvency,
liquidation pursuant to SIPA or otherwise, its bankruptcy, assignment for the
benefit of creditors, reorganization whether or not pursuant to bankruptcy
laws, or any other marshalling of the assets and liabilities of the Company, a
Participant shall not be entitled to participate or share, ratably or
otherwise, in the distribution of the assets of the Company until all claims of
all other present and future creditors of the Company, whose claims are senior
to claims arising under the Plan, have been fully satisfied, or provision has
been made therefor.
8.5 Notwithstanding anything herein to the contrary:
(a) a Participant shall not be entitled to receive any
payment in respect of amounts credited to his
Deferred Compensation Account or to participate in
the distribution of assets of the Company in respect
thereof if such payment or distribution would
constitute a violation of the express terms of any
Senior Subordinated Debt, as hereinafter defined (or
any agreement under or pursuant to which the same may
be outstanding);
-14-
<PAGE> 17
(b) the right of a Participant to receive any payment in
respect of amounts credited to his Deferred
Compensation Account shall be subordinated to claims
of the holders of Senior Subordinated Debt so that,
in the case of any distribution of assets of the
Company in complete or partial liquidation,
reorganization, arrangement or other marshalling of
assets and liabilities of the Company, no such
distribution or payment will be made with respect to
amounts credited to a Participant's Deferred
Compensation Account unless and until the principal
of and interest on the Senior Subordinated Debt are
paid in full; and
(c) a Participant shall promptly return to the Company
any amounts (whether cash, securities or otherwise)
received from the Company if the payment by the
Company of such amounts constituted a violation of
the express terms of any Senior Subordinated Debt (or
any agreement under or pursuant to which the same may
be outstanding).
8.6 The term "Senior Subordinated Debt" as used herein shall
mean and include all indebtedness of the Company (other than the Company's
obligations under the Company's 13 1/8% Subordinated Note due March 15, 1994,
the Company's 10 3/4% and 15 1/4% Subordinated Notes due from June 30, 1994
through December 31, 2025, the Company's obligations under the Plan, the
Company's Asset Compensation Plan for Financial Consultants, the Company's
Deferred Compensation Plan for Branch Managers, the Company's Deferred
Compensation Plan for Financial Consultants, the Company's Recognition Award
Plans (including the Lehman Brothers Equity Unit and Bonus Plan), the Company's
E.F. Hutton Partnership Award Plan and those similar agreements with other
Participants each of which rank pari passu with the obligations of the Company
under the Plan) constituting part of its Net Capital (as defined in the Rule as
in effect from time to time), and shall include without limitation thereto the
indebtedness represented by the Company's obligations under the Company's 7
7/8% Senior Subordinated Notes Due August 15, 1993; the Company's 12 1/2%
Senior Subordinated Notes Due October 15, 1994; the Company's Floating Rate
Subordinated Note with American Express Company due April 1, 1994; the
Company's 8 3/4% Senior Subordinated Debentures Due March 1, 1996; the
Company's 10 3/4% Senior Subordinated Notes Due April 29, 1996; the Company's 9
1/2% Senior Subordinated Notes Due June 15, 1997; the Company's Senior
Subordinated Notes Due May 15, 1999; the Company's 9 7/8% Senior Subordinated
Notes Due October 15, 2000; the Company's 11 5/8% Senior Subordinated
Debentures Due May 15, 2005; the Company's 9 7/8% Senior Subordinated Note Due
October 1, 1993; the Company's 10 3/4% Senior Subordinated Notes due from June
30, 1994 through December 31, 2025 held by various subsidiaries and affiliates
of the Company; the Company's Floating Rate Senior Subordinated Notes
-15-
<PAGE> 18
due from January 27, 1994 through September 30, 1994 held by an affiliate of
the Company; the Company's 6% Senior Subordinated Notes due December 30, 1994;
the Company's Floating Rate Senior Subordinated Notes due July 14, 1994; and
the Company's Floating Rate Senior Subordinated Notes due May 17, 1996 unless,
in each case, in the instrument evidencing or creating the same, or in any
agreement under or pursuant to which it shall be outstanding, such indebtedness
shall be declared not to be Senior Subordinated Debt. Senior Subordinated Debt
(and any agreement under or pursuant to which the same may be outstanding) may
be amended, the commitment under such agreements may be increased, provisions
thereof may be waived, time of payment of the Senior Subordinated Debt may be
extended and other indulgences granted to the Company in respect thereof all
from time to time without notice to or assent of any Participant under the
Plan.
8.7 Each Participant, by making an election to participate in
this Plan, irrevocably agrees and acknowledges that:
(a) such election is not being made in reliance upon the
standing of the Company as a member organization of
the Exchange or upon the Exchange's surveillance of
the Company's financial position or its compliance
with the constitution, rules and practices of the
Exchange;
(b) the Participant is not relying upon the Exchange to
provide any information concerning or relating to the
Company and the Exchange has no responsibility to
disclose to the Participant any information
concerning or relating to the Company which it may
now, or at any future time, have; and
(c) neither the Exchange, its Special Trust Fund, nor any
director, officer, trustee or employee of the
Exchange or said Trust Fund shall be liable to any
Participant with respect to this Plan or the payment
of amounts credited to a Participant's Deferred
Compensation Account.
8.8 Upon termination of the Company as a member of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
Examining Authority. The term Examining Authority shall refer to such
regulatory body having responsibility for inspecting or examining the Company
for compliance with financial responsibility requirements under Section 9(c) of
SIPA and Section 17(d) of the Act. References herein to the Exchange or the
Examining Authority shall also be deemed to refer to the CBT and to any other
exchange, board of trade, clearing association or similar organization of which
the Company is a member and which requires such reference as a condition to
inclusion of the amounts credited
-16-
<PAGE> 19
to Deferred Compensation Accounts hereunder in the Company's net capital as
computed for the purposes of such organization.
8.9 References in the Plan to the Exchange or Examining
Authority shall also be deemed to refer to the organization(s) designated as
the self-regulatory organization(s) (also known as DSRO) of the Company
pursuant to a plan filed with the CFTC pursuant to Regulation 1.52 under the
CEA to the extent such references are required as a condition to inclusion of
the amounts credited to Deferred Compensation Accounts in the Plan in the
Company's net capital as computed for purposes of such organization(s).
8.10 All amounts credited to Deferred Compensation Accounts
shall be dealt with in all respects as capital of the Company, shall be subject
to the risks of its business, and may be deposited in an account or accounts in
the Company's name in any bank or trust company.
8.11 Notwithstanding any other provisions in this ARTICLE
VIII, all amounts which are from time to time credited to Participants'
Deferred Compensation Accounts shall be subject to the terms of subordination
set forth in this ARTICLE VIII.
ARTICLE IX
Administration
9.1 The complete authority to control and manage the
operation and administration of the Plan and the responsibility for carrying
out its provisions belongs to the Committee. The Committee shall consist of at
least three members appointed from time to time by the Board of Directors to
serve at the pleasure thereof. Any member of the Committee may resign by
delivering his written resignation to the Board of Directors.
9.2 The Committee shall from time to time establish rules
of administration and interpretation of the Plan. The determination of the
Committee as to any disputed questions shall be conclusive and binding on all
parties, including the Participant, his Beneficiary, the Company and the
Employer.
9.3 Any act which the Plan authorizes or requires the
Committee to do may be done by a majority of its members. The action of such
majority, expressed by a vote at a meeting or in writing without a meeting,
shall constitute the action of the Committee and shall have the same effect for
all purposes as if assented to by all members of the Committee.
-17-
<PAGE> 20
9.4 The members of the Committee may authorize one or more of
their number to execute or deliver any instrument, make any payment or perform
any other act which the Plan authorizes or requires the Committee to do.
9.5 The Committee may employ counsel and other agents and may
procure such clerical, accounting, and other services as they may require in
carrying out the provisions of the Plan.
9.6 No member of the Committee shall receive any compensation
for his services as such. All expenses of administering the Plan, including
but not limited to, fees of accountants and counsel, shall be paid by the
Company.
9.7 The Company shall indemnify and save harmless each member
of the Committee against all expenses and liabilities arising out of membership
on the Committee, excepting only expenses and liabilities arising from his own
gross negligence or willful misconduct, as determined by the Board of
Directors.
ARTICLE X
Amendment and Termination
10.1 The Company, by action of the Committee, may at any
time or from time to time modify or amend any or all of the provisions of the
Plan or may at any time terminate the Plan; provided, however, that no action
taken shall adversely affect the rights of any Participant hereunder to amounts
due and payable to such Participant at the time such action is taken, unless
the Participant otherwise consents thereto.
ARTICLE XI
General Provisions
11.1 No Participant, Branch Manager, Financial Consultant,
Officer, Key Employee or employee of the Company or any Employer shall have any
right to any payment or benefit hereunder except to the extent provided in the
Plan.
11.2 The employment rights of any Participant shall not be
enlarged, guaranteed or affected by reason of any of the provisions of the
Plan.
11.3 Assignment, pledge or other encumbrance of any payments
or benefits under the Plan shall not be permitted or recognized and to the
extent permitted by law, no such payments or benefits shall be subject to legal
process or attachment for the payment of any claim of any person entitled to
receive the same.
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<PAGE> 21
11.4 The Company shall have the right to retain or to use any
amounts payable under the Plan to satisfy or otherwise offset amounts the
Participant owes to the Company as a result of his actions or in the event he
is terminated for Cause. Amounts payable under the Plan may also be used to
offset amounts the Company is required to pay a client or a regulatory agency
or any other person or entity as a result of the Participant's actions.
11.5 If the Committee determines that any person to whom a
payment is due hereunder is a minor or incompetent by reason of physical or
mental disability, the Committee shall have the power to cause the payments
then due to such person to be made to another for the benefit of the minor or
incompetent, without responsibility of the Company or the Committee to see to
the application of such payment, unless claim prior to such payment is made
therefor by a duly appointed legal representative. Payments made pursuant to
such power shall operate as a complete discharge of the Company and the
Committee.
11.6 The validity of the Plan or any of its provisions shall
be determined under, and it shall be construed and administered according to,
the laws of the state of New York.
11.7 Any controversy or dispute hereunder shall be resolved
by arbitration pursuant to the Constitution of the Exchange or the NASD.
11.8 Each Participant may designate, in writing and on a form
provided by the Committee, any person(s) or legal entity(ies), including his
estate, as his Beneficiary under the Plan; provided, however, that a
Participant may designate a trust as his Beneficiary only with the prior
written approval of the Committee. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary at any time prior to his
death by filing with the Committee the appropriate beneficiary designation
form. If no person or legal entity shall be designated by a Participant as his
Beneficiary or if no designated Beneficiary survives him, his Beneficiary shall
be his estate. To be effective, any designation or revocation of Beneficiary
must be on the appropriate form provided by the Committee and on file with the
Committee prior to the date of the Participant's death. The provisions of the
Plan shall be binding on the Participant, the Company, and their respective
heirs, executors, administrators, successors and assigns.
-19-
<PAGE> 1
LEHMAN BROTHERS INC.
EXECUTIVE AND SELECT EMPLOYEES PLAN
Effective September 25, 1985
As Amended Through July 31, 1993
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 - Administration of Plan . . . . . . . . . . . . . . . . . . . . . . . 2
3 - Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 - Deferred Compensation Payments . . . . . . . . . . . . . . . . . . . 4
5 - Payments Prior to Vesting on Effective Date . . . . . . . . . . . . 6
6 - Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 - Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . 7
8 - Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . 7
9 - Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . 7
10 - Construction of Plan . . . . . . . . . . . . . . . . . . . . . . . 8
11 - Assignment and Alienation of Benefits . . . . . . . . . . . . . . . 8
12 - Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE> 3
Section 1. Definitions
1.1 As used in this Plan, the following terms shall have
the meanings hereinafter set forth:
"Beneficiary" means any person or entity designated by the
Participant to receive payments under the Plan after the Participant's death
determined in accordance with Section 8 and the Participant's Deferred
Compensation Agreement.
"Board of Directors" means the Board of Directors of Lehman.
"Committee" means the Employee Benefit Plans Committee of
Lehman, which administers the Plan in accordance with Section 2.
"Deferred Compensation Account" means the account maintained
under the Plan for each Participant.
"Deferred Compensation Agreement" means a contract entered
into by each Participant and Shearson which shall set forth all specific terms
of the Plan and which shall be an integral part of this Plan.
"Disabled" means termination of a Participant's employment
with Lehman by reason of total and permanent disability as defined in Exhibit
C of the Deferred Compensation Agreement.
"Effective Date" means September 25, 1985.
"Eligible Employee" means certain executive and select
Employees invited to participate in the Plan by Lehman, other than any such
person who is classified as an "Eligible Employee" under any other "Executive
and Select Employees Plan" maintained
<PAGE> 4
by the Company (or who would be so classified under any other such Executive
and Select Employees Plan had such other such Plan not previously been
terminated).
"Employee" means any employee of Lehman or a subsidiary of
Lehman .
"Employer" means Lehman and any subsidiary thereof which has
Eligible Employees participating in the Plan.
"Exchange" means the New York Stock Exchange, Inc.
"Lehman" means Lehman Brothers Inc., a Delaware corporation,
and its successors and assigns.
"Participant" means an Eligible Employee who elects to
participate in the Plan.
"Plan" means the Lehman Brothers Inc. Executive and
Select Employees Plan as embodied herein and as amended from time to time.
"Retirement" means a Participant's retirement from employment
with the Employer or otherwise as determined by the Committee in accordance
with Section 4.
1.2 The masculine pronoun shall be deemed to include the
feminine, and the singular number shall be deemed to include the plural unless
a different meaning is plainly required by the context.
Section 2. Administration of Plan
The Plan and each Deferred Compensation Agreement shall be
administered by the Committee which is made up of not less than three members
appointed by the Board of Directors of
2
<PAGE> 5
Lehman. The Committee shall have authority to make rules and regulations for
the administration of the Plan, including the delegation of duties to other
persons, and the Committee's interpretations and decisions with regard thereto
shall be final and conclusive except that any controversy arising out of or
relating to the subordination provisions of Section 9, shall be submitted to
and settled by arbitration pursuant to the constitution and rules of the
Exchange.
Section 3. Participation
3.1 Eligible Employees may elect to participate in the Plan
only at the time or times such participation is offered to such Employees by
the Committee. It is intended that participation shall be offered only during
a limited period of time after the Effective Date; however, lehman reserves
the right, in its absolute discretion, to offer participation to any Employee
at any time. Eligible Employees who have elected to participate in the Plan
may withdraw only in accordance with its terms, the terms of a Participant's
Deferred Compensation Agreement or any applicable law.
3.2 An Eligible Employee who elects to participate in the
Plan pursuant to an invitation by the Committee may do so by executing a
Deferred Compensation Agreement during the election period specified by the
Committee. The total amount which Participants may elect to defer under the
Plan must be an amount of not less than $20,000 and not more than $400,000, and
all amounts deferred must be in increments of at least $1,000. The
3
<PAGE> 6
deferrals may be made from future compensation to be received from the Employer
or from amounts previously deferred under the terms of the Shearson Voluntary
Deferred Compensation Plan but only to the extent permitted under the Deferred
Compensation Agreement.
Section 4. Deferred Compensation Payments
Subject to Sections 5, 6, 9 and a Participant's Deferred
Compensation Agreement, Lehman shall make payments to a Participant or a
Participant's Beneficiary under the Plan in accordance with one of the
following Subsections.
(a) If a Participant is living on the date of his Retirement,
Lehman shall take deferred compensation payments to the
Participant or the Participant's Beneficiary in the event of
the Participant's death after commencement of payments, in
substantially equal annual installments over a fifteen year
period or such shorter period as may be determined by the
Committee. The amount of such installment payments shall be
determined solely in accordance with the Participant's
Deferred Compensation Agreement. Regardless of whether a
Participant's employment with Lehman and all affiliates and
subsidiaries has terminated, a Participant shall not be
considered to be retired under the Plan and the Deferred
Compensation Agreement until attainment of age 55 and consent
of the Committee.
4
<PAGE> 7
(b) If a Participant dies prior to the date payments provided
for in Subsection (a) are to commence, Lehman shall make
deferred compensation payments to the Participant's
Beneficiary in fifteen equal annual installments or such fewer
number of annual installments as may be determined by the
Committee. The amount of such installment payments shall be
determined solely in accordance with the Participant's
Deferred Compensation Agreement.
(c) If a Participant becomes Disabled prior to Retirement,
Lehman shall make disability payments to such Participant in
an amount determined solely in accordance with such
Participant's Deferred Compensation Agreement. Disability
payments shall continue until the earlier of such
Participant's death or the date payments under Subsection (a)
are to commence but no later than age 65.
Notwithstanding the foregoing provisions of this Section 4, or
of any other provision of the Plan to the contrary, if any person is ineligible
to participate in this Plan, no amounts shall be paid to such person (or his
beneficiary) under this Plan. In that event, the entire amount, if any, which
such person (or his beneficiary) is entitled to receive, in lieu of any amounts
under this Plan, shall be determined exclusively under the terms of such other
"Executive and Select Employees
5
<PAGE> 8
Plan," if any, then maintained by the Company in which such person is a
participant. Section 5. Payments Prior to Vesting on Effective Date
If a Participant dies or becomes Disabled prior to the
Effective Date of the Plan, or if prior to September 25, 1990, a Participant
ceases to be an Employee of the Employer or an affiliate for any reason other
than death, Disability or Retirement, all deferrals of compensation under the
Plan and the Deferred Compensation Agreement shall cease and Lehman shall pay
to the Participant or the Participant's Beneficiary, as the case may be, the
amount of compensation theretofore deferred under the Plan plus interest
credited at an annual rate equal to the lessor of 5% or the weekly 90-day
Treasury Bill auction rate (on a discounted basis) averaged over a 12-month
period ending on the date of payment. Such interest shall be compounded
annually on a calendar year basis and shall be credited with respect to the
average daily balance in the Deferred Compensation Account each calendar year.
Alternatively, Lehman may, in its absolute discretion, pay to such
Participant the amount contributed to his Deferred Compensation Account plus
interest credited at a higher rate as set forth in such Participant's Deferred
Compensation Agreement.
Section 6. Termination
The Committee has the right to terminate the Plan if the
Committee also terminates all the Deferred Compensation Agreements which form a
part of this Plan. Termination shall be
6
<PAGE> 9
by written notice to the Participants and in the event of termination, Lehman
shall pay to each Participant or each Participant's Beneficiary the amount of
compensation theretofore deferred plus interest credited in accordance with
paragraph 4 of the Participant's Deferred Compensation Agreement.
Section 7. Miscellaneous Provisions
The Plan and all Participants hereunder are subject to certain
miscellaneous provisions pursuant to paragraph 5 of the Deferred Compensation
Agreement which provisions are incorporated herein by reference.
Section 8. Beneficiary Designation
Participants may designate a Beneficiary or Beneficiaries
entitled to receive any of the payments to be made by Lehman hereunder if the
Participant dies. Such designation shall be made pursuant to and in accordance
with paragraph 6 of the Deferred Compensation Agreement.
Section 9. Subordination Provisions
Lehman's obligations to pay amounts credited to a
Participant's Deferred Compensation Account under the Deferred Compensation
Agreement and the Plan shall be suspended and shall not mature for any period
of time during which the suspension of payment provisions of paragraph 9 of the
Deferred Compensation Agreement is in effect. In addition, all other
provisions of said paragraph 9 are incorporated in this Plan by reference.
7
<PAGE> 10
Section 10. Construction of Plan
In the event there are any discrepancies or inconsistencies
between this Plan and any Deferred Compensation Agreement, the Deferred
Compensation Agreement shall control.
Section 11. Assignment and Alienation of Benefits
Any benefits payable under the Plan and the Deferred
Compensation Agreements may not be assigned, alienated or hypothecated and, to
the extent permitted by law, no such benefits shall be subject to legal process
or attachment for the payment of any claim of any person entitled to receive
the same.
Section 12. Governing Law
The Plan and all Deferred Compensation Agreements forming a
part thereof shall be governed and construed in accordance with the laws of the
State of New York except to the extent pre-empted by any other applicable laws.
8
<PAGE> 1
LEHMAN BROTHERS INC.
THE E.F. HUTTON PARTNERSHIP AWARD PLAN
(FOR LEHMAN VESTED AMOUNTS AS OF JULY 31, 1993
AND LEHMAN BROTHERS)
AS AMENDED EFFECTIVE JANUARY 1, 1991
AND SUBSEQUENTLY AMENDED THROUGH JULY 31, 1993
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V
Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI
Payment of Accounts; Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII
Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IX
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE X
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
- 2 -
<PAGE> 3
LEHMAN BROTHERS INC.
THE E.F. HUTTON PARTNERSHIP AWARD PLAN
AS AMENDED EFFECTIVE JANUARY 1, 1991
AND SUBSEQUENTLY AMENDED THROUGH JULY 31, 1993
ARTICLE I
Definitions
1.1 As used in this Plan, the following terms shall have
the meanings hereinafter set forth:
"Account" means the A, B, AB or C accounts established under
the Plan, and effective after December 31, 1987, the B AB or C accounts only.
"Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Beneficiary" means any person(s) or legal entity(ies)
designated by the Participant or otherwise in accordance with Section 11.8.
"Cause" means willful misconduct, dishonesty, conviction of a
felony, persistent incompetence or habitual or gross negligence in the
performance of a Participant's duties to the Company other than as a result of
total or partial incapacity due to disability, persistent failure to abide by
the policies and regulations of the Company, or American Express Company or
such other similar conduct as determined by the Committee in its sole
discretion; provided, however, that solely for purposes of applying this
definition with respect to any Smith Barney Participant, on and after the date
that such person becomes a Smith Barney Participant (as of the Closing Date or
later), the term "Company" shall mean Smith Barney.
"CBT" means the Chicago Board of Trade.
"CEA" means the Commodity Exchange Act, as in effect from time
to time.
"CFTC" means the Commodity Futures Trading Commission.
"Closing Date" means the closing date of the Smith Barney
Transaction.
<PAGE> 4
"Committee" means the Employee Benefit Plans Committee of the
Company, which administers the Plan in accordance with ARTICLE IX.
"Company" means Lehman Brothers Inc., a Delaware
corporation, and its successors and assigns, and prior to January 1, 1988, E.F.
Hutton Group Inc. and its affiliates, successors and assigns and, where and
only where the text specifically so indicates, Smith Barney.
"Disability" means (a) prior to the Restatement Date,
disability as defined under the Lehman Brothers Inc. Long-Term Disability
Plan, and (b) on or subsequent to the Restatement Date, termination of a
Participant's employment with the Company by reason of total and permanent
disability, determined in accordance with the Lehman Brothers Inc. Long-Term
Disability Plan, as in effect from time to time. Solely for the purposes of
applying clause (b) above with respect to any Smith Barney Participant, on and
after the date that such person becomes a Smith Barney Participant (as of the
Closing Date or later), the term "Company" shall mean Smith Barney.
"Effective Date" means November 1, 1976.
"Employee" means any person who received remuneration for
personal services rendered to the Company as an employee thereof, who is exempt
from the overtime requirements of the Federal Fair Labor Standards Act, as in
effect from time to time, and whose earnings for a Plan Year beginning on or
after November 4, 1983, are $40,000 or greater on an annualized basis, and if
prior to November 4, 1983, $20,000 or greater on an annualized basis.
"Employer" means the Company and any subsidiary or affiliate
thereof which shall be designated by the Committee as a participating employer
under the Plan.
"Exchange" means the New York Stock Exchange, Inc.
"Financial Hardship" means severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or a dependent, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The circumstances that
will constitute a Financial Hardship will depend upon the facts of each case
and will be determined by the Committee in its sole discretion, but
distributions may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or otherwise or
(ii) by liquidation of the Participant's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship.
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<PAGE> 5
"Installments" means substantially equal installments payable
annually as of the last day of the applicable calendar quarter and as of the
anniversary thereof in each succeeding year over a period certain not to exceed
10 years, as elected by a Participant in accordance with Section 6.1.
"Interest" on an Account shall have the meaning set forth in
Section 4.2.
"NASD" means the National Association of Securities Dealers,
Inc.
"Non-Vested Plan" means the E. F. Hutton Partnership Award
Plan (for Lehman Non-Vested Amounts as of July 31, 1993) (as such plan may be
renamed following its assumption by Smith Barney as of the Closing Date) or
such similar plan that may be adopted by Smith Barney as of the Closing Date,
pursuant to which, with respect to any Smith Barney Participant, Interest on
amounts held in the Accounts of such person prior to the date that such person
becomes a Smith Barney Participant (as of the Closing Date or later) will
accumulate as provided in the Non-Vested Plan.
"Prior Plan" means the E.F. Hutton Group Inc. Partnership
Award Plan, as in effect from time to time prior to January 1, 1988.
"Participant" for any Plan Year means a person who
participates in the Plan in accordance with ARTICLE II.
"Participation Year" means each Plan Year for which a
Participant participates in the Plan.
"Plan" means The E.F. Hutton Partnership Award Plan, as
embodied herein and as amended from time to time.
"Plan Year" means the calendar year.
"Primerica Retirement Plan" means the defined benefit pension
plan sponsored by Smith Barney or an affiliate thereof which covers a Smith
Barney Participant at the time of his retirement thereunder.
"Restatement Date" means January 1, 1991.
"Retirement" means (a) prior to the Restatement Date, (i) a
Participant's retirement from employment with the Company under the provisions
of the Company's Retirement Plan, or (ii) some other arrangement, but only if
approved in advance by the Committee, and (b) on or after the Restatement Date,
termination of a Participant's employment with the Company as a result of his
retirement, determined pursuant to the provisions of the Lehman Brothers
Holdings Inc. Retirement Plan, as in effect from
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<PAGE> 6
time to time, and (c) solely with respect to a Smith Barney Participant, on and
after the date that such person becomes a Smith Barney Participant (as of the
Closing Date or later), termination of such person's employment with Smith
Barney as a result of his retirement, determined pursuant to the provisions of
the Primerica Retirement Plan, as in effect from time to time.
"Rule" means Rule 15c3-l under the Act.
"Separation from Service" means termination of a Participant's
employment with the Company by reason of Retirement, Disability, death or
otherwise. Solely for the purposes of applying the preceding sentence with
respect to any Smith Barney Participant, on and after the date that such person
becomes a Smith Barney Participant (as of the Closing Date or later), the term
"Company" shall mean Smith Barney.
"SIPA" means the Securities Investor Protection Act of 1970,
as in effect from time to time.
"Smith Barney" means Smith Barney, Harris Upham & Co.,
Incorporated and Primerica Corporation and their successors and assigns.
"Smith Barney Participants" means those persons who were
Participants for any Plan Year prior to or including the Closing Date, and who
became employed by Smith Barney as of the Closing Date or later in connection
with the Smith Barney Transaction.
"Smith Barney Transaction" means the sale of certain Company
assets to Smith Barney pursuant to an Asset Purchase Agreement dated as of
March 12, 1993 among the Company, Shearson Lehman Brothers Holdings Inc., Smith
Barney, Primerica Corporation and American Express Company.
1.2 Wherever any words are used herein in the masculine
gender, they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form, they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
ARTICLE II
Participation
2.1 Any Participant who participated in the Prior Plan on
January 1, 1988 shall continue to be a Participant in the Plan as of that date
and, as of such date, the Plan shall be closed to any new Participants.
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<PAGE> 7
2.2 Notwithstanding anything herein to the contrary, a
Participant ceases to be a Participant on his Separation from Service date;
provided, however, that if a Participant continues to be employed by an
affiliate or subsidiary of the Company, he shall not incur a Separation from
Service until such time as he incurs a Separation from Service with such
affiliate or subsidiary.
ARTICLE III
Deferrals
3.1 On or after January 1, 1988, no amount, other than
Interest, shall be credited to any Account.
3.2 Notwithstanding anything herein to the contrary, no
Interest shall be credited to any Smith Barney Participant's Account on or
after the date such person became employed by Smith Barney, as of the Closing
Date or later, in connection with the Smith Barney Transaction.
ARTICLE IV
Accounts
4.1 (a) The Committee shall continue to maintain all
existing Accounts of Participants for Plan Years prior to January 1, 1988.
(b) On and after the Closing Date, the Committee shall
continue to maintain all existing Accounts of Smith Barney Participants who
have amounts which are vested as of the dates that such persons become Smith
Barney Participants (as of the Closing Date or later) in accordance with
Article V until such time as they are distributed to the Participant.
4.2 Subject to Section 3.2, Interest shall be credited on
amounts credited to each Account as of the last day of each calendar quarter
from the effective date of deferral to the last day of the calendar quarter
immediately preceding the date on which such amounts are distributed to the
Participant at an annual rate equal to the average 30-day U.S. Treasury Bill
rate during such quarter; provided, however, that if Section 6.2 is applicable,
no Interest shall be credited to the Participant's Account after the last day
of the calendar quarter in which his Separation from Service occurred.
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<PAGE> 8
ARTICLE V
Vesting
5.1 On or after the Restatement Date, a Participant shall
at all times be fully vested in his Account for any Participation Year.
ARTICLE VI
Payment of Accounts; Withdrawals
6.1 A Participant for any Participation Year shall elect,
in writing to the Committee, on a form provided by the Committee, to have his
Accounts for such year paid (a) if he incurs a Separation of Service as a
result of his Retirement, Disability or death, in a lump sum or in Installments
(as indicated on such election) commencing as of the last day of the second
calendar quarter following the quarter in which his Retirement, Disability or
death occurs, or (b) as of the last day of the calendar quarter following the
first anniversary of his Separation from Service, in a lump sum or in ten
annual installments (as indicated on such election); provided, however, that if
a Participant fails to elect otherwise in accordance with the provisions of
Section 6.1 hereof, payment shall be made in a lump sum as of the last day of
the Plan Year in which he vests in his Account, with such payment being made as
soon as administratively practicable following the last day of such Plan Year.
6.2 Notwithstanding the provisions of Section 6.1, if a
Participant's Separation from Service occurs other than by reason of
Retirement, Disability or death, payment of the amounts credited to his Account
for all Participation Years preceding the current Participation Year shall be
made in a lump sum as soon as practicable after the last day of the calendar
quarter in which his Separation from Service occurs.
6.3 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, distributions of vested Accounts shall
commence as soon as administratively practicable after distributions under the
Lehman Brothers Holdings Inc. Retirement Plan commence, even if the Participant
has made a previous election to defer payment and even if the Participant has
not otherwise incurred a Retirement, Disability, death, or other Separation
from Service, with payments being made in the manner elected by the Participant
in accordance with the provisions of Section 6.1; provided, however, that on
and after the date that a person becomes a Smith Barney Participant (as of the
Closing Date or later), distributions of such Smith Barney Participant's vested
Account shall commence as soon as administratively practicable after
distributions to such Smith Barney Participant under the Primerica Retirement
Plan commence, even if such Smith Barney Participant has made a previous
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<PAGE> 9
election to defer payment and even if such Smith Barney Participant has not
otherwise incurred a Retirement, Disability, death, or other Separation from
Service, with payments being made in the manner elected by such Smith Barney
Participant in accordance with the provisions of Section 6.1; provided further,
however, that no amount deferred for any Participation Year shall be
distributed until it has been held in the Account for at least one (1) year
subsequent to the Participation Year of deferral.
6.4 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, any amounts payable hereunder may be retained
by the Company in the event the Participant owes the Company any funds at the
time such Participant is otherwise entitled to receive amounts credited to his
Account.
6.5 Plan payments shall not be included in the calculation of
financial consultant production levels or be utilized for any similar purpose,
and all such payments shall be considered cash compensation to the Participant
when paid, subject to all applicable federal, state and local income taxes and
withholding.
6.6 Amounts paid under the Plan shall not be eligible for
further deferral under the Plan.
6.7 If a Participant dies, his Beneficiary shall be entitled
to receive, as soon as administratively practicable after the date of his
death, the payment of his Account, with such payment being made in the form
elected by the Participant in accordance with the provisions of Section 6.1,
less any applicable federal, state and local income taxes and withholding, if
any.
6.8 No Interest or other earnings shall be paid on any amount
payable under the Plan for the period commencing on the last day of the
calendar quarter in which payment is required to be made and ending on the date
payment is actually made.
6.9 No payments shall be required or made if, in the opinion
of the Committee, such payment would not comply with the rules and regulations
of the NASD, the SEC, the CBT, any state securities regulatory authority, or
any other applicable law, rule or regulation, or the Participant is subject to
the provisions of Section 11.4.
6.10 Notwithstanding anything herein to the contrary, a
Participant may request and receive a financial hardship distribution, provided
the Participant is able to demonstrate, to the satisfaction of the Committee,
that he has suffered a Financial Hardship. A hardship distribution request
must be made on the form provided by the Committee and is subject to the rules
established by the Committee governing hardship distributions. The amount
distributed cannot exceed the lesser of (a) the
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<PAGE> 10
Participant's Account balances, or (b) the amount necessary to satisfy the
Participant's Financial Hardship. No distribution may be made prior to the
time the Committee approves the distribution, and payment is subject to the
provisions of Section 8.3.
6.11 Any payment made to the Participant or his Beneficiary
or estate pursuant to the terms of the Plan shall constitute a complete
discharge of the obligations of the Company and the Committee with respect
thereto.
ARTICLE VII
Funding
7.1 All amounts credited under the Plan shall come solely
from the general assets of the Company.
7.2 All amounts credited to Participants' Accounts shall, at
all times, (a) be subordinated debt of the Company, (b) be dealt with in all
respects as capital of the Company, (c) be subject to the risk of the Company's
business, and (d) may be deposited in an account or accounts in the Company's
name in any bank or trust company.
ARTICLE VIII
Subordination Provisions
8.1 The Company's obligation to pay amounts credited to a
Participant's Account on the date such payment is otherwise due and payable in
accordance with the terms of the Plan (the "Fixed Payment Date") shall be
suspended and shall not mature for any period of time during which after giving
effect to such payment (together with (a) the payment of any other obligation
of the Company payable at or prior to such payment and (b) the return of any
Secured Demand Note as defined in the Rule as in effect at the time such
payment is to be made and the collateral therefor held by the Company and
returnable at or prior to such payment):
(i) If the Company is not operating pursuant to the
alternative net capital requirements provided
for in paragraph (f) of the Rule, the aggregate
indebtedness of the Company would exceed 1200 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the CEA)
as those terms are defined in the Rule as in effect at
the time payment is to be made or such lesser per
centum as may be made applicable to the Company from
time to time by the Exchange (or other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a member)
or a domestic
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<PAGE> 11
governmental agency or body having appropriate
authority; or
(ii) if the Company is operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the net capital of the
Company (or its "adjusted net capital" as defined in
the regulations under the CEA) would be less than the
greater of (x) 5 per centum of aggregate debit items
computed in accordance with Exhibit A to Rule 15c3-3
under the Act or any successor rule as in effect at
the time payment is to be made, (y) if the Company is
registered as a futures commission merchant with the
CFTC, 6 per centum of the funds required to be
segregated pursuant to the CEA and the regulations
promulgated thereunder and the foreign futures or
foreign options secured amounts, less the market
value of commodity options purchased by option
customers on or subject to the rules of a contract
market or foreign board of trade; provided, however,
the deduction for each option customer shall be
limited to the amount of customer funds in such
option customer's account(s) and the foreign futures
and foreign options secured amounts (if greater), or
(z) such greater per centum as may be made applicable
to the Company from time to time by the Exchange (or
any other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market maker transactions in
options listed on a national securities exchange or
facility of a national securities association, the
amounts required to be deducted and maintained as
required by the provisions of paragraphs (a)(6)(v),
(a)(7)(iv) or (c)(2)(x)(b)(1) of the Rule would
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<PAGE> 12
exceed 1000 per centum of its net capital (or
its "adjusted net capital" as defined in the
regulations under the CEA), as defined in the Rule as
in effect at the time such payment is made or such
lesser per centum as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a member)
or a domestic governmental agency or body having
appropriate authority.
During any such suspension the Company shall, as promptly as
is consistent with the protection of its customers, reduce its business to a
condition whereby the amounts the payment of which has been suspended could be
paid (together with (c) the payment of any other obligation of the Company
payable at or prior to the payment of such amounts and (d) the return of any
Secured Demand Note and the collateral therefor held by the Company or
returnable at or prior to the payment of such amounts) without the Company's
net capital being below the applicable minimums set forth above in this Section
8.1 or its "adjusted net capital" being below the amount required as aforesaid,
at which time the Company shall pay the amounts credited to a Participant's
Account the payment of which has been suspended (including Interest thereon
calculated pursuant to the terms of the Plan, if any) on not less than five (5)
days' prior written notice to the Exchange and the CBT. The first day on which
under this ARTICLE VIII the Company has an obligation to pay amounts is
hereinafter referred to as the "payment date." If, pursuant to the terms
hereof, the Company's obligation to pay amounts credited to a Participant's
Account is suspended, the Company recognizes and agrees that the Company may be
summarily suspended by the Exchange. The Company agrees that, if its
obligation to pay amounts credited to a Participant's Account is ever suspended
for a period of six (6) months, it will promptly take whatever steps are
necessary to effect a rapid and orderly complete liquidation of its business.
8.2 If payment is made of all or any part of the amounts
credited to a Participant's Account on the payment date and if immediately
after any such payment the Company's net capital is less than the applicable
minimums set forth above in Section 8.1, the Participant by electing to
participate agrees irrevocably, for himself, his beneficiaries, heirs and
assigns (whether or not the Participant had any knowledge or notice of such
fact at the time of any such payment) to repay to the Company, its successors
or assigns, the sum so paid, to be held by the Company pursuant to the
provisions hereof as if such payment had never had been made; provided,
however, that any suit for the recovery of any such payment must be commenced
within two (2) years of the date of such payment.
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<PAGE> 13
8.3 No payment of all or any portion of amounts credited to a
Participant's Account shall be made prior to the Fixed Payment Date (whether as
a consequence of Financial Hardship or otherwise, any such payment being herein
called a "Prepayment") unless at least one year has passed from the effective
date of the deferral and the Company shall have received the prior written
permission of the Exchange after consultation with the SEC if the Exchange
deems such consultation appropriate and the prior written permission of the
CBT. Furthermore, no Prepayment shall be made if after giving effect thereto
(and to all other payments of principal of outstanding subordination agreements
of the Company, including the return of any Secured Demand Note and the
collateral therefor held by the Company, the maturity or accelerated maturity
of which are scheduled to occur within six (6) months after the date such
Prepayment is to occur, or on or prior to the date on which the Participant has
elected to receive payment of the amounts credited to his Account disregarding
such proposed payment, whichever date is earlier) without reference to any
projected profit or loss of the Company:
(i) if the Company is not operating pursuant to the
alternative net capital requirements provided
for in paragraph (f) of the Rule, the aggregate
indebtedness of the Company would exceed 1000 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the CEA),
as those terms are defined in the Rule as in effect at
the time Prepayment is to be made; or such lesser per
centum as may be made applicable to the Company from
time to time by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a member)
or a domestic governmental agency or body having
appropriate authority; or
(ii) if the Company is operating pursuant to such
alternative net capital requirement, its net capital
(or its "adjusted net capital" as defined in the
regulations under the CEA) would be less than the
greater of: (x) 5 per centum of aggregate debit items
as those terms are defined in Exhibit A to Rule
15c3-3 of the Act or any successor rule as in effect
at such time; (y) if the Company is registered as a
futures commission merchant with the CFTC, 6 per
centum of the funds required to be segregated
pursuant to the CEA and the regulations promulgated
thereunder and the foreign futures or foreign options
secured amounts, less the market value of commodity
options purchased by option customers on or subject
to the rules of a contract market or foreign board of
trade; provided, however, the deduction for each
option customer shall be limited to the amount of
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<PAGE> 14
customer funds in such option customer's
account(s) and foreign futures and foreign options
secured amounts (if greater); or (z) such greater per
centum as may be made applicable to the Company from
time to time by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a member)
or a domestic governmental agency or body having
appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the CEA
as in effect at such time), or such greater dollar
amount as may be made applicable to the Company by the
Exchange (or any other domestic exchange, board of
trade, clearing association or similar organization of
which the Company is a member) or a domestic
governmental agency or body having appropriate
authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market transactions in options
listed on a national securities exchange or facility
of a national securities association, the amounts
required to be deducted and maintained as required by
the provisions of paragraphs (a)(6)(v), (a)(7)(iv) or
(c)(2)(x)(b)(1) of the Rule would exceed 1000 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule as in effect at the time
such payment is made or such lesser per centum as may
be made applicable to the Company by the Exchange (or
any other exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority.
If Prepayment is made of all or any part of the amounts
credited to a Participant's Account on or prior to the Fixed Payment Date, and
if the Company's net capital is less than the amount required to permit such
payment pursuant to the previously cited provisions of this Section 8.3, the
Participant agrees irrevocably by electing to participate in the Plan (whether
or not such Participant had any knowledge or notice of such fact at the time of
any such Prepayment) to repay the Company, its successors or assigns, the sum
so paid to be held by the Company pursuant to the provisions hereof as if such
Prepayment had never been made; provided, however, that any suit for the
recovery of
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<PAGE> 15
any such Prepayment must be commenced within two (2) years of the date of such
Prepayment.
8.4 A Participant, by making an election to participate in
this Plan, irrevocably agrees that the obligations of the Company under the
Plan with respect to the payment of amounts credited to a Participant's Account
are and shall be subordinate in right of payment and subject to the prior
payment or provision for payment in full of all claims of all other present and
future creditors of the Company whose claims are not similarly subordinated
(claims under the Plan shall rank pari passu with claims similarly
subordinated) and to claims which are now or hereafter expressly stated in the
instruments creating such claims to be senior in right of payment to claims
arising under the Plan, arising out of any matter or event occurring prior to
the payment date of the amounts credited to that Participant's Account under
the Plan. In the event of the appointment of a receiver or trustee of the
Company or in the event of its insolvency, liquidation pursuant to SIPA or
otherwise, its bankruptcy, assignment for the benefit of creditors,
reorganization whether or not pursuant to bankruptcy laws, or any other
marshalling of the assets and liabilities of the Company, a Participant shall
not be entitled to participate or share, ratably or otherwise, in the
distribution of the assets of the Company until all claims of all other present
and future creditors of the Company, whose claims are senior to claims arising
under the Plan, have been fully satisfied, or provision has been made therefor.
8.5 Notwithstanding anything herein to the contrary:
(a) a Participant shall not be entitled to receive any
payment in respect of amounts credited to his Account
or to participate in the distribution of assets of
the Company in respect thereof if such payment or
distribution would constitute a violation of the
express terms of any Senior Subordinated Debt, as
hereinafter defined (or any agreement under or
pursuant to which the same may be outstanding);
(b) the right of a Participant to receive any payment in
respect of amounts credited to his Account shall be
subordinated to claims of the holders of Senior
Subordinated Debt so that, in the case of any
distribution of assets of the Company in complete or
partial liquidation, reorganization, arrangement or
other marshalling of assets and liabilities of the
Company, no such distribution or payment will be made
with respect to amounts credited to a Participant's
Account unless and until the principal of and
interest on the Senior Subordinated Debt are paid in
full; and
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<PAGE> 16
(c) a Participant shall promptly return to the Company
any amounts (whether cash, securities or otherwise)
received from the Company if the payment by the
Company of such amounts constituted a violation of
the express terms of any Senior Subordinated Debt (or
any agreement under or pursuant to which the same may
be outstanding).
8.6 The term "Senior Subordinated Debt" as used herein shall
mean and include all indebtedness of the Company (other than the Company's
obligations under the Company's 13 1/8% Subordinated Note due March 15, 1994,
the Company's 10 3/4% and 15 1/4% Subordinated Notes due from June 30, 1994
through December 31, 2025, the Company's obligations under the Plan, the
Company's Voluntary Deferred Compensation Plan, the Company's Deferred
Compensation Plan for Branch Managers, the Company's Asset Compensation Plan
for Financial Consultants, the Company's Deferred Compensation Plan for
Financial Consultants, the Company's Recognition Award Plans (including the
Lehman Brothers Equity Unit and Bonus Plan) and those similar agreements with
other Participants each of which rank pari passu with the obligations of the
Company under the Plan) constituting part of its Net Capital (as defined in the
Rule as in effect from time to time), and shall include without limitation
thereto the indebtedness represented by the Company's obligations under the
Company's 7 7/8% Senior Subordinated Notes Due August 15, 1993; the Company's
12 1/2% Senior Subordinated Notes Due October 15, 1994; the Company's Floating
Rate Subordinated Note with American Express Company due April 1, 1994; the
Company's 8 3/4% Senior Subordinated Debentures Due March 1, 1996; the
Company's 10 3/4% Senior Subordinated Notes Due April 29, 1996; the Company's 9
1/2% Senior Subordinated Notes Due June 15, 1997; the Company's Senior
Subordinated Notes Due May 15, 1999; the Company's 9 7/8% Senior Subordinated
Notes Due October 15, 2000; the Company's 11 5/8% Senior Subordinated
Debentures Due May 15, 2005; the Company's 9 7/8% Senior Subordinated Note Due
October 1, 1993; the Company's 10 3/4% Senior Subordinated Notes due from June
30, 1994 through December 31, 2025 held by various subsidiaries and affiliates
of the Company; the Company's Floating Rate Senior Subordinated Notes due from
January 27, 1994 through September 30, 1994 held by an affiliate of the
Company; the Company's 6% Senior Subordinated Notes due December 30, 1994; the
Company's Floating Rate Senior Subordinated Notes due July 14, 1994; and the
Company's Floating Rate Senior Subordinated Notes due May 17, 1996 unless, in
each case, in the instrument evidencing or creating the same, or in any
agreement under or pursuant to which it shall be outstanding, such indebtedness
shall be declared not to be Senior Subordinated Debt. Senior Subordinated Debt
(and any agreement under or pursuant to which the same may be outstanding) may
be amended, the commitment under such agreements may be increased, provisions
thereof may be waived, time of payment of the Senior Subordinated Debt may be
extended and other
- 14 -
<PAGE> 17
indulgences granted to the Company in respect thereof all from time to time
without notice to or assent of any Participant under the Plan.
8.7 Each Participant, by making an election to participate in
this Plan, irrevocably agrees and acknowledges that:
(a) such election is not being made in reliance upon the
standing of the Company as a member organization of
the Exchange or upon the Exchange's surveillance of
the Company's financial position or its compliance
with the constitution, rules and practices of the
Exchange;
(b) the Participant is not relying upon the Exchange to
provide any information concerning or relating to the
Company and the Exchange has no responsibility to
disclose to the Participant any information
concerning or relating to the Company which it may
now, or at any future time, have; and
(c) neither the Exchange, its Special Trust Fund, nor any
director, officer, trustee or employee of the
Exchange or said Trust Fund shall be liable to any
Participant with respect to this Plan or the payment
of amounts credited to a Participant's Account.
8.8 Upon termination of the Company as a member of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
Examining Authority. The term Examining Authority shall refer to such
regulatory body having responsibility for inspecting or examining the Company
for compliance with financial responsibility requirements under Section 9(c) of
SIPA and Section 17(d) of the Act. References herein to the Exchange or the
Examining Authority shall also be deemed to refer to the CBT and to any other
exchange, board of trade, clearing association or similar organization of which
the Company is a member and which requires such reference as a condition to
inclusion of the amounts credited to Accounts hereunder in the Company's net
capital as computed for the purposes of such organization.
8.9 References in the Plan to the Exchange or Examining
Authority shall also be deemed to refer to the organization(s) designated as
the self-regulatory organization(s) (also known as DSRO) of the Company
pursuant to a plan filed with the CFTC pursuant to Regulation 1.52 under the
CEA to the extent such references are required as a condition to inclusion of
the amounts credited to Accounts in the Plan in the Company's net capital as
computed for purposes of such organization(s).
8.10 All amounts credited to Accounts shall be dealt with in
all respects as capital of the Company, shall be subject to
- 15 -
<PAGE> 18
the risks of its business, and may be deposited in an account or accounts in
the Company's name in any bank or trust company.
8.11 Notwithstanding any other provisions in this ARTICLE
VIII, all amounts which are from time to time credited to Participants'
Accounts shall be subject to the terms of subordination set forth in this
ARTICLE VIII.
ARTICLE IX
Administration
9.1 The complete authority to control and manage the
operation and administration of the Plan and the responsibility for carrying
out its provisions belongs to the Committee. The Committee shall consist of at
least three members appointed from time to time by the Board of Directors to
serve at the pleasure thereof. Any member of the Committee may resign by
delivering his written resignation to the Board of Directors.
9.2 The Committee shall from time to time establish rules of
administration and interpretation of the Plan. The determination of the
Committee as to any disputed questions shall be conclusive and binding on all
parties, including the Participant, his Beneficiary, the Company and the
Employer.
9.3 Any act which the Plan authorizes or requires the
Committee to do may be done by a majority of its members. The action of such
majority, expressed by a vote at a meeting or in writing without a meeting,
shall constitute the action of the Committee and shall have the same effect for
all purposes as if assented to by all members of the Committee.
9.4 The members of the Committee may authorize one or more of
their number to execute or deliver any instrument, make any payment or perform
any other act which the Plan authorizes or requires the Committee to do.
9.5 The Committee may employ counsel and other agents and may
procure such clerical, accounting, and other services as they may require in
carrying out the provisions of the Plan.
9.6 No member of the Committee shall receive any compensation
for his services as such. All expenses of administering the Plan, including
but not limited to, fees of accountants and counsel, shall be paid by Company.
9.7 The Company shall indemnify and save harmless each member
of the Committee against all expenses and liabilities arising out of membership
on the Committee, excepting only
- 16 -
<PAGE> 19
expenses and liabilities arising from his own gross negligence or willful
misconduct, as determined by the Board of Directors.
ARTICLE X
Amendment and Termination
10.1 The Company, by action of the Committee, may at any time
or from time to time modify or amend any or all of the provisions of the
Plan or may at any time terminate the Plan; provided, however, that no action
taken shall adversely affect the rights of any Participant hereunder to vested
amounts due and payable to such Participant at the time such action is taken,
unless the Participant otherwise consents thereto.
ARTICLE XI
General Provisions
11.1 No Participant, branch manager, financial consultant,
key employee or employee of the Company or any Employer shall have any right to
any payment or benefit hereunder except to the extent provided in the Plan.
11.2 The employment rights of any Participant shall not be
enlarged, guaranteed or affected by reason of any of the provisions of the
Plan.
11.3 Assignment, pledge or other encumbrance of any payments
or benefits under the Plan shall not be permitted or recognized and to the
extent permitted by law, no such payments or benefits shall be subject to legal
process or attachment for the payment of any claim of any person entitled to
receive the same.
11.4 The Company shall have the right to retain or to use any
amounts payable under the Plan to satisfy or otherwise offset amounts the
Participant owes to the Company as a result of his actions or in the event he
is terminated for Cause. Amounts payable under the Plan may also be used to
offset amounts the Company is required to pay a client or a regulatory agency
or any other person or entity as a result of the Participant's actions.
11.5 If the Committee determines that any person to whom a
payment is due hereunder is a minor or incompetent by reason of physical or
mental disability, the Committee shall have the power to cause the payments
then due to such person to be made to another for the benefit of the minor or
incompetent, without responsibility of the Company or the Committee to see to
the application of such payment, unless claim prior to such payment is made
therefor by a duly appointed legal representative.
- 17 -
<PAGE> 20
Payments made pursuant to such power shall operate as a complete discharge of
the Company and the Committee.
11.6 The validity of the Plan or any of its provisions shall
be determined under, and it shall be construed and administered according to,
the laws of the state of New York.
11.7 Any controversy or dispute hereunder shall be resolved
by arbitration pursuant to the Constitution of the Exchange or the NASD.
11.8 Each Participant may designate, in writing and on a form
provided by the Committee, any person(s), legal entity(ies), including his
estate, as his Beneficiary under the Plan; provided, however, that a
Participant may designate a trust as his Beneficiary only with the prior
written approval of the Committee. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary at any time prior to his
death by filing with the Committee the appropriate beneficiary designation
form. If no person or legal entity shall be designated by a Participant as his
Beneficiary or if no designated Beneficiary survives him, his Beneficiary shall
be his estate. To be effective, any designation or revocation of Beneficiary
must be on the appropriate form provided by the Committee and on file with the
Committee prior to the date of the Participant's death. The provisions of the
Plan shall be binding on the Participant, the Company, and their respective
heirs, executors, administrators, successors and assigns.
- 18 -
<PAGE> 1
LEHMAN BROTHERS INC
EMPLOYEE OWNERSHIP PLAN
AUGUST 25, 1993
------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
LEHMAN BROTHERS INC. EMPLOYEE OWNERSHIP PLAN
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction................................................. 1
-----------
PART I - OPERATION OF THE PLAN.............................. 1
---------------------
1.1 Number of Phantom Shares Available for Issuance.... 1
-----------------------------------------------
1.1 (a) In General......................................... 1
----------
1.1 (b) Adjustment on Effective Date....................... 1
----------------------------
1.2 Eligible Participants; Establishment of Phantom
-----------------------------------------------
Unit Account................................ 2
-----------
1.3 Crediting of Phantom Shares and Cash Rights........ 2
-------------------------------------------
1.3 (a) Mandatory 1993 Total Compensation Deferrals........ 2
-------------------------------------------
1.3 (b) Voluntary Deferrals................................ 2
-------------------
1.3 (c) Plan Agreements.................................... 3
---------------
1.4 Terms of Phantom Shares and Cash Rights............ 3
---------------------------------------
1.4 (a) Quarterly Distributions............................ 3
-----------------------
1.4 (b) Conversion to Common Stock upon IPO................ 3
-----------------------------------
1.4 (c) Sale of Holdings to a Single Buyer................. 4
----------------------------------
1.4 (d) No Transaction..................................... 4
--------------
1.5 Vesting and Forfeiture of Phantom Units and
-------------------------------------------
Deferred Compensation Accounts.............. 5
------------------------------
1.5 (a) Mandatory Deferrals................................ 5
-------------------
1.5 (b) Voluntary Deferrals................................ 5
-------------------
1.5 (c) Termination of Employment and Forfeitures.......... 5
-----------------------------------------
</TABLE>
<PAGE> 3
-ii-
<TABLE>
<S> <C>
(i) Resignation; Termination for Cause................. 5
----------------------------------
(ii) Termination Without Cause; Death,
---------------------------------
Disability, Governmental Service
--------------------------------
Early Retirement or Normal
---------------------------
Retirement.................................. 5
----------
1.6 Provisions Regarding Common Stock Issued upon
---------------------------------------------
Conversion of Phantom Shares................ 6
----------------------------
1.6 (a) In General......................................... 6
----------
1.6 (b) Vesting and Forfeiture of Restricted Shares........ 6
-------------------------------------------
1.6 (c) Transfer Restrictions............................. 7
---------------------
(i) Time-Based Lapse of Restrictions.................. 7
--------------------------------
(ii) Lapse of Restrictions Based on Level of
---------------------------------------
American Express Ownership............... 7
--------------------------
1.6 (d) Termination of Employment; Call Right............. 8
-------------------------------------
1.6 (e) Miscellaneous Terms of Restricted Shares.......... 8
----------------------------------------
(i) Stockholder Rights................................ 8
------------------
(ii) Dividends and Distributions....................... 8
---------------------------
PART II - GENERAL ADMINISTRATIVE PROVISIONS................. 9
---------------------------------
2.1 Administration.................................... 9
--------------
2.1 (a) General........................................... 9
-------
2.1 (b) Adjustments....................................... 9
-----------
2.2 The Company as Payor; Status of Participants
--------------------------------------------
as Unsecured, Subordinated Creditors;
-------------------------------------
Expenses................................... 9
--------
2.3 Agreements with Participants...................... 10
----------------------------
</TABLE>
<PAGE> 4
-iii-
<TABLE>
<S> <C> <C> <C>
2.3 (a) Agreement to Be Bound.............................. 10
---------------------
2.3 (b) Designation of Beneficiaries....................... 10
----------------------------
2.4 Government Regulations............................. 10
----------------------
2.5 Withholding Taxes.................................. 11
-----------------
2.6 Applicable Law..................................... 11
--------------
2.7 Rights of Participants............................. 11
----------------------
2.8 Non-Transferability of Rights...................... 12
-----------------------------
2.9 Amendment of the Plan.............................. 12
---------------------
2.10 Termination of the Plan............................ 12
-----------------------
2.10 (a) In General......................................... 12
----------
2.10 (b) Consequences of Termination of the Plan............ 12
---------------------------------------
2.11 Severability....................................... 13
------------
2.12 Certain Rights of Participants..................... 13
------------------------------
2.13 Actions and Decisions Regarding the Business
--------------------------------------------
or Operations of the Company, Holdings and
------------------------------------------
Any of Their Affiliates..................... 14
-----------------------
2.14 Offset............................................. 14
------
2.15 Notices............................................ 14
-------
2.16 Arbitration........................................ 15
-----------
2.17 Adjustments for Non-U.S. Participants.............. 15
-------------------------------------
2.18 Governing Document................................. 15
------------------
</TABLE>
<PAGE> 5
-iv-
PART III - DEFINITIONS
<TABLE>
<S> <C> <C>
3.1 "Affiliate"...................................... 16
---------
3.2 "Beneficiary".................................... 16
-----------
3.3 "Bonus and Bonuses".............................. 16
-----------------
3.4 "Cause".......................................... 16
-----
3.5 "Disability"..................................... 16
----------
3.6 "Early Retirement"............................... 17
----------------
3.7 "EBP"............................................ 17
---
3.8 "Good Reason".................................... 17
-----------
3.9 "Governmental Service"........................... 17
--------------------
3.10 "Initial Value".................................. 17
-------------
3.11 "IPO"............................................ 17
---
3.12 "Normal Retirement".............................. 17
-----------------
3.13 "Original Value"................................. 18
--------------
3.14 "Participant".................................... 18
-----------
3.15 "Peer Company Yield"............................. 18
------------------
3.16 "Phantom Unit Account"........................... 18
--------------------
3.17 "Phantom Unit Value"............................. 18
------------------
3.18 "Retained Earnings".............................. 19
-----------------
3.19 "Retained Earnings Per Share".................... 19
---------------------------
3.20 Miscellaneous................................... 19
-------------
3.21 Other Defined Terms............................. 19
-------------------
</TABLE>
<PAGE> 6
LEHMAN BROTHERS INC. EMPLOYEE OWNERSHIP PLAN
Effective as of August 25, 1993 (the "Effective Date")
Introduction
The Lehman Brothers Inc. Employee Ownership Plan (the "Plan"),
is intended to motivate and reward certain key employees of Lehman Brothers
Inc. (the "Company") and its Affiliates by providing them grants of, or
opportunities to acquire, phantom equity interests ("Phantom Shares"), each
representing a notional interest in a share of the common stock, par value $.10
per share, of Lehman Brothers Holdings Inc. ("Holdings") (such stock, together
with any class of equity securities of Holdings or any successor of Holdings
into which it may hereafter be converted, the "Common Stock") and related
rights to receive certain amounts in cash ("Cash Rights"). (A Phantom Share
and a related Cash Right from time to time may be referred to together
hereunder as a "Phantom Unit".)
Except where defined elsewhere in the Plan, all capitalized
terms used herein have the meanings assigned to them in Part III below.
PART I - OPERATION OF THE PLAN
1.1 Number of Phantom Shares Available for Issuance.
1.1 (a) In General. Up to 10 million Phantom Shares are available
for issuance to Participants hereunder. In the event that any Phantom Shares
are forfeited pursuant to the terms of the Plan, such Phantom Shares shall
again be available for issuance hereunder.
1.1 (b) Adjustment on Effective Date. Notwithstanding anything
contained herein to the contrary, in the event that on the Effective Date the
number of shares of Common Stock outstanding is not 90 million, then (i) the
number of Phantom Shares issuable hereunder shall be changed to a number equal
to 11.11% of the actual number of shares of Common Stock outstanding on the
Effective Date (and all references to 10 million Phantom Shares hereunder shall
be deemed to refer to such adjusted number) and (ii) the Initial Value and
Original Value of Phantom Shares and Cash Rights, respectively, to be issued as
of January 1, 1994 shall be adjusted to reflect
<PAGE> 7
2
such change in the number of shares of Common Stock and the resultant change is
the number of Phantom Shares and Cash Rights issuable hereunder.
1.2 Eligible Participants; Establishment of Phantom Unit
Account.
The Finance Committee of the Board of Directors of Holdings (as
constituted from time to time, together with its designees, the "Finance
Committee") may designate such key employees of the Company and its Affiliates
as Participants as it may determine from time to time in its discretion. Each
Participant shall have a Phantom Unit Account established in the Participant's
name.
1.3 Crediting of Phantom Shares and Cash Rights.
1.3 (a) Mandatory 1993 Total Compensation Deferrals. The Finance
Committee shall designate in its discretion which Participants shall have a
portion of their base salary and Bonus (hereinafter, "Total Compensation")
payable to them with respect to the 1993 fiscal year of Holdings credited,
effective January 1, 1994, as Phantom Shares and Cash Rights to their Phantom
Unit Accounts in lieu of being paid in cash. One Phantom Share (with an Initial
Value of $10) and one Cash Right (with an Original Value of $6.67) will be
credited to such Participant's Phantom Unit Account for each $16.67 of 1993
Total Compensation mandatorily deferred in accordance with the schedule to be
established by the Finance Committee.
1.3 (b) Voluntary Deferrals. (i) The Finance Committee shall
offer certain Participants the opportunity to elect to have up to a specified
portion or dollar amount of their 1993 Total Compensation (or commissions
earned with respect to the 1993 fiscal year of Holdings) credited as Phantom
Units to their Phantom Unit Accounts in lieu of being paid in cash. Such
portion or dollar amount of 1993 Total Compensation (or commissions) shall be
determined by the Finance Committee in its discretion, and may vary among
individual Participants or categories of Participants. Each Participant who
voluntarily defers 1993 Total Compensation (or commissions) shall be credited
with one Phantom Share (with an Initial Value of $10) and one Cash Right (with
an Original Value of $6.67) for each $16.67 of 1993 Total Compensation (or
commissions) so deferred.
(ii) If the mandatory deferrals described in Section 1.3(a) above
and the voluntary deferrals described above in this Section 1.3(b) result in
fewer than 10 million Phantom Shares being credited to Participants' Phantom
Unit Accounts as of January 1, 1994, then the Finance Committee may extend
<PAGE> 8
3
the mandatory deferral provisions of Section 1.3(b) above to the 1994 fiscal
year and later fiscal years of Holdings and may offer certain 1993 Participants
and certain additional employees and new hires the opportunity to have Phantom
Units credited to their Phantom Unit Accounts in lieu of Total Compensation (or
commissions) payable in respect of the 1994 fiscal year or later fiscal years
of Holdings. The Initial Value of Phantom Shares credited in lieu of Total
Compensation (or commissions) in respect of the 1994 fiscal year or later
fiscal years of the Company shall be determined by the Finance Committee in its
discretion with reference to the then value of Common Stock and the
restrictions applicable to Phantom Shares hereunder.
1.3 (c) Plan Agreements. The Finance Committee shall establish
procedures for the issuances of Phantom Units pursuant to this Section 1.3 and
shall set forth the terms of such issuances in such documents, including,
without limitation, deferral agreements, consents and offering memoranda, as it
may deem necessary or appropriate in its discretion. All such documentation
shall incorporate the terms of the Plan by reference and shall contain such
other terms, not inconsistent with the Plan, as the Finance Committee may
establish.
1.4 Terms of Phantom Shares and Cash Rights.
1.4 (a) Quarterly Distributions. As soon as practicable following
the end of each fiscal quarter of Holdings (beginning with the first fiscal
quarter of 1994 and ending with the fiscal quarter ending immediately prior to,
or coincident with, the payment or conversion of the last Phantom Share
hereunder), the Company shall pay an amount in cash (the "Quarterly
Distribution") in respect of each outstanding Phantom Unit equal to (i) the sum
of (A) the Phantom Unit Value of such Phantom Unit, and (B) Retained Earnings
Per Share after December 31, 1993 (or such other date immediately preceding the
date on which such Phantom Unit was credited to the Participant's Phantom Unit
Account) through the last day of Holdings' fiscal quarter for which such
Quarterly Distribution is being paid, multiplied by (ii) the Peer Company Yield
for such fiscal quarter.
1.4 (b) Conversion to Common Stock upon IPO. In the event of an
IPO, each Participant with Phantom Units credited to the Participant's Phantom
Unit Account as of the closing of the IPO shall receive at or about the time of
the closing of such IPO with respect to each such Phantom Unit (i) a share of
Common Stock and (ii) an amount in cash in full satisfaction of the related
Cash Right equal to the Original
<PAGE> 9
4
Value of such Cash Right. Each share of Common Stock so issued shall be
subject to the terms of Section 1.6 below.
1.4 (c) Sale of Holdings to a Single Buyer. (i) In the event of
the sale of all or substantially all of the Common Stock or the assets of
Holdings to a person or group (as defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) that is not an Affiliate of
Holdings (a "Third Party Sale"), each Phantom Unit shall be revalued so that
the Participant will be credited with a value per Phantom Share equal to the
price paid per share of Common Stock (including as Common Stock for this
purpose all Phantom Shares then outstanding) by such person or group (in the
case of an asset sale, using a value per share of Common Stock determined by
the Finance Committee prior to the consummation of such Third Party Sale based
on the purchase price of Holdings' assets) and a value per Cash Right equal to
the Original Value of such Cash Right.
(ii) The value of each Participant's Phantom Unit Account as so
recalculated shall be paid, together with interest calculated from the closing
of the Third Party Sale to the relevant date of payment at a rate equal to the
cost to the third party effecting the Third Party Sale of three year debt
determined by the Finance Committee as of the closing of the Third Party Sale,
in three equal installments on each of the first, second and third
anniversaries of the closing of the Third Party Sale.
(iii) The excess of the value of each Participant's Phantom Unit
Account as so recalculated over the value of the Participant's Phantom Unit
Account based on the Phantom Unit Value (the "Sale Premium") shall be forfeited
if a Participant resigns for any reason other than Good Reason or is terminated
for Cause prior to the relevant payment date, and the portion of such
Participant's Phantom Unit Account not representing the Sale Premium shall
continue to be subject to the vesting schedule originally applicable to such
Participant's Phantom Units. In determining which portion of the Phantom Unit
Account is to be paid on a given installment date pursuant to this Section
1.4(c), vested amounts shall be paid prior to the payment of any unvested
amounts.
1.4 (d) No Transaction. In the event that no IPO or Third Party
Sale occurs on or prior to July 1, 1997, the value of the Phantom Units
credited to a Participant's Phantom Unit Account on such date shall be valued
as of such date and shall be paid, subject to the vesting schedule and
forfeiture terms applicable to such Phantom Units, in cash to the Participant
in equal installments, together with interest
<PAGE> 10
5
at a rate equal to the Company's cost of three-year debt as of July 1, 1997, on
each of July 1, 1998, July 1, 1999 and July 1, 2000. The amount payable with
respect to each Phantom Unit shall be the sum of (i) the Phantom Unit Value of
such Phantom Unit and (ii) Retained Earnings Per Share for the period after
December 31, 1993 (or such other date immediately preceding the date on which
such Phantom Unit was credited to the Participant's Phantom Unit Account) to
June 30, 1997.
1.5 Vesting and Forfeiture of Phantom Units.
1.5 (a) Mandatory Deferrals. All Phantom Units credited to Phantom
Unit Accounts pursuant to Section 1.3(a) above shall vest as determined by the
Finance Committee.
1.5 (b) Voluntary Deferrals. All Phantom Units credited to Phantom
Unit Accounts pursuant to Section 1.3(b) shall be vested immediately upon such
crediting.
1.5 (c) Termination of Employment and Forfeitures.
(i) Resignation; Termination for Cause. In the event a
Participant's employment with the Company or any of its Affiliates terminates
by reason of a termination of employment by the Company or the relevant
Affiliate for Cause or a resignation for any reason, then (I) all unvested
Phantom Units credited to the Participant's Phantom Unit Account as of the date
of such termination shall be forfeited without payment therefor, and (II) the
Participant shall be paid promptly an amount in cash for each vested Phantom
Unit credited to the Participant's Phantom Unit Account as of the date of such
termination equal to the Phantom Unit Value of such Phantom Unit plus (only if
negative) Retained Earnings Per Share for the period after December 31, 1993
(or such other date immediately preceding the date on which such Phantom Unit
was credited to the Participant's Phantom Unit Account) to the last day of
Holdings' fiscal quarter ending immediately prior to, or coincident with, the
relevant date of termination of employment.
(ii) Termination Without Cause; Death, Disability, Governmental
Service, Early Retirement or Normal Retirement. In the event a Participant's
employment with the Company or any of its Affiliates terminates by reason of a
termination by the Company or the relevant Affiliate without Cause, or of the
Participant's death, Disability, entry into Governmental Service, Early
Retirement or Normal Retirement, then all
<PAGE> 11
6
Phantom Units credited to the Participant's Phantom Unit Account as of the
relevant date of termination of employment shall vest and the Participant (or
his Beneficiary, as the case may be) shall be paid promptly an amount in cash
for each Phantom Unit credited to the Participant's Phantom Unit Account as of
the relevant date of termination of employment equal to the sum of (A) the
Phantom Unit Value of such Phantom Unit, (B) Retained Earnings Per Share for
the period after December 31, 1993 (or such other date immediately preceding
the date on which such Phantom Unit was credited to the Participant's Phantom
Unit Account) to the last day of Holdings' fiscal quarter ending immediately
prior to, or coincident with, the relevant date of termination of employment,
and (C) the Quarterly Distribution payable per Phantom Share for the fiscal
quarter ending immediately prior to, or coincident with, the relevant date of
termination of employment.
1.6 Provisions Regarding Common Stock Issued upon
Conversion of Phantom Shares.
1.6 (a) In General. The shares of Common Stock issued to
Participants pursuant to Section 1.4(b) above (hereinafter, "Restricted
Shares") shall be subject to the terms and conditions of this Section 1.6. At
the time of the issuance of Restricted Shares to a Participant, a legended
certificate evidencing the appropriate number of shares of Common Stock issued
to the Participant as Restricted Shares shall be issued in the Participant's
name but shall be held by the Company in a brokerage account for the account of
the Participant until such time as such Restricted Shares become transferable
hereunder. Upon the lapse of transfer restrictions as to Restricted Shares
held by a Participant, the certificate evidencing such shares shall be
delivered to the Participant.
1.6 (b) Vesting and Forfeiture of Restricted Shares. The Restricted
Shares shall vest in accordance with the schedules applicable to the Phantom
Shares in respect of which they were issued pursuant to Section 1.4(b). Upon
any termination of a Participant's employment with the Company or any of its
Affiliates by reason of a resignation by the Participant for any reason or a
termination of employment by the Company or the relevant Affiliate for Cause,
all unvested Restricted Shares shall be forfeited without payment therefor, and
all vested Restricted Shares shall be subject to the provisions of Sections
1.6(c) and 1.6(d) below. Upon any termination of a Participant's employment
with the Company or any of its Affiliates by reason of a termination
<PAGE> 12
7
by the Company or the relevant Affiliate without Cause, or of the Participant's
death, Disability, entry into Governmental Service, Early Retirement or Normal
Retirement, all unvested Restricted Shares shall vest as of the date of such
termination of employment, but shall be subject to the provisions of Sections
1.6(c) and 1.6(d) below.
1.6 (c) Transfer Restrictions. The Restricted Shares issued to a
Participant may not be sold, gifted, pledged, hypothecated or otherwise
transferred in any way, except by will or the laws of descent and distribution,
so long as they are unvested and, in any event, shall continue to be subject to
such transfer restrictions until such transfer restrictions lapse in accordance
with the schedules set forth in clauses (i) and (ii) below:
(i) Time-Based Lapse of Restrictions. Subject to clause (ii)
below, transfer restrictions applicable to the Restricted Shares will
lapse as to one third of the Restricted Shares issued to a Participant
on each of the first through third anniversaries of the closing date of
the IPO.
(ii) Lapse of Restrictions Based on Level of American Express
Ownership. Notwithstanding clause (i) above, for five years after the
closing date of the IPO, transfer restrictions as to the Restricted
Shares issued to a Participant shall lapse no more rapidly than in
accordance with the following schedule (or interpolations therefrom)
based on the percentage ownership of outstanding Common Stock by
American Express Company ("American Express") or any of its Affiliates,
calculated for purposes of the Plan on a monthly basis.
<TABLE>
<CAPTION>
American Express Percentage of
Ownership Percentage Restricted Shares
of Outstanding Common Stock Transferable
--------------------------- -----------------
<S> <C>
100% 0%
80 20
60 40
40 60
20 80
0 100
</TABLE>
In the event of a Participant's termination of employment for any reason other
than death or Disability, the transfer restrictions of this Section 1.6(c)
shall continue to apply to any Restricted Shares that are not forfeited and not
repurchased by Holdings pursuant to Section 1.6(d) below. In
<PAGE> 13
8
such an event, clauses (i) and (ii) above shall be applied so that the
percentages or fractions of Restricted Shares transferable thereunder refer to
percentages or fractions of the number of Restricted Shares held by a
terminated Participant after taking into account forfeitures and repurchases
pursuant to Section 1.6(d) below.
1.6 (d) Termination of Employment; Call Right. For a period of 10
business days following the termination of a Participant's employment with the
Company or any of its Affiliates by reason of a resignation by the Participant
for any reason or of a termination of employment by the Company or the relevant
Affiliate for Cause, Holdings shall have the right, but not the obligation,
upon written notice to the Participant, to purchase from the Participant any or
all vested Restricted Shares at a price per share equal to the sum of (i) the
Initial Value of the Phantom Share in respect of which such Restricted Share
was issued pursuant to Section 1.4(b) above, and (ii) the Retained Earnings Per
Share for the period after December 31, 1993 (or such other date immediately
preceding the date on which such Phantom Unit was credited to the Participant's
Phantom Unit Account) to the last day of the fiscal quarter of Holdings ending
immediately prior to, or coincident with, the relevant date of exercise of the
purchase right described in this Section 1.6(d).
1.6 (e) Miscellaneous Terms of Restricted Shares.
(i) Stockholder Rights. A Participant shall have all rights of
a stockholder as to the Restricted Shares, including the right to receive
dividends and the right to vote for directors and upon other matters in
accordance with Holdings' Certificate of Incorporation, subject to the vesting
and transfer restrictions contained above in this Section 1.6.
(ii) Dividends and Distributions. Any shares of Common Stock
or other property received in respect of a Restricted Share as a result of a
distribution to holders of Common Stock or as a dividend on Common Stock shall
be subject to the same restrictions hereunder as such Restricted Share.
<PAGE> 14
9
PART II - GENERAL ADMINISTRATIVE PROVISIONS
2.1 Administration.
2.1 (a) General. The terms of the Plan shall be administered,
interpreted (which shall include the power to supply any omission and reconcile
any inconsistencies) and adjusted, as appropriate, by the Finance Committee.
Any action taken or determination made by the Finance Committee which has been
assigned to the Finance Committee pursuant to the terms of the Plan shall be
within its sole discretion and shall be final and binding on all interested
parties. The Finance Committee shall have no liability to any Participant (or
his Beneficiaries or heirs) under the Plan or otherwise on account of any
action taken, or not taken, or any determination made in good faith by the
Finance Committee pursuant to the terms of the Plan or authority delegated to
it under the Plan.
2.1 (b) Adjustments. In the event of a change in the number of
shares of Common Stock outstanding by reason of any stock dividend or split or
recapitalization, the Finance Committee shall make appropriate adjustments to
the terms of the Plan and to any outstanding Phantom Shares. In addition, the
Finance Committee may make adjustments to the terms of the Plan and its
applicability to any Participant which, in its discretion, it deems equitable
and necessary in order to preserve the economic rights and expectations of the
Participants, Holdings and the Company hereunder, in the event:
(i) that there occurs an event such as a merger, sale of
substantially all of the assets of, or a consolidation, reorganization
or other restructuring of Holdings or the Company; or
(ii) that any anticipated benefits of deferral under, or
other aspects of, the Plan are altered by reason of any interpretation
of or change in applicable laws, governmental regulations or accounting
rules;
provided, however, that any rights under Section 2.12 may not be materially
adversely affected without such Participant's written consent.
2.2 The Company as Payor; Status of Participants as Unsecured,
Subordinated Creditors; Expenses.
The Company is the sponsor and legal obligor under the Plan, and
shall make all payments hereunder. Nothing
<PAGE> 15
10
herein is intended to restrict the Company from charging an Affiliate that
employs a Participant for all or a portion of the payments made by the Company
hereunder to such Participant. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any amounts under the Plan, and rights to payment
hereunder shall be no greater than the rights of the Company's unsecured,
subordinated creditors, and shall be subordinated to the claims of the
customers and clients of the Company. As a condition to participation in the
Plan, each Participant shall agree that, in the event the Finance Committee
concludes that the obligation of the Company under the Plan should qualify as
subordinated capital of the Company for regulatory purposes, such Participant
shall execute from time to time such subordinated debt agreements, and shall
consent to such modifications to the Plan, as the Finance Committee may
determine are necessary or appropriate in order to ensure that the Company's
obligations so qualify. All expenses involved in administering the Plan shall
be borne by the Company.
2.3 Agreements with Participants.
2.3 (a) Agreement to Be Bound. By becoming a Participant in the
Plan, each Participant (and each person claiming under or through a
Participant) shall be conclusively bound by the terms of the Plan and any
action taken or not taken under the Plan by the Company, Holdings, or the
Finance Committee.
2.3 (b) Designation of Beneficiaries. The Finance Committee shall
create a procedure whereby a Participant may file, on a form to be provided by
the Finance Committee, a written election designating one or more Beneficiaries
with respect to the vested portion of such Participant's Phantom Unit Account
or of such Participant's Restricted Shares in the event of the Participant's
death. The Participant may amend such Beneficiary designation in writing at
any time prior to the Participant's death, without the consent of any
previously designated Beneficiary (to the extent permitted by law); provided,
however, that such amended designation shall not be effective unless and until
received by the duly authorized representative of the Company prior to the
Participant's death.
2.4 Government Regulations.
All transactions in Phantom Shares, Cash Rights and Restricted
Shares and all amounts payable by the Company under the Plan shall be
contingent upon compliance with any
<PAGE> 16
11
and all applicable federal, state, local and foreign laws and rules and
regulations of any regulatory or self-regulatory body in effect at the time, as
deemed necessary or desirable by the Finance Committee. No changes to the Plan
that are necessary in order to comply with such laws, rules or regulations
shall be deemed to violate the Participant's rights protected under Section
2.12, provided that the Company takes all reasonable steps necessary to provide
the Participants with the benefits intended under the Plan.
2.5 Withholding Taxes.
The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any taxes which the
Company or any of its Affiliates is required by any law or regulation of any
governmental authority, whether federal, state, local or foreign, to withhold
in connection with payments pursuant to the Plan, including, but not limited
to, (a) the withholding of funds or other property (or any portion thereof)
until the Participant reimburses the Company or such Affiliate for the amount
that is required with respect to such taxes, (b) the cancelling of any portion
of such payment in an amount sufficient to reimburse itself or such Affiliate
for the amount of taxes required to be withheld, or (c) the withholding of
appropriate sums from any amount otherwise payable to the Participant (or his
Beneficiary).
2.6 Applicable Law.
The Plan and all actions taken hereunder shall be governed by,
and construed in accordance with, the substantive laws, but not the choice of
law rules, of the State of New York.
2.7 Rights of Participants.
No employee or other person shall have any claim or right to
receive Phantom Shares, Cash Rights or Restricted Shares under the Plan except
as expressly provided herein and neither the Plan nor any action taken under
(or inaction involving) the Plan shall be construed as (a) giving any employee
any right to be retained in the employ of the Company or any of its Affiliates
or (b) affecting the right of any of the above-mentioned entities to terminate
the employment of any individual with or without Cause. Notwithstanding
anything that may be to the contrary herein, until the issuance of Restricted
Shares hereunder, no relationship is intended between the Company or any
Affiliate and any Participant under the Plan other than that of
<PAGE> 17
12
employer and employee (and, in particular, no partnership or other organization
among the Company, any Affiliate of the Company or any Participant is intended)
and no position to the contrary shall be taken for any purpose.
2.8 Non-Transferability of Rights.
Except as previously provided hereunder, a Participant's rights
and interest under the Plan may not be assigned or transferred in whole or in
part either directly or by operation of law or otherwise including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy
or in any other manner, and no such right or interest of any Participant under
the Plan shall be subject to any obligation or liability of such Participant
other than any obligations or liabilities owed by such Participant to the
Company, Holdings or their respective subsidiaries.
2.9 Amendment of the Plan.
The Finance Committee may amend the Plan at any time or from
time to time. However, no amendment of the Plan shall materially adversely
affect any rights described in Section 2.12, without an affected Participant's
written consent.
2.10 Termination of the Plan.
2.10 (a) In General. Notwithstanding any other provision herein
that may be to the contrary, the Plan is subject to termination at any time by
action of the Finance Committee.
2.10 (b) Consequences of Termination of the Plan. In the event of
a termination of the Plan, no further Phantom Shares, Cash Rights or Restricted
Shares shall be issued hereunder, and all outstanding Phantom Shares, Cash
Rights and Restricted Shares shall remain subject to the terms of the Plan as
in effect prior to its termination. Notwithstanding the foregoing, in the
event the Finance Committee determines to terminate the Plan, it may elect to
cash out all outstanding Phantom Units based on a value per Phantom Unit equal
to the sum of (x) the Phantom Unit Value of such Phantom Unit and (y) Retained
Earnings Per Share for the period after December 31, 1993 (or such other date
immediately preceding the date on which such Phantom Unit was credited to a
Participant's Phantom Unit Account) to the last day of the fiscal quarter
ending immediately prior to, or coincident with, the date of the termination of
the Plan; provided, however, that in the event such termination of the Plan
occurs in connection with an IPO, the Phantom Unit Value
<PAGE> 18
13
shall be calculated using a value per Phantom Share equal to the price paid per
share of Common Stock in the IPO (or, in the case of an IPO which is a
spin-off, the valuation per share used in such transaction). The value of the
Phantom Units so calculated shall be paid, to the extent vested, promptly
following the date of termination of the Plan and to the extent unvested,
promptly following the date or dates on which such amounts would have vested
had the Plan not been terminated, together with interest at a rate equal to the
Company's cost of three-year debt as of the date of termination of the Plan.
2.11 Severability.
The invalidity or unenforceability of any one or more provisions
of the Plan shall not affect the validity or enforceability of any other
provision of the Plan, which shall remain in full force and effect.
2.12 Certain Rights of Participants.
Subject to the Finance Committee's ability to amend the Plan
pursuant to Section 2.9, to terminate the Plan in accordance with Section 2.10
or to adjust the terms of the Plan as provided expressly elsewhere under the
Plan, none of the following rights of a Participant may be materially adversely
affected by any adjustment, amendment or termination of the Plan without such
Participant's written consent:
(a) the right to vest in, or to become free of transfer
restriction with respect to, any Phantom Shares or Cash Rights credited
to the Participant's Phantom Unit Account under the Plan or Restricted
Shares held by the Participant, as of the date of such adjustment,
amendment or termination, based on (i) his continued service (if any)
with the Company, Holdings or any of their respective subsidiaries and
(ii) the vesting, forfeiture and transfer restriction provisions of the
Plan as in effect prior to such adjustment, amendment or termination;
(b) the right to receive Quarterly Distributions with
respect to all Phantom Units credited to the Participant's Phantom Unit
Account as of the date of such adjustment, amendment or termination,
based on the terms of the Plan as in effect prior to such adjustment,
amendment or termination; and
(c) the right to receive payments or Common Stock with
respect to the Phantom Shares credited to the
<PAGE> 19
14
Participant's Phantom Unit Account or with respect to Restricted Shares
held by the Participant, as of the date of adjustment, amendment or
termination, in accordance with the terms of the Plan as in effect prior
to such adjustment, amendment or termination.
Further, Sections 2.9, 2.10, and 2.12 shall not be adjusted or amended in any
way that would have a material adverse effect on a Participant without the
consent of the affected Participant. Nothing in this Section 2.12 shall be
construed to confer a right to remain employed by the Company, Holdings or any
of their respective subsidiaries or otherwise affect the application of Section
2.7 above.
2.13 Actions and Decisions Regarding the Business or Operations
of the Company, Holdings, and any of their Subsidiaries.
Notwithstanding anything in the Plan to the contrary, neither
the Company nor Holdings, nor any of their respective subsidiaries nor their
respective officers, directors, employees or agents shall have any liability to
any Participant (or his Beneficiaries or heirs) under the Plan or otherwise on
account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company,
Holdings or any of their respective subsidiaries. In particular, nothing
herein shall be interpreted as limiting in any way Holdings' right to pay
dividends to American Express or other holders of Common Stock in such amounts
as the Board of Directors of Holdings determines in its discretion are
appropriate.
2.14 Offset.
Subject to applicable law, any amounts payable to any
Participant hereunder as credited to the Participant's Phantom Unit Account are
subject to reduction to satisfy any liabilities owed to the Company, Holdings
or any of their respective subsidiaries by the Participant.
2.15 Notices.
The Finance Committee shall give each Participant prompt notice
of any credits, charges, adjustments, redemptions, forfeitures, reallocations
or other transactions affecting such Participant's Phantom Unit Account. The
Company shall maintain the Phantom Unit Accounts under the Plan and shall
effect all credits and debits to such accounts in accordance with the terms of
the Plan under the direction of the Finance Committee.
<PAGE> 20
15
2.16 Arbitration.
Any dispute between a Participant and the Company, Holdings or
any of their respective subsidiaries arising from or relating to the terms of
the Plan shall be submitted to arbitration under the auspices and in accordance
with the rules of the New York Stock Exchange, Inc. (or, in the case of any
such dispute between the Participants as a group and the Company, Holdings or
any of their respective subsidiaries, the rules of the American Arbitration
Association (the "AAA")), and each Participant shall be deemed to have agreed
to such submission by becoming a Participant in the Plan. In the event of any
such dispute between the Participants as a group and the Company, Holdings or
any of their respective subsidiaries, the party seeking relief shall give
written notice of its intention to seek resolution of such dispute to the other
party. The arbitral tribunal shall be appointed within 30 days of the notice
of dispute, and shall consist of three arbitrators, one of which shall be
appointed by Holdings (or the Company or the relevant subsidiary, as the case
may be), one by the Participants as a group (which first two arbitrators shall
have knowledge of the securities industry and familiarity with the compensation
practices of such industry), and the third jointly by such two arbitrators;
provided, however, that, if such two arbitrators shall be unable to select the
third arbitrator within such 30-day period, such third arbitrator shall be
chosen by the AAA as soon as practicable following notice to the AAA by such
two arbitrators of their inability to choose such third arbitrator; and
provided further that in the case of a third arbitrator so chosen by the AAA,
such third arbitrator shall be required to have knowledge of the securities
industry and be familiar with the compensation practices of such industry.
2.17 Adjustments for Non-U.S. Participants.
The Finance Committee may approve such adjustments to the terms
of the Plan applicable to Participants who are subject to taxes in non-United
States jurisdictions as it deems appropriate in order to accomplish the
purposes of the Plan.
2.18 Governing Document.
The Plan (including any instruments or documents expressly
referred to herein) contains all of the terms and conditions of the program
described herein and shall be its sole governing document and authority, and
shall supersede all prior descriptions or understandings, both written and
oral, with respect to the subject matter of the Plan.
<PAGE> 21
16
PART III - DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth below:
3.1 "Affiliate" of a person means any enterprise (whether a
corporation, partnership, joint venture or other business or
legal entity) controlling, controlled by or under common control
with such person.
3.2 "Beneficiary" means the person or persons designated in writing
by a Participant under Section 2.3 above, or, in the absence of
an effective designation, or if such designated person shall
have died before the Participant, the legal representative of
the Participant's estate.
3.3 "Bonus" and "Bonuses" mean the annual discretionary compensation
awarded by the Board of Directors of Holdings (or a Committee
thereof) to Participants and other employees of the Company or
its Affiliates.
3.4 "Cause" means a material breach by a Participant of, or "cause"
as defined under, an employment contract (if any) between the
Participant and the Company or any of its Affiliates, failure by
a Participant to devote substantially all business time
exclusively to the performance of his duties, willful
misconduct, dishonesty related to the business and affairs of
his employer or an Affiliate of his employer, conviction of a
felony (or failure to contest prosecution for a felony),
habitual or gross negligence in the performance of a
Participant's duties or failure to satisfactorily perform such
duties after notification of such failure and a reasonable
opportunity to cure the same, the violation of policies and
practices adopted by his employer or an Affiliate of his
employer or a material violation of the conflict of interest,
proprietary information or business ethics policies of his
employer or an Affiliate of his employer.
3.5 "Disability" shall have the meaning set forth in the Company's
Long-Term Disability Program as in effect from time to time or
any successor thereto.
<PAGE> 22
17
3.6 "Early Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after age
55 and ten full years of employment with not less than five full
years of participation in the Plan (including, for this purpose,
participation in the EBP and the Lehman Brothers Equity
Program).
3.7 "EBP" means the Lehman Brothers Equity Unit and Bonus Plan, as
amended and restated as of January 1, 1993, as amended from time
to time.
3.8 A resignation for "Good Reason" means a refusal of a Participant
to accept an offer of employment from the buyer effecting a
Third Party Sale, or a resignation from such employment within
one year following a Third Party Sale, if (a) the assignment of
a Participant's new employment duties is substantially
diminished from the scope of responsibilities of the Participant
immediately prior to the Third Party Sale or (b) the
Participant's annual cash compensation for his new employment
position is significantly reduced from his annual compensation
prior to the Third Party Sale for reasons other than "across the
board" reductions in cash compensation.
3.9 "Governmental Service" means full-time employment in an elective
or nonelective capacity with any federal or state government or
political subdivision thereof or any agency or other
instrumentality thereof.
3.10 The "Initial Value" of a Phantom Share means $10 in the case of
a Phantom Share credited to a Phantom Unit Account as of January
1, 1994, and a price determined by the Finance Committee in
accordance with Section 1.3(b) in all other cases.
3.11 "IPO" means an offering of Common Stock pursuant to a
registration statement filed under the Securities Act of 1933,
as amended, or a spinoff of the Common Stock to the shareholders
of American Express.
3.12 "Normal Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after age
65 with not less than two full years of participation in the
Plan (including, for this purpose, participation in the EBP and
the Lehman Brothers Equity Program).
<PAGE> 23
18
3.13 The "Original Value" of a Cash Right means $6.67 in the case of
a Cash Right credited to a Phantom Unit Account as of January 1,
1994, and in the case of any other Cash Right a price equal to
66.67% of the Initial Value of the related Phantom Share which,
together with such Cash Right, comprise a Phantom Unit.
3.14 "Participant" means an employee of the Company or any of its
Affiliates who is designated to participate in the Plan pursuant
to Section 1.2.
3.15 "Peer Company Yield" means a percentage determined by
calculating the average of the Dividend Yields of The Bear
Stearns Companies Inc., Merrill Lynch & Co., Inc., Morgan
Stanley Group, Inc. and Salomon Inc (or such other or additional
entities which the Finance Committee from time to time
determines constitute peer competitors of the Company) for the
fiscal quarter of each such entity ending immediately prior to,
or coincident with, the date as of which the Peer Company Yield
is to be calculated. As used in this Section 3.15, "Dividend
Yield" means a percentage determined by dividing (a) the dollar
amount or value of a dividend paid per share of common stock
with respect to a fiscal quarter, by (b) the average of the
daily New York Stock Exchange Composite Transactions Tape
closing prices of such share of common stock for each trading
day during such fiscal quarter; provided, however, that, in the
event of extraordinary dividends or similar transactions, the
Finance Committee in its discretion may make such adjustments to
the Dividend Yield as it deems necessary or appropriate to carry
out the objectives of the Plan.
3.16 "Phantom Unit Account" means the bookkeeping account created and
maintained under the Plan for each Participant to or against
which Phantom Shares, Cash Rights or other amounts are credited
or charged pursuant to the terms of the Plan.
3.17 "Phantom Unit Value" means the sum of the Initial Value of a
Phantom Share and the Original Value of the related Cash Right
which, together with such Phantom Share, comprise a Phantom
Unit. The Phantom Unit Value of Phantom Units acquired by
Participants pursuant to deferrals of 1993 Total Compensation
shall be $16.67.
<PAGE> 24
19
3.18 "Retained Earnings" means the retained earnings of Holdings as
determined in accordance with United States Generally Accepted
Accounting Principles; provided, however, that the Finance
Committee in its discretion may make such adjustments to
Retained Earnings as it deems necessary or appropriate to carry
out the objectives of the Plan. For purposes of the Plan,
calculations of Retained Earnings for a specified period up to
the end of a fiscal quarter of Holdings shall reflect all
dividends and Quarterly Distributions payable with respect to
such fiscal quarter, whether or not paid during such fiscal
quarter.
3.19 "Retained Earnings Per Share" means (a) the net increase or
decrease in Retained Earnings over a specified period, divided
by (b) the average number of shares of Common Stock and Phantom
Shares outstanding during such period (calculated for purposes
of the Plan on a quarterly basis).
3.20 Miscellaneous. Where appropriate, all references in the Plan to
the masculine pronoun shall include the feminine, and all
references to the singular shall include the plural.
3.21 Other Defined Terms. The following terms are defined in the
Plan in the Section indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"AAA" 2.16
---
"American Express" 1.6(c)
----------------
"Cash Rights" Introduction
-----------
"Common Stock" Introduction
------------
"Company" Introduction
-------
"Dividend Yield" 3.16
--------------
"Effective Date" Title
--------------
"Finance Committee" 1.2
-----------------
</TABLE>
<PAGE> 25
20
<TABLE>
<S> <C>
"Holdings" Introduction
--------
"Phantom Shares" Introduction
--------------
"Phantom Unit" Introduction
------------
"Plan" Introduction
----
"Quarterly Distribution" 1.4(a)
----------------------
"Restricted Shares" 1.6(a)
-----------------
"Sale Premium" 1.4(c)
------------
"Third Party Sale" 1.4(c)
----------------
"Total Compensation" 1.3(a)
------------------
</TABLE>
<PAGE> 1
AMENDMENT TO THE
LEHMAN BROTHERS INC.
EMPLOYEE OWNERSHIP PLAN
AMENDMENT, effective as of April 29, 1994, to the Lehman Brothers Inc.
Employee Ownership Plan (the "Plan"). Capitalized terms used herein and not
defined herein have the meanings assigned to them in the Plan.
W I T N E S S E T H :
WHEREAS, Section 2.9 of the Plan provides that the Finance Committee may
amend the plan from time to time; and
WHEREAS, the Finance Committee has determined to amend the Plan as
hereinafter set forth.
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 1.4(b) of the Plan is hereby amended by adding the following
clause to the end of the first sentence of such section:
, it being specifically understood that such conversions
may occur shortly before, concurrently with or shortly
after the closing of the IPO, and that such conversions
need not occur at the same time for all Participants.
<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
1994 MANAGEMENT OWNERSHIP PLAN
1. Purpose
The purpose of this Plan is to strengthen Lehman Brothers Holdings
Inc. (the "Company") by providing an incentive to its officers, employees,
consultants and directors and thereby encouraging them to devote their
abilities to increase shareholder value and to sustain excellence. It is
intended that this be achieved by extending to Eligible Individuals of the
Company and its subsidiaries an added long-term incentive for high levels of
performance and unusual efforts through the grant of Incentive Stock Options,
Non-qualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Units and Performance Shares (as each term
is hereinafter defined).
2. Administration
2.1 The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall
consist of not less than three members of the Committee and a majority of a
quorum may authorize any action. Any decision or determination reduced to
writing and signed by a majority of all of the members shall be as fully
effective as if made by a majority vote at a meeting duly called and held.
Each member of the Committee shall be a Disinterested Director. No member of
the Committee shall be liable for any action, failure to act, determination or
interpretation made in good faith with respect to this Plan or any transaction
hereunder. The Company hereby agrees to indemnify each member of the Committee
as permitted by applicable law, for any liability incurred in connection with
defending against, responding to, negotiation for the settlement of or
otherwise dealing with any claim, cause of action or dispute of any kind
arising in connection with any actions in administering this Plan or in
authorizing or denying authorization to any transaction hereunder.
2.2 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to:
(a) determine those individuals to whom Options shall be granted
under the Plan and the number of Incentive Stock Options and/or Non-qualified
Stock Options to be granted to each Eligible Individual and to prescribe the
terms and conditions (which need not be identical) of each Option, including
the purchase price per Share subject to each Option, and make any amendment or
modification to any Agreement consistent with the terms of the Plan; and
<PAGE> 2
(b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Stock Appreciation
Rights, Performance Units, Performance Shares, and/or Shares of Restricted
Stock or Restricted Stock Units to be granted pursuant to each Award, the terms
and conditions of each Award, including the restrictions or performance
criteria relating to such Units or Shares, the maximum value of each
Performance Unit and Performance Share and make any amendment or modification
to any Agreement consistent with the terms of the Plan.
2.3 Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(a) to construe and interpret the Plan and the Options and
Awards granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable to make the Plan fully effective;
(b) to determine the duration and purposes for leaves of absence
which may be granted to an Optionee or Grantee on an individual basis without
constituting a termination of employment or service for purposes of the Plan;
and
(c) to resolve all questions of interpretation arising under or
in connection with the administration of the Plan, to exercise its discretion
with respect to the powers and rights granted to it as set forth in the Plan,
and generally, to exercise such powers and to perform such acts as are deemed
necessary or advisable to promote the best interests of the Company with
respect to the Plan.
2.4 All decisions and determinations by the Committee in the exercise
of the powers conferred upon it under the Plan shall be final, binding and
conclusive upon the Company, its Subsidiaries, Eligible Individuals, Optionees,
Grantees and all other persons having any interest therein.
3. Stock Subject to the Plan
3.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan (other than Restricted Stock Units to
be granted to Non-employee Directors pursuant to Section 9.4) is 16,500,000 for
all Eligible Individuals. The maximum number of Shares that may be made the
subject of Restricted Stock Units to be granted to Non-employee
-2-
<PAGE> 3
Directors pursuant to Section 9.4 is 150,000. Upon a Change in Capitalization
the maximum number of Shares available on an aggregate and Eligible Individual
basis shall be adjusted in number and kind pursuant to Section 11. The Company
shall reserve for the purposes of the Plan, out of its authorized but unissued
Shares or out of Shares held in the Company's treasury, or partly out of each,
such number of Shares as shall be determined by the Board. The maximum number
of Shares available for Options and/or Stock Appreciation Rights that may be
granted to an Eligible Individual shall not exceed 1,650,000 over the life of
the Plan.
3.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 3.1 for the granting of further Options and Awards
shall be reduced as follows:
(a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated.
(b) Notwithstanding Section 3.2(a), the exercise of a Stock
Appreciation Right granted in tandem with an Option shall be treated, for
purposes of this Section 3, solely as though the Option had been exercised
through the purchase of Shares, with the result that the number of Shares shall
be reduced by the number of Shares so purchased. No other reduction in the
number of Shares shall be made on account of such Stock Appreciation Right
exercise.
(c) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount
equal to the quotient of (i) the dollar amount in which the Performance Unit is
denominated, divided by (ii) the Fair Market Value of a Share on the date the
Performance Unit is granted.
3.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire Option or
Award, the Shares allocable to the expired, canceled or otherwise terminated
portion of the Option or Award shall again be available for grant pursuant to
Options or Awards granted hereunder to the fullest extent permitted by Rule
16b-3 under the Exchange Act. In addition, during the period that any Options
and Awards remain outstanding under the Plan, the Committee may make good faith
adjustments upon a Change in Capitalization with respect to the number of
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Shares attributable to such Options and Awards for purposes of calculating the
maximum number of Shares available for the granting of future Options and
Awards under the Plan, provided that following such adjustments the exemptions
provided pursuant to Rule 16b-3 under the Exchange Act, and the exceptions
provided pursuant to Section 162(m) of the Code, will not be adversely affected
thereby.
4. Option Grants for Eligible Individuals
4.1 Authority of Committee. Subject to the provisions of the Plan,
the Committee shall have full and final authority to select those Eligible
Individuals who will receive Options, the terms and conditions of which shall
be set forth in an Agreement; provided, however, that no person shall receive
any Incentive Stock Options unless he or she is an employee of the Company, a
Parent or a Subsidiary at the time the Incentive Stock Option is granted.
4.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; provided, however,
that the purchase price per Share under each Incentive Stock Option shall not
be less than 100% of the Fair Market Value of a Share on the date the Incentive
Stock Option is granted (110% in the case of an Incentive Stock Option granted
to a Ten-Percent Stockholder) and the purchase price per Share under each
Non-qualified Stock Option shall not be less than 100% of the Fair Market Value
of a Share on the date the Non- qualified Stock Option is granted.
4.3 Maximum Duration. Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive Stock Option
shall not be exercisable after the expiration of ten (10) years from the date
it is granted (five (5) years in the case of an Incentive Stock Option granted
to a Ten-Percent Stockholder) and a Non-qualified Stock Option shall not be
exercisable after the expiration of ten (10) years from the date it is granted.
The Committee may, subsequent to the granting of any Option, extend the term
thereof but in no event shall the term as so extended exceed the maximum term
provided for in the preceding sentence.
4.4 Vesting. Each Option shall become exercisable in such
installments (which need not be equal) and at such times as may be designated
by the Committee and set forth in the Agreement.
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To the extent not exercised, installments shall accumulate and be exercisable,
in whole or in part, at any time after becoming exercisable, but not later than
the date the Option expires. The Committee may accelerate the exercisability
of any Option or portion thereof at any time.
4.5 $100,000 Limitation. If the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by any Optionee during a calendar year (under all plans of the
Company and its Parents and Subsidiaries) exceeds $100,000, such Incentive
Stock Options shall be treated, to the extent of such excess, as Non-qualified
Stock Options. For purposes of the preceding sentence, the Fair Market Value
of the Shares shall be determined at the time the Incentive Stock Options
covering such Shares were granted.
5. Terms and Conditions Applicable to All Options
5.1 Method of Exercise. The exercise of an Option shall be made only
by a written notice delivered in person, by facsimile transmission or by mail
to the Secretary of the Company at the Company's principal executive office,
specifying the number of Shares to be purchased and accompanied by payment
therefor and otherwise in accordance with the Agreement pursuant to which the
Option was granted. The purchase price for any Shares purchased pursuant to
the exercise of an Option shall be paid in full upon such exercise by any one
or a combination of the following: (i) cash, (ii) transferring Shares to the
Company upon such terms and conditions as determined by the Committee or (iii)
transferring Awards to the Company if permitted by, and upon such terms and
conditions as determined by, the Committee. Notwithstanding the foregoing, the
Committee shall have discretion to determine at the time of grant of each
Option or at any later date (up to and including the date of exercise) the form
of payment acceptable in respect of the exercise of such Option. The written
notice pursuant to this Section 5.1 may also provide instructions from the
Optionee to the Company that upon receipt of the purchase price in cash from
the Optionee's broker or dealer, designated as such on the written notice, in
payment for any Shares purchased pursuant to the exercise of an Option, the
Company shall issue such Shares directly to the designated broker or dealer.
Any Shares transferred to the Company as payment of the purchase price under an
Option shall be valued at their Fair Market Value on the day preceding the date
of exercise of such Option. If requested by the Committee, the Optionee shall
deliver the Agreement evidencing the Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreement to
the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued
upon exercise of an Option and the
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number of Shares that may be purchased upon exercise shall be rounded to the
nearest number of whole Shares.
5.2 Rights of Optionees. No Optionee shall be deemed for any purpose
to be the owner of any Shares subject to any Option unless and until (i) the
Option shall have been exercised pursuant to the terms thereof, (ii) the
Company shall have issued and delivered the Shares to the Optionee and (iii)
the Optionee's name shall have been entered as a stockholder of record on the
books of the Company. Thereupon, the Optionee shall have full voting, dividend
and other ownership rights with respect to such Shares.
5.3 Limited Rights. An Optionee may, in the discretion of the
Committee, have the right (a "Limited Right") to surrender the Option or any
portion thereof to the Company within 30 days following a Change in Control and
to receive from the Company in exchange therefor a cash payment in an amount
equal to (a) the number of unexercised Shares under the Option which are being
surrendered multiplied by (b) the excess of (i) the greater of (A) the highest
price per Share paid in connection with the Change in Control or (B) the
highest Fair Market Value per Share in the 90 day period preceding such Change
in Control, over (ii) the purchase price of the Option as set forth in the
Agreement.
6. Stock Appreciation Rights
6.1 Authority of Committee. The Committee may, in its discretion,
either alone or in connection with the grant of an Option, grant Stock
Appreciation Rights in accordance with the Plan and the terms and conditions of
which shall be set forth in an Agreement. If granted in connection with an
Option, a Stock Appreciation Right shall cover the same number of Shares
covered by the Option (or such lesser number of Shares as the Committee may
determine) and shall, except as provided in this Section 6.1, be subject to the
same terms and conditions as the related Option.
6.2 Time of Grant. A Stock Appreciation Right may be granted (i) at
any time if unrelated to an Option, or (ii) if related to an Option, either at
the time of grant, or at any time thereafter during the term of the Option.
6.3 Stock Appreciation Right Related to an Option.
(a) Exercise. Subject to Section 6.7, a Stock Appreciation
Right granted in connection with an Option shall be exercisable at such time or
times and only to the extent that the
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related Option is exercisable, and will not be transferable except to the
extent the related Option may be transferable.
(b) Amount Payable. Upon the exercise of a Stock Appreciation
Right related to an Option and subject to the provisions of Section 6.6, the
Grantee shall be entitled to receive an amount determined by multiplying (A)
the excess of the Fair Market Value of a Share on the date preceding the date
of exercise of such Stock Appreciation Right over the per Share purchase price
under the related Option, by (B) the number of Shares as to which such Stock
Appreciation Right is being exercised. Notwithstanding the foregoing, the
Committee may limit in any manner the amount payable with respect to any Stock
Appreciation Right by including such a limit in the Agreement evidencing the
Stock Appreciation Right at the time it is granted.
(c) Treatment of Related Options and Stock Appreciation Rights
Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in
connection with an Option, the Option shall be canceled to the extent of the
number of Shares as to which the Stock Appreciation Right is exercised, and
upon the exercise of an Option granted in connection with a Stock Appreciation
Right or the surrender of such Option pursuant to Section 6.5, the Stock
Appreciation Right shall be canceled to the extent of the number of Shares as
to which the Option is exercised or surrendered.
6.4 Stock Appreciation Right Unrelated to an Option.
(a) The Committee may grant to Eligible Individuals Stock
Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated
to Options shall contain such terms and conditions as to exercisability
(subject to Section 6.7), vesting and duration as the Committee shall
determine, but in no event shall they have a term of greater than ten (10)
years. The Committee may accelerate the exercisability of any Stock
Appreciation Right at any time. Upon exercise of a Stock Appreciation Right
unrelated to an Option, the Grantee shall be entitled to receive an amount
determined by multiplying (A) the excess of the Fair Market Value of a Share on
the date preceding the date of exercise of such Stock Appreciation Right over
the Fair Market Value of a Share on the date the Stock Appreciation Right was
granted, by (B) the number of Shares as to which the Stock Appreciation Right
is being exercised. Notwithstanding the foregoing, the Committee may limit in
any manner the amount payable with respect to any Stock Appreciation Right by
including such a limit in the Agreement evidencing the Stock Appreciation Right
at the time it is granted.
(b) Limited SAR Rights. A Grantee may, in the discretion of the
Committee, have the right (a "Limited SAR Right") to surrender the Stock
Appreciation Right or any portion thereof to the Company within 30 days
following a Change in Control and to receive from the Company in exchange
therefor a cash payment in an amount equal to (a) the number of Shares under
the Stock Appreciation Right which are being exercised, multiplied by (b) the
excess of (i) the greater of (A) the highest price per Share paid in connection
with the Change in Control or (B) the highest Fair Market Value per Share in
the 90 day period preceding such Change in Control, over (ii) the Fair Market
Value of a Share on the date the Stock Appreciation Right was granted as set
forth in the Agreement.
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6.5 Method of Exercise. Stock Appreciation Rights shall be exercised
by a Grantee only by a written notice delivered in person, by facsimile
transmission, or by mail to the Secretary of the Company at the Company's
principal executive office, specifying the number of Shares with respect to
which the Stock Appreciation Right is being exercised. If requested by the
Committee, the Grantee shall deliver the Agreement evidencing the Stock
Appreciation Right being exercised and the Agreement evidencing any related
Option to the Secretary of the Company who shall endorse thereon a notation of
such exercise and return such Agreement to the Grantee.
6.6 Form of Payment. Payment of the amount determined under Sections
6.3(b) or 6.4 may be made in the discretion of the Committee, solely in whole
Shares in a number determined at their Fair Market Value on the date preceding
the date of exercise of the Stock Appreciation Right, or solely in cash, or in
a combination of cash and Shares. If the Committee decides to make full
payment in Shares and the amount payable results in a fractional Share, payment
for the fractional Share will be made in cash.
6.7 Restrictions. In the case of any Grantee who may be subject to
liability under Section 16(b) of the Exchange Act, no Stock Appreciation Right
may be exercised before the date six (6) months after the date it is granted.
7. Restricted Stock
7.1 Grant. The Committee may grant to Eligible Individuals Awards of
Restricted Stock, and may issue Shares of Restricted Stock in payment of vested
Performance Units (as hereinafter provided in Section 8.2), which shall be
evidenced by an Agreement between the Company and the Grantee. Each Agreement
shall contain such restrictions, terms and conditions as the Committee may, in
its discretion, determine and (without limiting the generality of the
foregoing) such Agreements may require that an appropriate legend be placed on
Share certificates. Awards of Restricted Stock shall be subject to the terms
and provisions set forth below in this Section 7.
7.2 Rights of Grantee. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of
such Shares. If a Restricted Stock Award
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Agreement, appropriate blank stock powers and such other documents which the
Committee may require are not executed by the Grantee within the time period
prescribed by the Committee at the time the Award is granted, the Award shall
be null and void. At the discretion of the Committee, Shares issued in
connection with a Restricted Stock Award shall be deposited together with the
stock powers with an escrow agent (which may be the Company) designated by the
Committee. Unless the Committee determines otherwise and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall
have all of the rights of a stockholder with respect to such Shares, including
the right to vote the Shares and to receive all dividends or other
distributions paid or made with respect to the Shares.
7.3 Non-transferability. Until any restrictions upon the Shares of
Restricted Stock Awarded to a Grantee shall have lapsed in the manner set forth
in Section 7.4, such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall they
be delivered to the Grantee.
7.4 Lapse of Restrictions. Restrictions upon Shares of Restricted
Stock awarded hereunder shall lapse at such time or times on such terms and
conditions as the Committee may determine, which restrictions shall be set
forth in the Agreement evidencing the Award.
7.5 Treatment of Dividends. At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on such Shares by the Company shall be, at the discretion of
the Committee, (i) paid in cash to the Grantee or (ii) deferred until the
lapsing of the restrictions imposed upon such Shares and held by the Company
for the account of the Grantee until such time. In the event that payment of
dividends is to be deferred, the Committee shall determine whether such
dividends are to be reinvested in shares of Stock (which shall be held as
additional Shares of Restricted Stock) or held in cash. If deferred dividends
are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends in respect of Shares of Restricted Stock (whether
held in cash or as additional Shares of Restricted Stock), together with
interest accrued thereon, if any, shall be made upon the lapsing of
restrictions imposed on the Shares in respect of which the deferred dividends
were paid, and any dividends deferred (together with any interest accrued
thereon)
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in respect of any Shares of Restricted Stock shall be forfeited upon the
forfeiture of such Shares.
7.6 Delivery of Shares. Upon the lapse of the restrictions on Shares
of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder. Notwithstanding the preceding, the Committee may withhold
sufficient Shares to pay taxes.
8. Performance Awards
8.1 Performance Objectives. Performance objectives for Performance
Awards may be expressed in terms of (i) earnings per Share, (ii) pre-tax
profits, (iii) net earnings or net worth, (iv) absolute and/or relative return
on equity or assets, (v) any combination of the foregoing, or (vi) any other
standard or standards deemed appropriate by the Committee at the time the Award
is granted. Performance objectives may be in respect of the performance of the
Company and its Subsidiaries (which may be on a consolidated basis), a
Subsidiary or a Division. Performance objectives may be absolute and/or
relative and may be expressed in terms of a progression within a specified
range. Prior to the end of a Performance Cycle, with respect to any Eligible
Individual the deductibility of whose Performance Award will not, in the
reasonable belief of the Committee, be subject to Section 162(m) of the Code,
the Committee may, in its discretion, adjust the performance objectives to
reflect a Change in Capitalization, a change in the book tax rate of the
Company or any Subsidiary or any other event which may materially affect the
performance of the Company, a Subsidiary or a Division, including, but not
limited to, market conditions or a significant acquisition or disposition of
assets or other property by the Company, a Subsidiary or a Division. With
respect to any Eligible Individual the deductibility of whose compensation may,
in the reasonable belief of the Committee, be subject to Section 162(m) of the
Code, the Committee shall exercise the discretion conferred upon it in the
preceding sentence in such manner as shall be approved by the Company's
auditors and will not result in loss of deductibility under such Section
162(m). Notwithstanding the foregoing, the Committee shall, in such manner as
shall be approved by the Company's auditors, adjust the performance objectives
for all Grantees to whom Performance Units have been granted to offset the
impact of any change in the applicable corporate tax rate under the Code.
8.2 Performance Units. The Committee, in its discretion, may grant
Awards of Performance Units to Eligible Individuals, the terms and conditions
of which shall be set forth in an
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Agreement between the Company and the Grantee. Performance Units may be
denominated in Shares or a specified dollar amount and, contingent upon the
attainment of specified performance objectives within the Performance Cycle,
represent the right to receive payment as provided in Section 8.2(b) of (i) in
the case of Share-denominated Performance Units, the Fair Market Value of a
Share on the date the Performance Unit was granted, the date the Performance
Unit became vested or any other date specified by the Committee, (ii) in the
case of dollar-denominated Performance Units, the specified dollar amount or
(iii) a percentage (which may be more than 100%) of the amount described in
clause (i) or (ii) depending on the level of performance objective attainment;
provided, however, that the Committee may at the time a Performance Unit is
granted, specify a maximum amount payable in respect of a vested Performance
Unit. Each Agreement shall specify the number of the Performance Units to
which it relates, the performance objectives which must be satisfied in order
for the Performance Units to vest and the Performance Cycle within which such
objectives must be satisfied.
(a) Vesting and Forfeiture. A Grantee shall become vested with
respect to the Performance Units to the extent that the performance objectives
set forth in the Agreement are satisfied for the Performance Cycle.
(b) Payment of Awards. Payment to Grantees in respect of vested
Performance Units shall be made within sixty (60) days after the last day of
the Performance Cycle to which such Award relates unless the Agreement
evidencing the Award provides for the deferral of payment, in which event the
terms and conditions of the deferral shall be set forth in the Agreement. Such
payments may be made entirely in Shares valued at their Fair Market Value as of
the last day of the applicable Performance Cycle or such other date specified
by the Committee, entirely in cash, or in such combination of Shares and cash
as the Committee in its discretion shall determine at any time prior to such
payment; provided, however, that if the Committee in its discretion determines
to make such payment entirely or partially in Shares of Restricted Stock or
Restricted Stock Units, the Committee must determine the extent to which such
payment will be in Shares of Restricted Stock or Restricted Stock Units and the
terms of such Restricted Stock or Restricted Stock Units at the time the Award
is granted.
8.3 Performance Shares. The Committee, in its discretion, may grant
Awards of Performance Shares to Eligible Individuals, the terms and conditions
of which shall be set forth in an Agreement between the Company and the
Grantee. Performance Shares shall be denominated in Shares or Restricted Stock
Units,
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as determined by the Committee. Awards of Performance Shares shall be subject
to the following terms and provisions:
(a) Rights of Grantee. The Committee shall provide at the time
an Award of Performance Shares is made, the time or times at which the actual
Shares or Restricted Stock Units represented by such Award shall be issued in
the name of the Grantee, and the number of such Shares or Restricted Stock
Units so issuable at different levels of performance goal attainment.
(b) Non-transferability. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Section 8.3(d) such Performance Shares shall not be sold, transferred
or otherwise disposed of and shall not be pledged or otherwise hypothecated,
nor shall they be delivered to the Grantee. The Committee may also impose such
other restrictions and conditions on the Performance Shares, if any, as it
deems appropriate.
(c) Treatment of Dividend Equivalents. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion, determine
that the Grantee shall have the right to receive payments equivalent in value
to dividends or other distributions paid or made with respect to the underlying
Shares (which may include, in the case of Performance Shares denominated in
Restricted Stock Units, the Shares underlying such Restricted Stock Units)
("Dividend Equivalents"). The payment to the Grantee of Dividend Equivalents,
or a specified portion thereof, shall be, at the discretion of the Committee,
(i) paid in cash to the Grantee or (ii) deferred until the lapsing of the
restrictions imposed upon such Performance Shares and held by the Company for
the account of the Grantee until such time. In the event that payment of
Dividend Equivalents is to be deferred, the Committee shall determine whether
such Dividend Equivalents are to be reinvested in shares of Stock (which shall
be held as additional Performance Shares) or held in cash. If deferred
Dividend Equivalents are to be held in cash, there may be credited at the end
of each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its discretion,
may determine. Payment of deferred Dividend Equivalents in respect of
Performance Shares (with interest accrued thereon, if any), shall be made upon
the lapsing of restrictions imposed on the Performance Shares in respect to
which the deferred Dividend Equivalents were paid, and any Dividend Equivalents
deferred (together with any interest accrued thereon) in respect of any
Performance Shares shall be forfeited upon the forfeiture of such Performance
Shares.
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(d) Delivery of Shares. Upon the satisfaction of the
performance goals on Performance Shares awarded hereunder, the Committee shall
cause a stock certificate to be delivered to the Grantee with respect to such
Performance Shares, free of all restrictions hereunder. Alternatively, if
specified in the Award Agreement, the Committee may determine that earned
Performance Shares be conveyed to a Grantee in the form of Restricted Stock
Units and/or an amount of cash sufficient to satisfy anticipated tax
obligations to be incurred in connection with such Shares.
8.4 Non-transferability. No Performance Awards shall be transferable
by the Grantee otherwise than by will or the laws of descent and distribution.
8.5 Modification. Subject to the terms of the Plan, the Committee
may modify outstanding Performance Awards; provided, however, that no
modification may be made with respect to Performance Awards held by Executive
Officers (such term is as defined in the Exchange Act). Notwithstanding the
foregoing, no modification of a Performance Award shall materially adversely
alter or materially impair any rights or obligations under the Agreement
without the Grantee's consent.
9. Restricted Stock Units
9.1 Grant. The Committee may grant to Eligible Individuals Awards of
Restricted Stock Units which shall be evidenced by an Agreement between the
Company and the Grantee. Each Agreement shall contain such restrictions, terms
and conditions as the Committee may, in its discretion, determine in accordance
with the following provisions of this Section 9. A Restricted Stock Unit shall
represent the right to receive one Share upon lapse of the conditions
established in the grant.
9.2 Lapse of Restrictions. Restrictions upon Restricted Stock Units
awarded hereunder shall lapse at such time or times and on such conditions as
the Committee may determine, which restrictions shall be set forth in the
Agreement evidencing the Award. Upon such lapse, all Shares represented by
such Restricted Stock Unit shall vest and be payable immediately.
9.3 Dividend Equivalents. At the time the Award of Restricted Stock
Units is granted, the Committee may, in its discretion, determine that the
payment to the Grantee of dividend equivalents declared or paid on Shares by
the Company shall be (i) deferred until the lapsing of the restrictions imposed
on such Restricted Stock Units and (ii) held by the Company for the account of
the Grantee until such time. In the event that the dividend equivalents are to
be deferred, the Committee shall
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determine whether such dividends are to be reinvested in Shares (which shall be
held as additional Restricted Stock Units) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the end of the year
(or portion thereof) interest on the amount of the account at the beginning of
the year at a rate per annum as the Committee, in its discretion, may
determine. Payment of deferred dividends in respect of Restricted Stock Units
(whether held in cash or as additional Restricted Stock Units), together with
interest accrued thereon, if any, shall be made upon the lapsing of
restrictions imposed on the Restricted Stock Units in respect of which the
deferred dividends were paid, and any dividends deferred (together with any
interest accrued thereon) in respect of any Restricted Stock Units shall be
forfeited upon the forfeiture of such Restricted Stock Unit.
9.4 Units Granted to Non-employee Directors. Notwithstanding
anything to the contrary in the Plan, Restricted Stock Units shall be granted
to Non-employee Directors of the Company solely in accordance with the
following provisions. Restrictions on such Restricted Stock Units shall lapse
and such Units shall vest with respect to 1/3 of the Restricted Stock Units as
of the first anniversary of the grant date and shall lapse and such Units shall
vest with respect to an additional 1/3 of the Restricted Stock Units as of the
second and third anniversaries of the grant date. As of each date a dividend
or other distribution is paid or made on Shares, each Non-employee Director
holding Restricted Stock Units shall be credited with a number of additional
Restricted Stock Units equal to the product of (A) the dividend or other
distribution paid on one Share, multiplied by (B) the number of Restricted
Stock Units held by the Non-employee Director, divided by (C) the closing price
of one Share on the New York Stock Exchange on such date. Such additional
Restricted Stock Units shall vest at the same time as the Restricted Stock
Units attributable thereto. In the event a Non-employee Director's service
terminates by reason of the Director's termination of service as a Non-employee
Director after ten (10) years of service as a Director, death or Disability,
all restrictions shall lapse immediately. In the event a Non- employee
Director's service terminates for any other reason, any non-vested Restricted
Stock Units shall be forfeited as of the date of such termination. Units are
payable in Shares in respect to 1/3 of vested Restricted Stock Units on the
first, second, and third anniversaries of termination of a Non-employee
Director's service on the Board. Each Non-employee Director shall receive
Restricted Stock Units representing $30,000 Fair Market Value on the day of the
Company's annual meeting for each year that the Plan is in effect. For
calendar year 1994, each Non-employee Director shall be granted Restricted
Stock Units having a Fair Market Value of $30,000 on the date which is the
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first day of regular way public trading of the Shares or, if later, on the
first business day following the commencement of a Non- employee Director's
service on the Board. Notwithstanding the foregoing, only one Award of
Restricted Stock Units shall be made to each Non-employee Director in calendar
year 1994. Notwithstanding anything in the Plan to the contrary, this Section
9.4 may not be amended more than once every six months, other than to comport
with changes in the Code, ERISA, or the rules thereunder, to the extent
required under Rule 16b-3 under the Exchange Act.
10. Effect of a Termination of Employment
The Agreement evidencing the grant of each Option and each Award shall
set forth the terms and conditions applicable to such Option or Award upon a
termination or change in the status of the employment of the Optionee or
Grantee by the Company, a Subsidiary or a Division (including a termination or
change by reason of the sale of a Subsidiary or a Division), as the Committee
may, in its discretion, determine at the time the Option or Award is granted or
thereafter; provided, however, that the Committee shall have no such discretion
with respect to Restricted Stock Units granted to Non-employee Directors
pursuant to Section 9.4, the Agreements evidencing which shall contain the
provisions regarding termination described in such Section.
11. Adjustment Upon Changes in Capitalization
(a) In the event of a Change in Capitalization, the Committee
shall conclusively determine the appropriate adjustments, if any, to the (i)
maximum number and class of Shares or other stock or securities with respect to
which Options or Awards may be granted under the Plan or to any individual, and
(ii) the number and class of Shares or other stock or securities which are
subject to outstanding Options or Awards granted under the Plan, and the
purchase price therefor, if applicable; provided, however, that with respect to
Restricted Stock Units granted to Non-employee Directors pursuant to Section
9.4, any such adjustments shall be made only as necessary to maintian the
proportionate interest of each Non-employee Director in Shares and preserve,
without exceeding, the value of such Restricted Stock Units.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and only
to the extent otherwise permitted by Sections 422 and 424 of the Code.
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(c) If, by reason of a Change in Capitalization, a Grantee of an
Award shall be entitled to or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock or
securities, such new, additional or different shares shall thereupon be subject
to all of the conditions, restrictions and performance criteria which were
applicable to the Shares subject to the Award or Option, as the case may be
prior to such Change in Capitalization.
(d) The Committee shall apply this Section 11 in a manner
consistent with the preservation of the Company's tax deduction for the payment
or exercise of Awards under Section 162(m) of the Code.
12. Termination and Amendment of the Plan; Modification of Awards
(a) The Plan shall terminate on the day preceding the tenth
anniversary of the date of its adoption by the Board and no Option or Award may
be granted thereafter. The Board may sooner terminate the Plan and the Board
may at any time and from time to time amend, modify or suspend the Plan or any
Option or Award; provided, however, that:
(i) No such amendment, modification, suspension or
termination shall materially impair or materially adversely alter any Options
or Awards theretofore granted under the Plan, except with the consent of the
Optionee or Grantee, nor shall any amendment, modification, suspension or
termination deprive any Optionee or Grantee of any Shares which he or she may
have acquired through or as a result of the Plan; and
(ii) To the extent necessary to comply with Rule 16b-3
of the Exchange Act and the rules and regulations promulgated thereunder, or to
preserve the Company's tax deduction for the payment or exercise of Awards
under Section 162(m) of the Code, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations.
(b) Notwithstanding the above, the Committee shall not have the
right to modify any outstanding Award to the extent such restriction is
necessary to preserve the Company's tax deduction for the payment or exercise
of Awards under Section 162(m) of the Code.
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13. Non-Exclusivity of the Plan
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
14. Limitation of Liability
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option or Award
other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the
employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
15. Regulations and Other Approvals; Governing Law
15.1 Except as to matters of federal law, this Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
law principles.
15.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
15.3 The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions
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inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
15.4 The Board may make such changes in the Plan or any Awards as may
be necessary or appropriate to comply with the rules and regulations of any
government authority, or to obtain for Eligible Individuals granted Incentive
Stock Options any tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
15.5 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
15.6 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual receiving
Shares pursuant to an Option or Award granted under the Plan, as a condition
precedent to receipt of such Shares, to represent and warrant to the Company in
writing that the Shares acquired by such individual are acquired without a view
to any distribution thereof and will not be sold or transferred other than
pursuant to an effective registration thereof under said Act or pursuant to an
exemption applicable under the Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder. The certificates evidencing any of
such Shares shall be appropriately amended to reflect their status as
restricted securities as aforesaid.
15.7 Awards granted under the Plan to persons which the Committee
reasonably believes may be subject to Section 162(m) of the Code will not be
exercisable, and compensation under the Plan will not be paid, unless and until
any necessary shareholder approvals shall have been obtained and the Committee
has certified as to the attainment of any applicable performance
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<PAGE> 19
goals, in each case to the extent required under said Section 162(m).
16. Miscellaneous
16.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time, or
at some other time. The Committee may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan in addition to
Options or Awards previously granted to that Eligible Individual.
16.2 Withholding of Taxes.
(a) The Company shall have the right to deduct from any
distribution of cash to any Optionee or Grantee, an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld (the "Withholding Taxes") with respect to any Option or
Award. If an Optionee or Grantee is to experience a taxable event in
connection with the receipt of Shares pursuant to an Option exercise or payment
of an Award, the Optionee or Grantee shall pay the Withholding Taxes to the
Company prior to the issuance, or release from escrow, of such Shares. In
satisfaction of the obligation to pay Withholding Taxes to the Company, the
Optionee or Grantee may make a written election, which may be accepted or
rejected in the discretion of the Committee, to have withheld a portion of the
Shares then issuable to him or her having an aggregate Fair Market Value, on
the date preceding the date of such issuance, equal to the Withholding Taxes,
provided that the Committee shall accept such an election in respect of an
Optionee subject to Section 16(b) of the Exchange Act only if such election
complies with Rule 16b-3 under the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to such Optionee pursuant to the exercise of an Incentive
Stock Option within the two-year period commencing on the day after the date of
the grant or within the one-year period commencing on the day after the date of
transfer of such Share or Shares to the Optionee pursuant to such exercise, the
Optionee shall, within ten (10) days of such disposition, notify the Company
thereof, by delivery of written notice to the Company at its principal
executive office.
16.3 Non-transferability. No Option, Stock Appreciation Right,
Performance Unit denominated in Stock or Restricted Stock Unit granted
hereunder shall be transferable by the Optionee or Grantee to whom granted
otherwise than by will or the laws of
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<PAGE> 20
descent and distribution or pursuant to a "qualified domestic relations order,"
as defined by the Code or title I of ERISA, or the rules thereunder, and an
Award may be exercised during the lifetime of such Optionee or Grantee only by
the Optionee or Grantee, or his or her guardian or legal representative. The
terms of such Award shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee
or Grantee.
16.4 Acceleration of Awards. The Committee may accelerate vesting,
exercisability or lapse of restrictions on all or any portion of any Award at
any time, other than with respect to:
(a) Awards of Restricted Stock Units to Non-employee Directors
pursuant to Section 9.4, vesting of which may be accelerated only under such
circumstances as will not cause such persons to fail to be "disinterested
persons," within the meaning of Rule 16b-3 under the Exchange Act; and
(b) Awards other than Options or Stock Appreciation Rights, to
the extent that such acceleration would jepordize, under Section 162(m) of the
Code, the Company's tax deduction otherwise available for the payment or
exercise of the Awards.
17. Effective Date
The effective date of the Plan shall be the date of its adoption by
the Board, subject only to (i) the approval by the affirmative vote of the
holders of a majority of the securities of the Company present, or represented,
and entitled to vote at a meeting of stockholders duly held in accordance with
the applicable laws of the State of Delaware or (ii) subject to any other such
means of approval which shall satisfy the Exchange Act, within twelve (12)
months of such adoption.
18. Definitions
For purpose of the Plan:
18.1 "Agreement" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
18.2 "Award" means a grant of Incentive Stock Options, Non-qualified
Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation
Rights, Performance Awards or any or all of them.
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<PAGE> 21
18.3 "Board" means the Board of Directors of the Company.
18.4 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise.
18.5 "Change in Control" shall mean the occurrence during the term of
the Plan of:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the Exchange
Act) immediately after which such Person has "Beneficial Ownership" (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of the combined voting power of the Company's then outstanding
Voting Securities; provided, however, in determining whether a Change in
Control has occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a trust forming a part thereof
or a trustee thereof acting solely in its capacity as trustee) maintained by
(A) the Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Subsidiary"), (ii) the Company or its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined).
(b) The individuals who, as of the effective date of the 1994
initial public trading in Company Shares, are members of the Board (the
"Incumbent Board"), ceasing for any reason to constitute at least two-thirds of
the members of the Board; provided, however, that if the election, or
nomination for election by the Company's common stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Plan, be considered as a member
of the Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
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office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 1934 Act or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization involving
the Company, unless such merger, consolidation or reorganization is a
"Non-Control Transaction"; i.e., meets each of the requirements
described in (A), (B), and (C) below:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own, directly or
indirectly immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least
two-thirds of the members of the board of directors of the Surviving
Corporation immediately following the consummation of such merger,
consolidation or reorganization; and
(C) no Person other than the Company, any Subsidiary,
any employee benefit plan (or any trust forming a part thereof or a
trustee thereof acting solely in its capacity as trustee) maintained
by the Company, the Surviving Corporation, or any Subsidiary, or any
Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of thirty percent (30%) or
more of the then outstanding Voting Securities has Beneficial
Ownership of thirty percent (30%) or more of the combined voting power
of the Surviving Corporation's then outstanding voting securities
immediately following the consummation of such merger, consolidation
or reorganization.
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<PAGE> 23
(ii) A complete liquidation or dissolution of the Company; or
(iii) An agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any Person (other
than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding
Voting Securities as a result of the acquisition of Voting Securities by the
Company which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by the Subject
Persons, provided that if a Change in Control would occur (but for the
operation of this sentence) as a result of the acquisition of Voting Securities
by the Company, and after such share acquisition by the Company, the Subject
Person becomes the Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting Securities Beneficially
Owned by the Subject Person, then a Change in Control shall occur.
18.6 "Code" means the Internal Revenue Code of 1986, as amended.
18.7 "Committee" means a committee consisting of at least three (3)
Disinterested Directors appointed by the Board to administer the Plan and to
perform the functions set forth herein. The authority of the Committee to
administer the Plan may be delegated to a subcommittee composed exclusively of
two or more individuals who are "outside directors", within the meaning of
Section 162(m) of the Code, and proposed or final Treasury Regulations issued
thereunder, to the extent required to satisfy the provisions of that Section;
provided, however, that at all times such subcommittee shall satisfy the
applicable requirements of Rule 16b-3 under the Exchange Act. References to
the Committee herein refer to such subcommittee to the extent of such a
delegation.
18.8 "Company" means Lehman Brothers Holdings Inc.
18.9 "Disability" means a physical or mental infirmity which impairs
the Optionee's or Grantee's ability to perform substantially his or her duties
for a period of one hundred eighty (180) consecutive days.
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<PAGE> 24
18.10 "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the Exchange Act.
18.11 "Dividend Equivalents" has the meaning ascribed to it in
Section 8.3(c).
18.12 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
18.13 "Eligible Individual" means any officer, salaried or commission
employee, consultant and, solely in the case of Restricted Stock Units,
Non-employee Director of the Company or a Subsidiary designated by the
Committee as eligible to receive Options or Awards subject to the conditions
set forth herein.
18.14 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
18.15 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
18.16 "Fair Market Value" on any date means the closing price of the
Shares on such date on the principal national securities exchange on which such
Shares are listed or admitted to trading (or, if such exchange is not open on
such date, the immediately preceding date on which such exchange is open), the
arithmetic mean of the per Share closing bid price and per Share closing asked
price on such date as quoted on the National Association of Securities Dealers
Automated Quotation System or such other market in which such prices are
regularly quoted, or, if there have been no published bid or asked quotations
with respect to Shares on such date, the Fair Market Value shall be the value
established by the Committee in good faith and, in the case of an Incentive
Stock Option, in accordance with Section 422 of the Code. Notwithstanding the
foregoing, for Awards and Options granted before the commencement of initial
1994 regular way public trading in Shares, Fair Market Value of the Shares
means the closing price on the first day on which initial 1994 regular way
public trading in the Shares commences.
18.17 "Grantee" means a person to whom an Award has been granted
under the Plan.
18.18 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an
Incentive Stock Option.
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<PAGE> 25
18.19 "Non-employee Director" means a director of the Company who is
not an employee of the Company or any Subsidiary.
18.20 "Non-qualified Stock Option" means an Option which is not an
Incentive Stock Option.
18.21 "Option" means an Incentive Stock Option, a Non-qualified Stock
Option, or both of them, as the context requires.
18.22 "Optionee" means a person to whom an Option has been granted
under the Plan.
18.23 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company.
18.24 "Performance Awards" means Performance Units, Performance
Shares or either or both of them.
18.25 "Performance Cycle" means the time period specified by the
Committee at the time a Performance Award is granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
18.26 "Performance Shares" means Shares issued or transferred to an
Eligible Individual under Section 8.3 hereof.
18.27 "Performance Unit" means Performance Units granted to an
Eligible Individual under Section 8.2 hereof.
18.28 "Plan" means the Lehman Brothers Holdings Inc. 1994 Management
Ownership Plan.
18.29 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 7 hereof.
18.30 "Restricted Stock Unit" means an Award granted to an Eligible
Individual to receive payment upon the lapse of all restrictions in the form of
Shares as provided for in Section 9 hereof.
18.31 "Shares" means the common stock, par value $.10 per share, of
the Company.
18.32 "Stock Appreciation Right" means a right to receive all or some
portion of the increase in the value of the Shares as provided in Section 6
hereof.
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<PAGE> 26
18.33 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to
the Company.
18.34 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of
the Code applies.
18.35 "Ten-Percent Stockholder" means an Eligible Individual, who, at
the time an Incentive Stock Option is to be granted to him or her, owns (within
the meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
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<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
1994 MANAGEMENT REPLACEMENT PLAN
1. Purpose
The purpose of this Plan is to provide continuation of benefits and
opportunities provided to former participants in any American Express Company
Plan or Plans, which benefits and opportunities were lost, terminated,
forfeited, canceled (with or without consent of the holder), or reduced, as a
result of the 1994 spinoff of the Company from American Express Company, by
providing for the grant of substitute Awards hereunder.
2. Administration
2.1 The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall
consist of not less than three members of the Committee and a majority of a
quorum may authorize any action. Any decision or determination reduced to
writing and signed by a majority of all of the members shall be as fully
effective as if made by a majority vote at a meeting duly called and held.
Each member of the Committee shall be a Disinterested Director. No member of
the Committee shall be liable for any action, failure to act, determination or
interpretation made in good faith with respect to this Plan or any transaction
hereunder. The Company hereby agrees to indemnify each member of the Committee
as permitted by applicable law, for any liability incurred in connection with
defending against, responding to, negotiation for the settlement of or
otherwise dealing with any claim, cause of action or dispute of any kind
arising in connection with any actions in administering this Plan or in
authorizing or denying authorization to any transaction hereunder.
2.2 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those individuals to whom Options shall be
granted under the Plan and the number of Options to be granted to each Eligible
Individual and to prescribe the terms and conditions (which need not be
identical) of each Option, including the purchase price per Share subject to
each Option, and make any amendment or modification to any Agreement consistent
with the terms of the Plan; and
(b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Shares of Restricted
Stock to be granted pursuant to each Award,
<PAGE> 2
the terms and conditions of each other replacement Award, including the
performance conditions and restrictions relating to Shares, and make any
amendment or modification to any Agreement consistent with the terms of the
Plan.
2.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time:
(a) to construe and interpret the Plan and the Options and
Awards granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited to,
correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable to make the Plan fully effective;
(b) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for purposes of the
Plan; and
(c) to resolve all questions of interpretation arising under,
or in connection with the administration of, the Plan, to exercise its
discretion with respect to the powers and rights granted to it as set forth in
the Plan, and generally, to exercise such powers and to perform such acts as
are deemed necessary or advisable to promote the best interests of the Company
with respect to the Plan.
2.4 All decisions and determinations by the Committee in the
exercise of the powers and duties conferred upon it under the Plan shall be
final, binding and conclusive upon the Company, its Subsidiaries, the Optionees
and Grantees and all other persons having any interest therein.
3. Stock Subject to the Plan
3.1 An aggregate number of Shares is hereby made available and is
reserved for delivery on account of the exercise of Awards, and for the payment
of benefits in connection with Awards and Options equal to the number of Shares
determined pursuant to the formulas determined by the Committee to be required
to replace awards granted to participants in the American Express Company Plan
or Plans; provided, however, that the maximum number of Shares that may be made
the subject of Options and Awards granted under the Plan is 3,200,000. Upon a
Change in Capitalization the maximum number of Shares available on an aggregate
and Eligible Individual basis shall be adjusted in number and kind pursuant to
Section 8. The Company shall reserve
2
<PAGE> 3
for the purposes of this Plan, out of its authorized but unissued Shares or out
of Shares held in the Company's treasury, or partly out of each, such number of
Shares as shall be determined by the Board. The maximum number of Shares
available for Options and/or Stock Appreciation Rights that may be granted to
an Eligible Individual shall not exceed 400,000 over the life of the Plan.
3.2 Upon the granting of an Option or an Award, the number of Shares
available under Section 3.1 for the granting of further Options and Awards
shall be reduced by the number of Shares in respect of which the Option or
Award is granted or denominated.
3.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire Option or
Award, the Shares allocable to the expired, canceled or otherwise terminated
portion of the Option or Award may not again be the subject of Options or
Awards granted hereunder.
3.4 Notwithstanding anything contained in this Section 3, the number
of Shares available for Options and Awards at any time under the Plan shall be
reduced to such lesser amount as may be required pursuant to the methods of
calculation necessary so that the exemptions provided pursuant to Rule 16b-3
under the Exchange Act will continue to be available for transactions involving
all current and future Options and Awards. In addition, during the period that
any Options and Awards remain outstanding under the Plan, the Committee may
make good faith adjustments upon a Change in Capitalization with respect to the
number of Shares attributable to such Options and Awards for purposes of
calculating the maximum number of Shares available for the granting of future
Options and Awards under the Plan, provided that following such adjustments the
exemptions provided pursuant to Rule 16b-3 under the Exchange Act, and the
exceptions provided pursuant to Section 162(m) of the Code, will not be
adversely affected thereby.
4. Options
4.1 Authority of Committee. Subject to the provisions of the Plan
and to Section 3.1 above, the Committee shall have full and final authority to
select those Eligible Individuals (who hold unexercised options issued pursuant
to an American Express Company Plan or Plans (whether or not nonforfeitable) at
March 31, 1994 to receive Options under this Plan. The terms and conditions of
such grant shall be set forth in an Agreement.
3
<PAGE> 4
4.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; provided, however,
that such purchase price shall not be less than 100% of the Fair Market Value
of a Share on the date the Option is granted.
4.3 Maximum Duration. Options granted hereunder shall be for such
term as the Committee shall determine, provided that they shall not be
exercisable after the expiration of ten (10) years from the date they are
granted. The Committee may, subsequent to the granting of any Option, extend
the term thereof but in no event shall the term as so extended exceed the
maximum term provided for in the preceding sentence.
4.4 Vesting. Each Option shall become exercisable in such
installments (which need not be equal) and at such times as may be designated
by the Committee and set forth in the Agreement. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part, at any
time after becoming exercisable, but not later than the date the Option
expires. The Committee may accelerate the exercisability of any Option or
portion thereof at any time.
4.5 Modification. Under no circumstances may the Committee modify
outstanding Options or accept the surrender of outstanding Options (to the
extent not exercised) and grant new Options in substitution for them.
4.6 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person, by facsimile transmission or by
mail to the Secretary of the Company at the Company's principal executive
office, specifying the number of Shares to be purchased and accompanied by
payment therefor and otherwise in accordance with the Agreement pursuant to
which the Option was granted. The purchase price for any Shares purchased
pursuant to the exercise of an Option shall be paid in full upon such exercise
by any one or a combination of the following: (i) cash or (ii) transferring
Shares to the Company upon such terms and conditions as determined by the
Committee. Notwithstanding the foregoing, the Committee shall have discretion
to determine at the time of grant of each Option or at any later date (up to
and including the date of exercise) the form of payment acceptable in respect
of the exercise of such Option. The written notice pursuant to this Section
4.6 may also provide instructions from the Optionee to the Company that upon
receipt of the purchase price in cash from the Optionee's broker or dealer,
designated as such on the written notice, in payment for any Shares purchased
pursuant to the exercise of an Option, the
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Company shall issue such Shares directly to the designated broker or dealer.
Any Shares transferred to the Company as payment of the purchase price under an
Option shall be valued at their Fair Market Value on the day preceding the date
of exercise of such Option. If requested by the Committee, the Optionee shall
deliver the Agreement evidencing the Option to the Secretary of the Company who
shall endorse thereon a notation of such exercise and return such Agreement to
the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued
upon exercise of an Option and the number of Shares that may be purchased upon
exercise shall be rounded to the nearest number of whole Shares.
4.7 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and until
(i) the Option shall have been exercised pursuant to the terms thereof, (ii)
the Company shall have issued and delivered the Shares to the Optionee and
(iii) the Optionee's name shall have been entered as a stockholder of record on
the books of the Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such Shares.
4.8 Limited Rights. An Optionee may, in the discretion of the
Committee, have the right (a "Limited Right") to surrender the Option or any
portion thereof to the Company within 30 days following a Change in Control and
to receive from the Company in exchange therefor a cash payment in an amount
equal to (a) the number of unexercised Shares under the Option which are being
surrendered multiplied by (b) the excess of (i) the greater of (A) the highest
price per Share paid in connection with the Change in Control or (B) the
highest Fair Market Value per Share in the 90 day period preceding such Change
in Control, over (ii) the purchase price of the Option as set forth in the
Agreement.
5. Restricted Stock.
5.1 Grant. Subject to the provisions of the Plan and Section 3.1
above, the Committee may grant to Eligible Individuals Restricted Stock to each
Grantee whose restricted stock or AXP Performance Grants granted under an
American Express Company Plan or Plans was forfeited or canceled in connection
with the 1994 spinoff of the Company from American Express Company. Each such
grant shall be evidenced by an Agreement. Each Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its discretion,
determine and (without limiting the generality of the foregoing) such
Agreements may require that an appropriate legend by placed on
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Share certificates. Awards of Restricted Stock shall be subject to the terms
and provisions set forth below in this Section 5.
5.2 Rights of Grantee. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted provided that the Grantee has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance of
such Shares. If a Restricted Stock Award Agreement, the appropriate blank
stock powers and such other documents which the Committee may require are not
executed by the Grantee within the time period prescribed by the Committee at
the time the Award is granted, the Award shall be null and void. At the
discretion of the Committee, Shares issued in connection with a Restricted
Stock Award shall be deposited together with the stock powers with an escrow
agent (which may be the Company) designated by the Committee. Unless the
Committee determines otherwise and as set forth in the Agreement, upon delivery
of the Shares to the escrow agent, the Grantee shall have all of the rights of
a stockholder with respect to such Shares, including the right to vote the
Shares and to receive all dividends or other distributions paid or made with
respect to the Shares.
5.3 Non-transferability. Until any restrictions upon the Shares of
Restricted Stock Awarded to a Grantee shall have lapsed in the manner set forth
in Section 5.4, such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall they
be delivered to the Grantee.
5.4 Lapse of Restrictions. Restrictions upon Shares of Restricted
Stock awarded hereunder shall lapse at such time or times on such terms and
conditions as the Committee may determine, which restrictions shall be set
forth in the Agreement evidencing the Award. The Committee may accelerate the
lapse of restrictions on Shares of Restricted Stock awarded hereunder to the
extent that such acceleration would not jepordize, on account of Section 162(m)
of the Code, the Company's tax deduction otherwise available with respect to
such Shares of Restricted Stock.
5.5 Modification. Subject to the terms of the Plan, the Committee
may modify outstanding Awards of Restricted Stock; provided, however, that no
such modification shall materially adversely alter or materially impair any
rights or obligations under the Agreement without the Grantee's consent.
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5.6 Treatment of Dividends. At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on such Shares by the Company shall be, at the discretion of
the Committee, (i) paid in cash to the Grantee or (ii) deferred until the
lapsing of the restrictions imposed upon such Shares and held by the Company
for the account of the Grantee until such time. In the event that payment of
dividends is to be deferred, the Committee shall determine whether such
dividends are to be reinvested in shares of Stock (which shall be held as
additional Shares of Restricted Stock) or held in cash. If deferred dividends
are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends in respect of Shares of Restricted Stock (whether
held in cash or as additional Shares of Restricted Stock), together with
interest accrued thereon, if any, shall be made upon the lapsing of
restrictions imposed on the Shares in respect of which the deferred dividends
were paid, and any dividends deferred (together with any interest accrued
thereon) in respect of any Shares of Restricted Stock shall be forfeited upon
the forfeiture of such Shares.
5.7 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all restrictions
hereunder.
6. Effect of a Termination of Employment
The Agreement evidencing the grant of each Option and each Award shall
set forth the terms and conditions applicable to such Option or Award upon a
termination or change in the status of the employment of the Optionee or
Grantee by the Company, a subsidiary or a division (including a termination or
change by reason of the sale of a subsidiary or a division), as the Committee
may, in its discretion, determine at the time the Option or Award is granted or
thereafter.
7. Adjustment Upon Changes in Capitalization
(a) In the event of a Change in Capitalization, the Committee
shall conclusively determine the appropriate adjustments, if any, to the (i)
maximum number and class of Shares or other stock or securities with respect to
which Options or Awards may be granted under the Plan or to any individual, and
(ii) the number and class of Shares or other stock or securities
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<PAGE> 8
which are subject to outstanding Options or Awards granted under the Plan, and
the purchase price therefor, if applicable.
(b) If, by reason of a Change in Capitalization, a Grantee of
an Award shall be entitled to or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock or
securities, such new, additional or different shares shall thereupon be subject
to all of the conditions, restrictions and performance criteria which were
applicable to the Shares subject to the Award or Option, as the case may be
prior to such Change in Capitalization.
(c) The Committee shall apply this Section 7 in a manner
consistent with the preservation of the Company's tax deduction for the payment
or exercise of Awards under Section 162(m) or the Code.
8. Termination and Amendment of the Plan
The Plan shall terminate on the day preceding the second anniversary
of the date of its adoption by the Board and no Option or Award may be granted
thereafter. The Board may sooner terminate the Plan and the Board may at any
time and from time to time amend, modify or suspend the Plan; provided,
however, that:
(a) No such amendment, modification, suspension or termination
shall materially impair or materially adversely alter any Options or Awards
theretofore granted under the Plan, except with the consent of the Optionee or
Grantee, nor shall any amendment, modification, suspension or termination
deprive any Optionee or Grantee of any Shares which he or she may have acquired
through or as a result of the Plan; and
(b) To the extent necessary to comply with Rule 16b-3 of the
Exchange Act and the rules and regulations promulgated thereunder, or to
preserve the Company's tax deduction for the payment or exercise of Awards
under Section 162(m) of the Code, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations.
(c) Notwithstanding the above, the Committee shall not have the
right to modify any outstanding Award to the extent such restriction is
necessary to preserve the Company's tax deduction for the payment or exercise
of Awards under Section 162(m) of the Code.
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<PAGE> 9
9. Non-Exclusivity of the Plan
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement
or as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
10. Limitation of Liability
As illustrative of the limitations of liability of the Company, but
not intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
(i) give any person any right to be granted an Option or Award
other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate
the employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person at any particular rate of
compensation or for any particular period of time.
11. Regulations and Other Approvals; Governing Law
11.1 Except as to matters of federal law, this Plan and the rights of
all persons claiming hereunder shall be construed and determined in accordance
with the laws of the State of Delaware without giving effect to conflicts of
law principles.
11.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
11.3 The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith. Any
provisions
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<PAGE> 10
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
11.4 The Board may make such changes in the Plan or any Awards as may
be necessary or appropriate to comply with the rules and regulations of any
government authority.
11.5 Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee.
11.6 Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144 or other
regulations thereunder. The Committee may require any individual receiving
Shares pursuant to an Option or Award granted under the Plan, as a condition
precedent to receipt of such Shares, to represent and warrant to the Company in
writing that the Shares acquired by such individual are acquired without a view
to any distribution thereof and will not be sold or transferred other than
pursuant to an effective registration thereof under said Act or pursuant to an
exemption applicable under the Securities Act of 1933, as amended, or the rules
and regulations promulgated thereunder. The certificates evidencing any of
such Shares shall be appropriately amended to reflect their status as
restricted securities as aforesaid.
11.7 Awards granted under the Plan to persons which the Committee
reasonably believes may be subject to Section 162(m) of the Code will not be
exercisable, and compensation under the Plan will not be paid, unless and until
any necessary shareholder approvals shall have been obtained and the Committee
has certified as to the attainment of any applicable performance goals, in each
case to the extent required under said Section 162(m).
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<PAGE> 11
12. Miscellaneous
12.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time, or
at some other time. The Committee may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan, in addition to
Options or Awards previously granted to that Eligible Individual.
12.2 Withholding of Taxes.
(a) The Company shall have the right to deduct from any
distribution of cash to any Optionee or Grantee, an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld (the "Withholding Taxes") with respect to any Option or
Award. If an Optionee or Grantee is to experience a taxable event in
connection with the receipt of Shares pursuant to an Option exercise or payment
of an Award, the Optionee or Grantee shall pay the Withholding Taxes to the
Company prior to the issuance, or release from escrow, of such Shares. In
satisfaction of the obligation to pay Withholding Taxes to the Company, the
Optionee or Grantee may make a written election, which may be accepted or
rejected in the discretion of the Committee, to have withheld a portion of the
Shares then issuable to him or her having an aggregate Fair Market Value, on
the date preceding the date of such issuance, equal to the Withholding Taxes,
provided that the Committee shall accept such an election in respect of an
Optionee subject to Section 16(b) of the Exchange Act only if such election
complies with Rule 16b-3 under the Exchange Act.
12.3 Non-transferability. No Option granted hereunder shall
be transferable by the Optionee to whom granted otherwise than by will or the
laws of descent and distribution or pursuant to a "qualified domestic relations
order," as defined by the Code or title I of ERISA, or the rules thereunder,
and an Option may be exercised during the lifetime of such Optionee only by the
Optionee, or his or her guardian or legal representative. The terms of such
Option shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the Optionee.
13. Effective Date
The effective date of the Plan shall be the date of its adoption by
the Board, subject only to (i) the approval by the affirmative vote of the
holders of a majority of the securities of the Company present, or represented,
and entitled to vote at a meeting of stockholders duly held in accordance with
the
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applicable laws of the State of Delaware or (ii) subject to any other such
means of approval which shall satisfy the Exchange Act, within twelve (12)
months of such adoption.
14. Definitions
For purpose of the Plan:
14.1 "Agreement" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
14.2 American Express Company Plan or Plans means the American
Express 1979 Long-Term Incentive Plan and the American Express 1989 Long-Term
Incentive Plan.
14.3 "Award" means a grant of Options or Restricted Stock granted by
the Committee under the Plan.
14.4 "AXP Performance Grants" means awards granted under an American
Express Plan denominated "Performance Grant-IIIs."
14.5 "Board" means the Board of Directors of the Company.
14.6 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure or otherwise.
14.7 "Change in Control" shall mean the occurrence during the term of
the Plan of:
(a) An acquisition (other than directly from the
Company) of any voting securities of the Company (the "Voting Securities") by
any "Person" (as the term person is used for purposes of Section 13(d) or 14(d)
of the Exchange Act) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of thirty percent (30%) or more of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, in determining
whether a Change in Control has occurred, Voting Securities which are acquired
in a "Non-Control
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Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a trust forming a part thereof
or a trustee thereof acting solely in its capacity as trustee) maintained by
(A) the Company or (B) any corporation or other Person of which a majority of
its voting power or its voting equity securities or equity interest is owned,
directly or indirectly, by the Company (for purposes of this definition, a
"Subsidiary"), (ii) the Company or its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as hereinafter defined).
(b) The individuals who, as of the effective date of
the 1994 initial public trading in Company Shares, are members of the Board
(the "Incumbent Board"), ceasing for any reason to constitute at least
two-thirds of the members of the Board; provided, however, that if the
election, or nomination for election by the Company's common stockholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(c) Approval by stockholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger, consolidation or
reorganization is a "Non-Control Transaction"; i.e., meets each of the
requirements described in (A), (B), and (C) below:
(A) the stockholders of the Company,
immediately before such merger, consolidation or reorganization, own,
directly or indirectly immediately following such merger,
consolidation or reorganization, at least seventy percent (70%) of the
combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately
before such merger, consolidation or reorganization;
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(B) the individuals who were members of
the Incumbent Board immediately prior to the execution of the
agreement providing for such merger, consolidation or reorganization
constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation immediately following the
consummation of such merger, consolidation or reorganization; and
(C) no Person other than the Company, any
Subsidiary, any employee benefit plan (or any trust forming a part
thereof or a trustee thereof acting solely in its capacity as trustee)
maintained by the Company, the Surviving Corporation, or any
Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial Ownership of thirty
percent (30%) or more of the then outstanding Voting Securities has
Beneficial Ownership of thirty percent (30%) or more of the combined
voting power of the Surviving Corporation's then outstanding voting
securities immediately following the consummation of such merger,
consolidation or reorganization.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of Voting
Securities by the Company, and after such share acquisition by the Company, the
Subject Person becomes the Beneficial Owner of any additional Voting Securities
which increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall occur.
14.8 "Code" means the Internal Revenue Code of 1986, as amended.
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<PAGE> 15
14.9 "Committee" means a committee consisting of at least three (3)
Disinterested Directors appointed by the Board to administer the Plan and to
perform the functions set forth herein. The authority of the Committee to
administer the Plan may be delegated to a subcommittee composed exclusively of
individuals who are "outside directors", within the meaning of Section 162(m)
of the Code, and proposed or final Treasury Regulations issued thereunder, to
the extent required to satisfy the provisions of that Section; provided,
however, that at all times such subcommittee shall satisfy the applicable
requirements of Rule 16b-3 under the Exchange Act. References to the Committee
herein refer to such subcommittee in the event of such a delegation.
14.10 "Company" means Lehman Brothers Holdings Inc.
14.11 "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the Exchange Act.
14.12 "Eligible Individual" means any officer or employee of the
Company or a Subsidiary who was a participant in an American Express Plan or
Plans and who is eligible to receive Options or Awards subject to the
conditions set forth in the Eligible Individual's Agreement.
14.13 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
14.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
14.15 "Fair Market Value" on any date means the closing price of the
Shares on such date on the principal national securities exchange on which such
Shares are listed or admitted to trading, the arithmetic mean of the per Share
closing bid price and per Share closing asked price on such date as quoted on
the National Association of Securities Dealers Automated Quotation System or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to Shares on such date,
the Fair Market Value shall be the value established by the Committee in good
faith. Notwithstanding the foregoing, for Awards and Options granted before
the commencement of initial 1994 regular way public trading in Company Shares,
Fair Market Value of the Shares means the closing price of the Shares on the
first day on which initial 1994 regular way public trading in Shares commences.
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<PAGE> 16
14.16 "Grantee" means a person to whom an Award has been granted
under the Plan.
14.17 "Option" means a non-qualified stock option.
14.18 "Optionee" means a person to whom an Option has been granted
under the Plan.
14.19 "Plan" means the Lehman Brothers Holdings Inc. 1994 Management
Replacement Plan.
14.20 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 5.
14.21 "Shares" means the common stock, par value $.10 per share, of
the Company.
16
<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
SHORT TERM EXECUTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of the Short Term Executive
Compensation Plan (the "Plan") is to advance the interests of Lehman Brothers
Holdings Inc., a Delaware corporation (the "Company"), and its stockholders by
providing incentives in the form of periodic cash bonus awards to certain
employees of the Company and any of its subsidiaries or other related business
units or entities ("Affiliates") and to those other individuals who perform
services for these entities, including those who contribute significantly to
the strategic and long-term performance objectives and growth of the Company
and its affiliates.
2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee of the Board of Directors (the "Committee"), as such
committee is from time to time constituted. The Committee may delegate its
duties and powers in whole or in part (i) to any subcommittee thereof
consisting solely of at least two "outside directors," as defined under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), or (ii)
to the extent consistent with Section 162(m) of the Code, to any other
individual or individuals.
The Committee has all the powers vested in it by the terms of
the Plan set forth herein, such powers to include the exclusive authority to
select the employees and other individuals to be granted bonus awards
("Bonuses") under the Plan, to determine the size and terms of the Bonus to be
made to each individual selected, to modify the terms of any Bonus that has
been granted (except with respect to any modification which would increase the
amount of compensation payable to a "Covered Employee," as such term is defined
in Section 162(m) of the Code), to determine the time when Bonuses will be
awarded, to establish performance objectives in respect to Bonuses and to
certify that such performance objectives were attained. The Committee is
authorized to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determinations which it
deems necessary or desirable for the administration of the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. No
<PAGE> 2
member of the Committee and no officer of the Company shall be liable for
anything done or omitted to be done by him or her, by any other member of the
Committee or by any officer of the Company in connection with the performance
of duties under the Plan, except for his or her own willful misconduct or as
expressly provided by statute.
3. PARTICIPATION. The Committee shall have exclusive power
(except as may delegated as permitted herein) to select the employees and other
individuals performing services for the Company or its Affiliates who may
participate in the Plan and be granted Bonuses under the Plan ("Participants").
4. BONUSES UNDER THE PLAN.
(a) In General. The Committee shall determine the
amount of a Bonus to be granted to each Participant in accordance with
subsections (b) and (c) below.
(b) Standard Bonuses. The Committee shall grant to
each Participant (except, in the discretion of the Committee, any Participant
who is awarded a "Special Bonus" pursuant to subsection (c) below) a cash Bonus
(a "Standard Bonus") in the amount, and payable at the time, determined by the
Committee or its delegate in its discretion. The amount of a Participant's
Standard Bonus may be based upon any criteria the Committee wishes to consider,
including but not limited to the objective or subjective performance of the
Participant, the Company or any subsidiary or division thereof.
(c) Special Bonuses. (i) The Committee may in its
discretion award a Bonus to a Participant who it reasonably believes may be a
Covered Employee for the taxable year of the Company in which such Bonus would
be deductible, under the terms and conditions of this subsection (c) (a
"Special Bonus"). Subject to clauses (iii) and (iv) of this Section 4(c), the
amount of a Participant's Special Bonus shall be an amount (the "Maximum
Special Bonus") determinable from written performance goals approved by the
Committee prior to the commencement of the services to which the performance
goals relate and while the outcome is substantially uncertain (except to the
extent allowed pursuant to Internal Revenue Service Notice 94-2 and any
applicable subsequent guidance). The performance goals and formula applicable
to each affected Participant shall be set forth in a schedule (the "Bonus
Schedule"). The performance goals, which must be objective, may include, but
need not be limited to, the performance of the Participant, the Company, one or
more of its subsidiaries or one or more of its divisions or units, or any
combination of the foregoing, and may be applied on an absolute basis and/or be
2
<PAGE> 3
relative to one or more peer group companies or other indices, or any
combination thereof, all as the Committee shall determine. The Bonus Schedule
shall specify (i) the manner in which the Maximum Special Bonuses shall be
determined if the performance goals are met and the period or periods to which
the performance goals apply.
(ii) The performance goals and Maximum Special Bonus applicable to
any affected Participant may be adjusted in the discretion of the Committee in
order to reflect a change in capitalization, a change in the book tax rate of
the Company or any Affiliate or any other event which may materially affect the
performance of the Company, an Affiliate or a division, including, but not
limited to, market conditions or a significant acquisition or disposition of
assets or other property by the Company, an Affiliate or division. The
Committee shall exercise the discretion conferred upon it in the preceding
sentence in such manner as shall be approved by the Company's auditors and will
not result in loss of deductibility of Special Bonuses under Section 162(m) of
the Code. Notwithstanding the foregoing, the Committee shall, in such manner
as shall be approved by the Company's auditors, adjust the performance goals
for all affected Participants to offset the impact of (A) any change in the
applicable corporate tax rate under the Code or (B) any change in accounting
method mandated by the Financial Accounting Standards Board, in either case
having a material impact on the financial criteria relating to the performance
goals; provided, however, that such adjustments shall be made only to the
extent that (C) the change in tax rate or accounting method was not expressly
taken into account in originally setting the performance goals and Maximum
Special Bonus and (D) the Committee determines that such adjustments may be
made without a loss of deductibility of Special Bonuses under Section 162(m) of
the Code. The previous sentence shall be applied in a manner which does not
increase the amount of any Maximum Special Bonus, as calculated without giving
effect to the change in tax rate or accounting method.
(iii) The Committee shall determine whether the performance goals
have been met with respect to any affected Participant and, if they have, so
certify and ascertain the amount of the applicable Maximum Special Bonus. No
Special Bonuses will be paid until such certification is made by the Committee.
The amount of the Special Bonus actually paid to any affected Participant may
be less than the Maximum Special Bonus at the discretion of the Committee, but
shall be no greater than the amount of such Participant's Maximum Special
Bonus. The Committee shall exercise its discretion to reduce the Special Bonus
to an amount less than the Maximum Special Bonus in the best interest of the
Company and its shareholders. Circumstances warranting such reduction shall
include, but not be limited to, a decision by the Committee to grant a Covered
Employee
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awards under other incentive compensation plans of the Company in lieu of a
portion of such Covered Employee's Special Bonus. Notwithstanding the above,
no Special Bonus shall be paid unless the material terms of the Special Bonus,
including the performance goals applicable thereto, have been disclosed to and
approved by the shareholders of the Company.
(iv) The provisions of this Section 4(c) shall be administered and
interpreted in accordance with Section 162(m) of the Code to ensure the
deductibility by the Company or its affiliates of the payment of Special
Bonuses.
5. DESIGNATION OF BENEFICIARY BY PARTICIPANT. The
Committee or its delegate shall create a procedure whereby a Participant may
file, on a form to be provided by the Committee, a written election designating
one or more beneficiaries with respect to the amount, if any, payable in the
event of the Participant's death. The Participant may amend such beneficiary
designation in writing at any time prior to the Participant's death, without
the consent of any previously designated beneficiary. Such designation or
amended designation, as the case may be, shall not be effective unless and
until received by the duly authorized representative of the Committee or its
delegate prior to the Participant's death. In the absence of any such
designation, the amount payable, if any, shall be delivered to the legal
representative of such Participant's estate.
6. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim
or right to be paid a Bonus under the Plan. Determinations made by the
Committee under the Plan need not be uniform and may be made selectively among
eligible individuals under the Plan, whether or not such eligible individuals
are similarly situated. Neither the Plan nor any action taken hereunder shall
be construed as giving any employee or other person any right to continue to be
employed by or perform services for the Company or any Affiliate, and the right
to terminate the employment of or performance of services by any Participant at
any time and for any reason is specifically reserved to the Company and its
Affiliates.
(b) Except as may be approved by the Committee, a
Participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a Participant's death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided, however, that,
subject to applicable law, any amounts payable to any Participant hereunder
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<PAGE> 5
are subject to reduction to satisfy any liabilities owed to the Company or any
of its Affiliates by the Participant.
(c) The Company and its Affiliates shall have the
right to deduct from any payment made under the Plan any federal, state, local
or foreign income or other taxes required by law to be withheld with respect to
such payment.
(d) The Company is the sponsor and legal obligor
under the Plan, and shall make all payments hereunder, other than any payments
to be made by any of the Affiliates, which shall be made by such Affiliate, as
appropriate. Nothing herein is intended to restrict the Company from charging
an Affiliate that employs a Participant for all or a portion of the payments
made by the Company hereunder. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any amounts under the Plan, and rights to the payment
hereunder shall be no greater than the rights of the Company's unsecured,
subordinated creditors, and shall be subordinated to the claims of the
customers and clients of the Company. All expenses involved in administering
the Plan shall be borne by the Company.
(e) The validity, construction, interpretation,
administration and effect of the Plan and rights relating to the Plan and to
Bonuses granted under the Plan, shall be governed by the substantive laws, but
not the choice of law rules, of the State of Delaware.
(f) Any controversy or dispute arising in connection
with the Plan shall be resolved by arbitration pursuant to the Constitution and
rules of the New York Stock Exchange, Inc. or the National Association of
Securities Dealers, Inc.
(g) The Plan shall be effective as of January 1,
1994, subject to the consummation of the 1994 spinoff of the Company from
American Express Company.
7. PLAN AMENDMENT OR SUSPENSION. The Plan may be amended
or suspended in whole or in part at any time and from time to time by the
Committee.
8. PLAN TERMINATION. This Plan shall terminate upon the
adoption of a resolution of the Committee terminating the Plan.
9. ACTIONS AND DECISION REGARDING THE BUSINESS OR OPERATIONS
OF THE COMPANY AND/OR ITS AFFILIATES. Notwithstanding anything in the Plan to
the contrary, neither the Company nor any of its Affiliates nor their
respective officers, directors,
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employees or agents shall have any liability to any Participant (or his or her
beneficiaries or heirs) under the Plan or otherwise on account of any action
taken, or not taken, in good faith by any of the foregoing persons with respect
to the business or operations of the Company or any Affiliates.
10. SUBORDINATED CAPITAL STATUS. Notwithstanding any other
provision of this Plan, any amounts due to Participants hereunder may be
treated, in the Committee's sole discretion, to the extent that the Company
accrues a liability in respect thereof, as subordinated capital of the Company
in calculating the Company's net capital for regulatory purposes, and the terms
of the Plan applicable to such amounts shall include (and, may be amended to
add) such provisions as the Committee determines are necessary or appropriate
in order to secure such treatment, including without limitation, provisions for
the suspension of any payment obligation under the Plan under certain
prescribed circumstances.
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BONUS SCHEDULE
To Be Attached To Compensation and Benefits Committee Resolutions
7
<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1994 Employee
Stock Purchase Plan of Lehman Brothers Holdings Inc., effective as of June 1,
1994, or such later date as is determined by the Committee, subject to approval
by the shareholders of the Company.
1. Purpose. The purpose of the Plan is to provide
employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions.
It is the intention of the Company to have the Plan qualify as an "Employee
Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of
the Company.
(b) "Committee" shall mean the committee selected
by the Board to administer the Plan, each member of which shall be a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
(c) "Code" shall mean the Internal Revenue Code
of 1986, as amended.
(d) "Common Stock" shall mean the Common Stock of
the Company, $0.10 par value per share.
(e) "Company" shall mean Lehman Brothers Holdings
Inc. a Delaware corporation.
(f) "Compensation" shall mean the total cash
remuneration (whether or not denominated in United States dollars) received by
an Employee from the Company or a Subsidiary as salary, wages or other
compensation.
(g) "Designated Subsidiaries" shall mean Lehman
Brothers Inc. and the other Subsidiaries which have been designated by the
Board from time to time in its sole discretion as eligible to participate in
the Plan.
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(h) "Employee" shall mean any individual who is
an employee of the Company or any Designated Subsidiary for purposes of tax
withholding under the Code; provided, however, that the Committee may, in its
discretion, exclude such individuals whose customary employment with the
Company or any Designated Subsidiary is twenty (20) hours or less per week, or
not more than five (5) months in any calendar year. For purposes of the Plan,
the employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the Company.
Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
Notwithstanding the above, no person shall be an Employee whose participation
in the Plan is prohibited by applicable local law.
(i) "Enrollment Date" shall mean the first day of
each Offering Period.
(j) "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(k) "Exercise Date" shall mean the last day of
each Offering Period.
(l) "Fair Market Value" shall mean, as of any
date, the value of Common Stock determined as follows:
(1) If the Common Stock is listed on
any established stock exchange or a national market system, including without
limitation the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), its Fair Market Value
shall be the mean between the highest and lowest quoted selling prices for the
Common Stock (or the mean of the lowest bid and highest asked prices, if no
sales were reported), as quoted on such exchange (or the exchange with the
greatest volume of trading in Common Stock) or system on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Committee deems reliable; or
(2) If the Common Stock is quoted on
NASDAQ (but not on the National Market System thereof) or is regularly quoted
by a recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Committee deems reliable; or
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(3) In the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Committee.
(m) "Insider" shall mean any person who is
considered an "insider" with respect to the Company under Section 16 of the
Exchange Act.
(n) "Offering Period" shall mean a period of
approximately three months, commencing on the first Trading Day on or after the
first day of each calendar quarter and terminating on the last Trading Day on
or prior to the last day of each calendar quarter.
(o) "Plan" shall mean this Lehman Brothers
Holdings Inc. 1994 Employee Stock Purchase Plan.
(p) "Purchase Price" shall mean an amount equal
to 85% of the Fair Market Value of one share of Common Stock on the Exercise
Date, or such other percentage (which may be no less than 85% and no more than
100%) of such Fair Market Value as may be set by the Committee at the beginning
of an Offering Period.
(q) "Reserves" shall mean the number of shares of
Common Stock covered by each option under the Plan which have not yet been
exercised and the number of shares of Common Stock which have been authorized
for issuance under the Plan but not yet placed under option.
(r) "Subsidiary" shall mean a corporation which
is a "subsidiary corporation" of the Company within the meaning of Section
424(f) of the Code.
(s) "Parent" shall mean a corporation which is a
"parent corporation" of the Company within the meaning of Section 424(e) of the
Code.
(t) "Trading Day" shall mean a day on which
national stock exchanges and NASDAQ are open for trading.
3. Eligibility.
(a) All Employees shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee would own stock (together with stock
owned by any other person or entity
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<PAGE> 4
that would be attributed to such Employee pursuant to Section 424(d) of the
Code) of the Company (including, for this purpose, all shares of stock subject
to any outstanding options to purchase such stock, whether or not currently
exercisable and irrespective of whether such options are subject to the
favorable tax treatment of Section 421(a) of the Code) possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or of any Parent or Subsidiary, or (ii) which permits his
or her rights to purchase stock under all employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company and its Parents and
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the stock at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The limitation described in clause (ii) of the
preceding sentence shall be applied in a manner consistent with Section
423(b)(8) of the Code.
4. Offering Periods. The Plan shall be implemented by
consecutive Offering Periods commencing June 1, 1994, or such later date as
chosen by the Committee, and continuing thereafter until terminated in
accordance with Section 19 hereof. The Committee shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without stockholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in
the Plan by completing a subscription agreement authorizing payroll deductions
in the form of Exhibit A to this Plan and filing it with the Company's Human
Resources office at least fifteen (15) business days prior to the applicable
Enrollment Date, unless a later time for filing the subscription agreement is
set by the Committee for all eligible Employees with respect to a given
Offering Period.
(b) Payroll deductions for a participant shall
commence on the first payroll date following the Enrollment Date and shall end
on the last payroll date in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided in Section
10 hereof.
6. Payroll Deductions.
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(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions made
on each pay day during the Offering Period in an amount (expressed as a whole
number percentage) not exceeding ten percent (10%) of the Compensation which he
or she receives on each pay day during the Offering Period; provided, however,
that in no event may any participant have payroll deductions made for any
Offering Period which would result in the aggregate amount of such deductions
for the calendar year containing such Offering Period to exceed $15,000.
(b) All payroll deductions made for a participant
shall be credited to his or her account under the Plan and will be withheld in
whole percentages only. A participant may not make any additional payments
into such account.
(c) (i) Subject to Section 6(c)(ii) hereof, a
participant may discontinue his or her participation in the Plan, as provided
in Section 10 hereof, at any time during the Offering Period prior to the
Exercise Date. Once an Offering Period has commenced, a participant may not
increase or decrease the rate of his or her payroll deductions for that
Offering Period, but may, during that Offering Period, increase or decrease the
rate of his or her payroll deductions for the next succeeding Offering Period,
by completing or filing with the Company a new subscription agreement, at least
fifteen (15) business days prior to the end of that Offering Period,
authorizing a change in payroll deduction rate. A participant's subscription
agreement shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
(ii) Sections 6(c)(i) and 10 hereof
notwithstanding, the Committee may require that any election by an Insider to
make payroll deductions during an Offering Period, or to increase or decrease
the rate of such payroll deductions, shall be made pursuant to an irrevocable
election at least six months prior to the Exercise Date to which such election
relates. For this purpose, the Committee may allow Insiders to make standing
elections that will remain in effect for consecutive Offering Periods until
revoked or changed by the Insider pursuant to a subsequent six-month advance
irrevocable election.
(d) Notwithstanding the foregoing, a participant's
payroll deductions may be decreased to 0% at any time, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(b) hereof. Payroll
deductions shall recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering
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Period in the succeeding calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or
in part, or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provisions for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock.
At any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each
Offering Period, each eligible Employee participating in such Offering Period
shall be granted an option to purchase on the Exercise Date (at the applicable
Purchase Price) up to a number of shares of the Company's Common Stock
determined by dividing such Employee's payroll deductions accumulated prior to
such Exercise Date and retained in the participant's account as of the Exercise
Date by the applicable Purchase Price; provided, however, that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof;
provided, however, that the Committee may, in its discretion, prior to any
Offering Period determine a maximum number of shares subject to an option
granted hereunder. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
the option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws
from the Plan as provided in Section 10 hereof, his or her option for the
purchase of shares will be exercised automatically on the Exercise Date, and,
subject to the limitations set forth in Sections 3(b), 7 and 12 hereof, the
maximum number of full shares subject to the option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. Fractional shares may be purchased if so
determined by the Committee; if the purchase of fractional shares is not
permitted, any payroll deductions accumulated in a participant's account which
are not sufficient to purchase a full share shall be retained in the
participant's account for the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 10 hereof. Any other
monies left over in a participant's account after the Exercise Date shall be
returned
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to the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by the participant.
9. Issuance; Delivery; Restriction. The shares of
Common Stock purchased for a participant on the last day of an Offering Period
shall be deemed to have been issued by the Company for all purposes as of the
Exercise Date. Prior to such date, none of the rights and privileges of a
shareholder of a Company shall exist with respect to such of Common Stock.
Certificates representing shares of Common Stock acquired under the Plan shall
be held by the Company and delivered to, or in accordance with the direction
of, participants only upon (A) the expiration (or earlier termination at the
discretion of the Committee) of the "Withholding Period" (as defined below),
(B) the termination of the employment of such participant by the Company or any
Designated Subsidiary or (C) the written request of a participant to deliver
share certificates in connection with an intended disposition or transfer of
shares of Common Stock represented thereby. Promptly following the occurrence
of either of the events described in clauses (A), (B) or (C) above, the Company
shall issue and deliver, or cause its transfer agent to so issue and deliver,
to or for the account of each acquiring participant a certificate representing
the shares of Common Stock acquired by such Participant during such Offering
Period, provided that the Company shall be permitted to condition its delivery
of such certificates upon the agreement of such participant to allow certain
federal income tax withholdings as may be required to be made by the Company
under applicable law. For purposes of this Section 9, the "Withholding Period"
shall mean the period commencing on the Exercise Date and ending on the later
to occur of (i) the second anniversary of the Enrollment Date with respect to
such Exercise Date and (ii) the first anniversary of the Exercise Date.
10. Withdrawal; Termination of Employment.
(a) Subject to any limitations on Insiders imposed
by the Committee pursuant to Section 6(c)(ii) hereof, a participant may
withdraw all but not less than all the payroll deductions credited to his or
her account and not yet used to exercise his or her option under the Plan at
any time prior to the last business day of an Offering Period by giving written
notice to the Company in the form of Exhibit B to this Plan. All of the
participant's payroll deductions credited to his or her account will be paid to
such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made
during
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the Offering Period. If a participant withdraws from the Plan during an
Offering Period, he or she may resume participation for a subsequent Offering
Period by delivering to the Company a new subscription agreement at least
fifteen (15) business days prior to the Enrollment Date for such Offering
Period.
(b) Upon a participant's ceasing to be an Employee,
for any reason, he or she will be deemed to have elected to withdraw from the
Plan and the payroll deductions credited to such participant's account during
the Offering Period but not yet used to exercise the option will be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 14 hereof, and such participant's option will be
automatically terminated.
(c) A participant's withdrawal from an Offering
Period will not have any effect upon his or her eligibility to participate in
any similar plan which may hereafter be adopted by the Company.
11. Interest.
No interest or other increment shall accrue or be payable with
respect to any of the payroll deductions of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of Common Stock
which shall be made available for sale under the Plan shall be 6,000,000
shares, subject to adjustment upon changes in capitalization of the Company as
provided in Section 18 hereof. If on a given Exercise Date the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) No participant will have an interest or voting
right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under
the Plan will be registered in the name of the participant or in the name of
the participant and his or her spouse.
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13. Administration.
(a) Administrative Body. The Plan shall be
administered by the Committee. The Committee shall have full and exclusive
discretionary authority to construe, interpret and apply the terms of the Plan,
to determine eligibility and to adjudicate all disputed claims filed under the
Plan. Every finding, decision and determination made by the Committee shall,
to the full extent permitted by law, be final and binding upon all parties.
Members of the Committee shall not be permitted to participate in the Plan.
(b) Rule 16b-3 Limitations. Notwithstanding the
provisions of Subsection (a) of this Section 13, in the event that Rule 16b-3
promulgated under the Exchange Act, or any successor provision, provides
specific requirements for the administrators of plans of this type, the Plan
shall be only administered by such a body and in such a manner as shall comply
with the applicable requirements of Rule 16b-3. Unless permitted by Rule
16b-3, no discretion concerning decisions regarding the Plan shall be afforded
to any committee or person that is not "disinterested" as that term is used in
Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of
a beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares or cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option.
(b) Such designation of beneficiary may be changed
by the participant at any time by written notice. In the event of the death of
a participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant.
15. Transferability. Neither payroll deductions credited
to a participant's account nor any rights with regard to the exercise of an
option or to receive shares under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution or as provided in Section 14 hereof) by the
participant. Any such
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attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or
held by the Company under the Plan may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
17. Reports. Individual accounts will be maintained for
each participant in the Plan. Statements of account will be given to
participating Employees at least annually, within such time as the Committee
may reasonably determine, which statements will set forth the Purchase Price,
the number of shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization.
(a) Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the Reserves as well as the
price per share of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Offering Period will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee.
(c) Merger or Asset Sale. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another
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corporation, each option under the Plan shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Committee determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Committee shortens the
Offering Period then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Committee shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for his option has been changed to the
New Exercise Date and that his option will be exercised automatically on the
New Exercise Date, unless prior to such date he has withdrawn from the Offering
Period as provided in Section 10 hereof. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the
Committee may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders
of Common Stock in the sale of assets or merger.
The Committee may, if it so determines in the exercise of its
sole discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its outstanding
Common Stock, and in the event of the Company being consolidated with or merged
into any other corporation.
19. Amendment or Termination.
(a) The Board may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18
-11-
<PAGE> 12
hereof, no such termination may adversely affect options previously granted;
provided, that an Offering Period may be terminated by the Board on any
Exercise Date if the Board determines that the termination of the Plan is in
the best interests of the Company and its stockholders. Except as provided in
Section 18 hereof, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Rule 16b-3 or Section 423 of the Code (or any
successor rule or provision or any other applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as required.
(b) Without stockholder consent and without regard
to whether any participant rights may be considered to have been "adversely
affected," the Committee shall be entitled to change the Offering Periods,
limit the frequency or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess of
the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld
from the participant's Compensation, and establish such other limitations or
procedures as the Committee finds, in its sole discretion, advisable and
consistent with the Plan.
20. Notices. All notices or other communications by a
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not
be issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
-12-
<PAGE> 13
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years thereafter unless sooner terminated under Section 19 hereof.
23. Additional Restrictions of Rule 16b-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
Insiders shall comply with the applicable provisions of Rule 16b-3. This Plan
shall be deemed to contain, and such options shall contain, and the shares
issued upon exercise thereof shall be subject to, such additional conditions
and restrictions as may be required by Rule 16b-3 to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
-13-
<PAGE> 14
LEHMAN BROTHERS HOLDINGS INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Original Application Enrollment Date:
- -- --------------
Change in Payroll Deduction Rate
- --
Change of Beneficiary(ies)
- --
1. hereby elects to
------------------------------------------
participate in the Lehman Brothers Holdings, Inc. 1994 Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of % (a whole number not to exceed 10%) of my Compensation on
------
each payday during the Offering Period in accordance with the Employee
Stock Purchase Plan. (Please note that no fractional percentages are
permitted.)
3. I understand that said payroll deductions will be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option on the Exercise Date.
4. I have received a copy of the complete "Lehman Brothers Holdings Inc.
1994 Employee Stock Purchase Plan." I understand that my
participation in the Employee Stock Purchase Plan is in all respects
subject to the terms of the Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse
Only):
---------------------------------------------------------------
----------------------------------------------------------------------.
6. I understand that, under current Federal income tax law, if I dispose
of any shares received by me pursuant to the Plan within two years
after the Enrollment Date (i.e., within two years after the first day
of the Offering Period during which I purchased such shares), I will
be treated for tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were
<PAGE> 15
delivered to me over the price which I paid for the shares. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain. I hereby agree to notify the Company in
writing within 30 days after the date of any disposition of my shares
and I will make adequate provision for federal, state or other tax
withholding obligations, if any, which arise upon the disposition of
the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation, including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase
Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
Name: (Please Print)
- --------------------------------------------------------------------
(Last) (First) (Middle)
- -------------------- ----------------------------------
Relationship
----------------------------------
(Address)
-2-
<PAGE> 16
Employee's Social
Security Number: ----------------------------------
Employee's Address: ----------------------------------
----------------------------------
----------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME IN WRITING IN ACCORDANCE
WITH THE EMPLOYEE STOCK PURCHASE PLAN.
Dated:
--------------- ----------------------------------
Signature of Employee
Dated:
--------------- ----------------------------------
Spouse's Signature (if beneficiary
other than spouse)
<PAGE> 17
LEHMAN BROTHERS HOLDINGS INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the
Lehman Brothers Holdings Inc. 1994 Employee Stock Purchase Plan (the "Plan")
which began on , 19 (the "Enrollment Date") hereby notifies
--------------- --
the Company that he or she hereby withdraws from the Offering Period. The
undersigned hereby directs the Company to pay to the undersigned as promptly as
practicable all the payroll deductions credited to his or her account with
respect to such Offering Period. The undersigned understands and agrees that
his or her option for such Offering Period will be automatically terminated.
The undersigned understands further that no further payroll deductions will be
made for the purchase of shares in the current Offering Period and the
undersigned shall thereafter be eligible to participate in succeeding Offering
Periods only by delivering to the Company a new Subscription Agreement within
the time period set forth in Section 10 of the Plan.
Name and Address of Participant
----------------------------------
----------------------------------
----------------------------------
Signature
----------------------------------
Date:
-----------------------------
<PAGE> 1
LEHMAN BROTHERS INC.
PARTICIPATING PREFERRED PLAN
August 25, 1993
--------------------------------------------------------------
<PAGE> 2
Table of Contents
Lehman Brothers Inc. Participating Preferred Plan
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION 1
- ------------
PART I - OPERATION OF THE PLAN 1
---------------------
1.1 Crediting of Interests in the 1
-----------------------------
EBP; Annual Crediting
---------------------
1.2 Vesting and Forfeiture of Amounts 2
---------------------------------
Credited to the Participants' PPP
---------------------------------
Accounts
--------
1.2(a) Vesting of Amounts Credited to PPP 2
----------------------------------
Accounts on the Effective Date
------------------------------
1.2(b) Vesting of New Accretions 2
-------------------------
1.2(c) Forfeitures and Resultant Transactions 2
--------------------------------------
(i) Forfeiture 2
----------
(ii) Forfeiture of New Accretion 2
---------------------------
1.3 Payment of Amounts Credited to the 2
----------------------------------
Participants' PPP Accounts
--------------------------
1.3(a) In Service 2
----------
(i) Payment at Any Time 2
-------------------
(ii) Payment Procedure 3
-----------------
1.3(b) Seniority Payout 4
----------------
1.3(c) Termination of Employment 4
-------------------------
1.4 Notional Computervision Stock 5
-----------------------------
PART II - GENERAL ADMINISTRATIVE PROVISIONS 6
---------------------------------
2.1 Administration 6
--------------
2.1(a) General 6
-------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
2.1(b) Adjustments 6
-----------
2.2 The Company as Payor; Status of Participants 6
--------------------------------------------
as Unsecured, Subordinated Creditors;
-------------------------------------
Expenses
--------
2.3 Agreements with Participants 7
----------------------------
2.3(a) Agreement to be Bound 7
---------------------
2.3(b) Designation of Beneficiaries 7
----------------------------
2.4 Government Regulations 7
----------------------
2.5 Withholding Taxes 8
-----------------
2.6 Applicable Law 8
--------------
2.7 Rights of Participants 8
----------------------
2.8 Non-Transferability of Rights 9
-----------------------------
2.9 Amendment of the Plan 9
---------------------
2.10 Termination of the Plan 9
-----------------------
2.10(a) In General 9
----------
2.10(b) Consequences of Termination of the Plan 9
---------------------------------------
2.11 Severability 9
------------
2.12 Certain Rights of Participants 10
------------------------------
2.13 Actions and Decisions Regarding the 10
-----------------------------------
Business or Operations of the Company,
--------------------------------------
Holdings, and any of their Affiliates
-------------------------------------
2.14 Offset 11
------
2.15 Notices 11
-------
2.16 Arbitration 11
-----------
2.17 Adjustments for Non-U.S. Participants 12
-------------------------------------
2.18 Governing Document 12
------------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
PART III - DEFINITIONS 13
3.1 Affiliates 13
----------
3.2 Average Annual Risk-Adjusted Equity 13
-----------------------------------
3.3 Beneficiary 13
-----------
3.4 Cause 13
-----
3.5 Disability 14
----------
3.6 Early Retirement 14
----------------
3.7 Finance Committee 14
-----------------
3.8 Governmental Service 14
--------------------
3.9 Holdings 14
--------
3.10 Lehman Brothers Division 14
------------------------
3.11 Net Income 14
----------
3.12 Normal Retirement 14
-----------------
3.13 Participant 14
-----------
3.14 PPP Account 15
-----------
3.15 Quarter 15
-------
3.16 RORAE 15
-----
3.17 Year 15
----
3.18 Miscellaneous 15
-------------
3.19 Other Defined Terms 15
-------------------
</TABLE>
<PAGE> 5
LEHMAN BROTHERS INC. PARTICIPATING PREFERRED PLAN
Introduction
The Lehman Brothers Inc. Participating Preferred Plan (the
"Plan") is intended to motivate and reward certain key employees of Lehman
Brothers Inc. (the "Company") by providing them with a compensation arrangement
whose value over time will be linked to the financial performance of the
Company and Holdings. Except as otherwise provided in Section 1.5 below, the
Plan is intended to amend and thereby replace the Lehman Brothers Equity Unit
and Bonus Plan (the "EBP"). Unless waived by the Finance Committee, the
effectiveness of the Plan is conditioned upon the consent of each Partner (as
defined in the EBP) to the amendment to the EBP made by the crediting of his
interests in the EBP to such Partner's PPP Account under the Plan.
Except where defined elsewhere in the Plan, all capitalized
terms used herein have the meanings assigned to them in Part III below.
PART I - OPERATION OF THE PLAN
1.1 Crediting of Interests in the EBP; Annual Crediting.
Effective as of January 1, 1993 (the "Effective Date"), the
notional cash value of all notional securities credited to the Equity Unit
Accounts (as defined in the EBP) of Partners as of such date shall be credited
to the PPP Accounts to be established by the Company for the Participants in
the Plan. Upon such crediting, each Partner in the EBP shall waive all rights
and claims under the EBP and shall become a Participant. All notional amounts
credited to the PPP Accounts of the Participants shall be credited with a fixed
return (the "Fixed Return") at a rate of 12% per annum, payable in cash on or
as soon as practicable following the end of each Quarter. In addition, as of
each January 1 following the close of a Year, the balance in the PPP Accounts
of Participants on such date shall be credited or debited, as the case may be,
with notional income equivalents (the "New Accretions") equal to the RORAE for
such Year multiplied by the then outstanding balance in the PPP Account.
Except as a result of New Accretions, no amounts shall be credited to PPP
Accounts (by reason of new deferrals or otherwise) after the Effective Date.
<PAGE> 6
2
1.2 Vesting and Forfeiture of Amounts Credited to the
Participants' PPP Accounts.
1.2 (a) Vesting of Amounts Credited to PPP Accounts on
the Effective Date. All unvested amounts credited to a Participant's PPP
Account as of the Effective Date shall vest on January 1, 1995.
1.2 (b) Vesting of New Accretions. All New Accretions
credited to a Participant's PPP Account under Section 1.1 above shall vest on
the first anniversary of the effective date of the crediting thereof to the
Participant's PPP Account. If New Accretions result in a debit to a
Participant's PPP Account, such debit shall take effect immediately as of the
January 1 following the Year to which such New Accretion relates.
1.2 (c) Forfeitures and Resultant Transactions.
(i) Forfeiture. Except as the Finance Committee may
determine otherwise in its discretion, any unvested amounts credited to
a Participant's PPP Account as of the last day of the Quarter coincident
with or immediately preceding the date of a termination of the
Participant's employment with the Company or any of its Affiliates (such
date being hereinafter referred to as the "Forfeiture Date"), other than
an involuntary termination of employment without Cause or a termination
of employment due to Normal or Early Retirement, Disability, death or
Governmental Service, shall be forfeited as of the Forfeiture Date. All
unvested amounts credited to a terminating Participant's PPP Account
that are not forfeited pursuant to this Section 1.2(c)(i) shall vest as
of the Forfeiture Date.
(ii) Forfeiture of New Accretion. Upon the forfeiture of
any amounts pursuant to this Section 1.2(c), the relevant terminating
Participant shall forfeit all rights to any New Accretion with respect
to the forfeited portion of his PPP Account for the Year in which the
relevant Forfeiture Date occurs.
1.3 Payment of Amounts Credited to the Participants' PPP
Accounts.
1.3 (a) In Service.
(i) Payment at Any Time. All or any portion of amounts
credited to a Participant's' PPP Account may be paid out by the Company
at any time at the election of the Finance Committee. The effective
date of such payout
<PAGE> 7
3
shall be the end of the Quarter coincident with or immediately preceding
the Quarter in which such determination to pay out occurs (such
effective date of payment being hereinafter referred to as the
"In-Service Payment Date").
(ii) Payment Procedure. A payment of the amounts credited
to a Participant's PPP Account shall be effected as follows:
(A) such Participant shall be paid in cash any
unpaid Fixed Return for the Quarter ending on the In-Service
Payment Date and for the portion of the succeeding Quarter ending
on the date of the lump sum payment or first installment payment,
as the case may be, described in clause (C)(y) below;
(B) such Participant shall be credited or debited
with a New Accretion on the amount so paid out, calculated (if
the In-Service Payment Date is not the end of a Year) as if the
current Year ended on the In-Service Payment Date (which New
Accretion shall be simultaneously paid out as described in clause
(C) below); and
(C) such Participant shall have a right to receive
a cash payment from the Company, subject to the vesting schedule
and forfeiture terms applicable to the payment amount, which cash
payment shall be:
(x) in an amount equal to the notional
dollar value of the amount credited to the
Participant's PPP Account (including the New Accretion
described in clause (B) of this Section 1.3(a)(ii)), as
of the In-Service Payment Date; and
(y) paid, at the election of the Finance
Committee, either (I) in a lump sum or (II) in
three equal installments, the first of which shall be
paid on a date promptly following the In-Service Payment
Date (but in no event earlier than the calculation of
RORAE for the portion of the Year ending on the
In-Service Payment Date) and the second and third of
which shall be paid on or as soon as practicable
following the first and second anniversaries of the
first installment payment, respectively. On each of the
second and third installment payment dates, interest at
a rate of 8% per annum shall be paid on the entire
amount outstanding immediately prior to such installment
payment date, calculated from the immediately preceding
installment payment date.
<PAGE> 8
4
1.3 (b) Seniority Payout. Effective immediately
following the close of the Year in which a Participant who has participated in
the Plan (or the EBP and the Lehman Brothers Equity Program) for two full Years
and is an employee of the Company or any of its Affiliates has attained age 52
and of each Year thereafter (provided that he remains an employee of the
Company or any of its Affiliates throughout such Year), one tenth (or one
fifth, in the case of each such Year beginning with the Year in which the
Participant attains age 57) of the notional dollar value of such Participant's
vested amount credited to his PPP Account (after payment of Fixed Returns and
taking into account the crediting or debiting of New Accretions with respect to
the Year just ended), shall be paid in cash to such Participant on or as soon
as practicable following the effective date of such payout and the PPP Account
of such Participant shall be debited accordingly. Notwithstanding anything
contained in this Section 1.3(b) to the contrary, no payments hereunder shall
occur until after the close of 1993, regardless of whether a Participant has
attained the age of 52 or 57 during 1993.
1.3 (c) Termination of Employment. Upon the
termination of a Participant's employment with the Company or any of its
Affiliates for any reason, all amounts credited to the Participant's PPP
Account (after taking into account any forfeitures of unvested amounts pursuant
to Section 1.2) shall be paid out. Such amounts shall be paid out effective as
of the end of the Quarter coincident with or preceding the date on which such
termination of employment occurs (such date being hereinafter referred to as
the "Termination Payment Date"), in which case:
(i) such Participant shall be paid in cash any unpaid
Fixed Return for the Quarter ending on the Termination Payment Date;
(ii) such Participant shall be credited or debited with a
New Accretion on the payout amounts calculated (if the Termination
Payment Date is not the end of a Year) as if the current Year ended on
the Termination Payment Date (which New Accretion shall be
simultaneously paid out as described in clause (iii) below); and
(iii) the amount payable by the Company in connection with
such payouts:
<PAGE> 9
5
(A) shall be the notional dollar value of the
amounts credited to the Participant's PPP Account (including the
New Accretion described in clause (ii) above, unless such New
Accretion is forfeited pursuant to the provisions of Section 1.2
above), as of the Termination Payment Date; and
(B) shall be paid in cash, at the election of the
Finance Committee, either (x) in a lump sum as soon as
practicable following the Participant's date of termination of
employment or (y) in three equal installments as soon as
practicable following the Participant's date of termination of
employment and as of the first and second anniversaries of such
date. On each installment payment date, interest at a rate of
8% per annum shall be paid on the entire amount outstanding
immediately prior to such installment payment date, calculated
from the Termination Payment Date (in the case of the first
installment payment date), and from the immediately preceding
installment payment date (in the case of the second and third
installment payment dates).
1.4 Notional Computervision Stock.
Notwithstanding the termination of the EBP and anything
contained in the Plan to the contrary, the Notional Computervision Stock (as
defined in the EBP) shall continue to be subject to the same terms as were
previously applicable under the EBP, which terms are hereby incorporated in the
Plan as if the relevant provisions of the EBP (including provisions of the EBP
referred to in such provisions) remained in full force and effect (but only
with respect to such Notional Computervision Stock); provided, however, that
upon the occurrence of an event that would otherwise result in the crediting of
Phantom Participating Preferred Stock (as defined in the EBP) in respect and in
lieu of Notional Computervision Stock under the terms of the EBP, the amount
that would otherwise be so credited shall instead be credited hereunder to the
PPP Account of the relevant Participant.
<PAGE> 10
6
PART II - GENERAL ADMINISTRATIVE PROVISIONS
2.1 Administration.
2.1 (a) General. The terms of the Plan shall be
administered, interpreted (which shall include the power to supply any omission
and reconcile any inconsistencies) and adjusted, as appropriate, by the Finance
Committee. Any action taken or determination made by the Finance Committee
which has been assigned to the Finance Committee pursuant to the terms of the
Plan shall be within its sole discretion and shall be final and binding on all
interested parties. The Finance Committee shall have no liability to any
Participant (or his Beneficiaries or heirs) under the Plan or otherwise on
account of any action taken, or not taken, or any determination made in good
faith by the Finance Committee pursuant to the terms of the Plan or authority
delegated to it under the Plan.
2.1 (b) Adjustments. In addition, the Finance
Committee may make adjustments to the terms of the Plan and its applicability
to any Participant which, in its discretion, it deems equitable and necessary
in order to preserve the economic rights and expectations of the Participants,
Holdings and the Company hereunder, in the event that:
(i) there occurs an event such as a merger, sale of
substantially all of the assets of, or a consolidation, reorganization
or other restructuring of Holdings or the Company; or
(ii) any anticipated benefits of deferral under, or other
aspects of, the Plan are altered by reason of any interpretation of or
change in applicable laws, governmental regulations or accounting rules;
provided, however, that any rights under Section 2.12 may not be materially
adversely affected without such Participant's written consent.
2.2 The Company as Payor; Status of Participants as
Unsecured, Subordinated Creditors; Expenses.
The Company is the sponsor and legal obligor under the Plan, and
shall make all payments hereunder. Nothing herein is intended to restrict the
Company from charging an Affiliate that employs a Participant for all or a
portion of the payments made by the Company hereunder to such Participant. The
Company shall not be required to establish
<PAGE> 11
7
any special or separate fund or to make any other segregation of assets to
assure the payment of any amounts under the Plan, and rights to payment
hereunder shall be no greater than the rights of the Company's unsecured,
subordinated creditors, and shall be subordinated to the claims of the
customers and clients of the Company. As a condition to participation in the
Plan, each Participant shall agree that, in the event the Finance Committee
concludes that the obligation of the Company under the Plan should qualify as
subordinated capital of the Company for regulatory purposes, such Participant
shall execute from time to time such subordinated debt agreements, and shall
consent to such modifications to the Plan, as the Finance Committee may
determine are necessary or appropriate in order to ensure that the Company's
obligations so qualify. Unless waived by the Finance Committee, any failure to
execute any such agreement or to consent to any such modification shall result
in the forfeiture of the Participant's PPP Account. All expenses involved in
administering the Plan shall be borne by the Company.
2.3 Agreements with Participants.
2.3 (a) Agreement to Be Bound. By becoming a
Participant in the Plan, each Participant (and each person claiming under or
through a Participant) shall be conclusively bound by the terms of the Plan and
any action taken or not taken under the Plan by the Company, Holdings, or the
Finance Committee.
2.3 (b) Designation of Beneficiaries. The Finance
Committee shall create a procedure whereby a Participant may file, on a form to
be provided by the Finance Committee, a written election designating one or
more Beneficiaries with respect to the vested portion of such Participant's PPP
Account in the event of the Participant's death. The Participant may amend
such Beneficiary designation in writing at any time prior to the Participant's
death, without the consent of any previously designated Beneficiary (to the
extent permitted by law); provided, however, that such amended designation
shall not be effective unless and until received by the duly authorized
representative of the Company prior to the Participant's death.
2.4 Government Regulations.
All transactions and all amounts payable by the Company under
the Plan shall be contingent upon compliance with any and all applicable
federal, state, local and foreign
<PAGE> 12
8
laws and rules and regulations of any regulatory or self-regulatory body in
effect at the time, as deemed necessary or desirable by the Finance Committee.
No changes to the Plan that are necessary in order to comply with such laws,
rules or regulations shall be deemed to violate the Participants' rights
protected under Section 2.12, provided that the Company takes all reasonable
steps necessary to provide the Participants with the benefits intended under
the Plan.
2.5 Withholding Taxes.
The Company may make such provisions and take such steps as it
may deem necessary or appropriate for the withholding of any taxes which the
Company or any of its Affiliates is required by any law or regulation of any
governmental authority, whether federal, state, local or foreign, to withhold
in connection with amounts credited or payments made pursuant to the Plan,
including, but not limited to, (a) the withholding of funds or other property
(or any portion thereof) until the Participant reimburses the Company or such
Affiliate for the amount that is required with respect to such taxes, (b) the
cancelling of any portion of such crediting or payment in an amount sufficient
to reimburse itself or such Affiliate for the amount of taxes required to be
withheld, or (c) the withholding of appropriate sums from any amount otherwise
credited or payable to the Participant (or his Beneficiary).
2.6 Applicable Law.
The Plan and all actions taken hereunder shall be governed by,
and construed in accordance with, the substantive laws, but not the choice of
law rules, of the State of New York, except that any subordination provisions
included for regulatory purposes shall be governed by, and construed in
accordance with, the Constitution and Rules of the New York Stock Exchange,
Inc.
2.7 Rights of Participants.
No employee or other person shall have any claim or right to a
Fixed Return or a New Accretion or other credits, debits or payments under the
Plan except as expressly provided herein and neither the Plan nor any action
taken under (or inaction involving) the Plan shall be construed as (a) giving
any employee any right to be retained in the employ of the Company or any of
its Affiliates or (b) affecting the right of any of the above-mentioned
entities to terminate the employment of any individual with or without
<PAGE> 13
9
Cause. Notwithstanding anything that may be to the contrary herein, no
relationship is intended between the Company or any Affiliate and any
Participant under the Plan other than that of employer and employee (and, in
particular, no partnership or other organization among the Company, any
Affiliate of the Company or any Participant is intended) and no position to the
contrary shall be taken for any purpose.
2.8 Non-Transferability of Rights.
Except as previously provided hereunder, a Participant's rights
and interest under the Plan may not be assigned or transferred in whole or in
part either directly or by operation of law or otherwise (except in the event
of the Participant's death) including, but not by way of limitation, execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and
no such right or interest of any Participant under the Plan shall be subject to
any obligation or liability of such Participant other than any obligations or
liabilities owed by such Participant to the Company, Holdings or their
respective Affiliates.
2.9 Amendment of the Plan.
The Finance Committee may amend the Plan at any time or from
time to time. However, no amendment of the Plan shall materially adversely
affect any rights described in Section 2.12, without an affected Participant's
written consent.
2.10 Termination of the Plan.
2.10 (a) In General. Notwithstanding any other
provision herein that may be to the contrary, the Plan is subject to
termination at any time by action of the Finance Committee.
2.10 (b) Consequences of Termination of the Plan. In
the event of a termination of the Plan, the Company shall effect an in service
redemption of the amounts credited to each Participant's PPP Account in
accordance with Section 1.3(a) above.
2.11 Severability.
The invalidity or unenforceability of any one or more provisions
of the Plan (or any portion thereof) shall not affect the validity or
enforceability of any other provision of the Plan (or any portion thereof),
which shall remain in full force and effect.
<PAGE> 14
10
2.12 Certain Rights of Participants.
Subject to the Finance Committee's ability to amend the Plan
pursuant to Section 2.9, to terminate the Plan in accordance with Section 2.10
or to adjust the terms of the Plan as provided expressly elsewhere under the
Plan, none of the following rights of a Participant may be materially adversely
affected by any adjustment, amendment or termination of the Plan without such
Participant's written consent:
(a) the right to vest in, or to become free of transfer
restriction with respect to, any amounts credited to the Participant's
PPP Account under the Plan, as of the date of such adjustment, amendment
or termination, based on (i) his continued service (if any) with the
Company and any of its Affiliates and (ii) the vesting, forfeiture and
transfer restriction provisions of the Plan as in effect prior to such
adjustment, amendment or termination; and
(b) the right to receive Fixed Returns and New Accretions
with respect to all amounts credited to his PPP Account as of the date
of such adjustment, amendment or termination, based on the terms of the
Plan as in effect prior to such adjustment, amendment or termination.
Furthermore, Sections 2.9, 2.10, and 2.12 shall not be adjusted or amended in
any way that would have a material adverse effect on a Participant without the
consent of the affected Participant. Nothing in this Section 2.12 shall be
construed to confer a right to remain employed by the Company or any of its
Affiliates or otherwise affect the application of Section 1.3(a) or Section 2.7
above.
2.13 Actions and Decisions Regarding the Business or
Operations of the Company, Holdings, and any of their Affiliates.
Notwithstanding anything in the Plan to the contrary, neither the
Company nor Holdings, nor any of their respective Affiliates nor their
respective officers, directors, employees or agents shall have any liability to
any Participant (or his Beneficiaries or heirs) under the Plan or otherwise on
account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company,
Holdings or any of their respective Affiliates.
<PAGE> 15
11
2.14 Offset.
Subject to applicable law, any amounts payable to any Participant
hereunder as credited to the Participant's PPP Account are subject to reduction
to satisfy any liabilities owed to the Company, Holdings or any of their
respective Affiliates by the Participant.
2.15 Notices.
The Finance Committee shall give each Participant prompt notice
of any credits, charges, adjustments, redemptions, forfeitures, reallocations
or other transactions affecting such Participant's PPP Account. The Company
shall maintain the PPP Accounts under the Plan and shall effect all credits and
debits to such PPP Accounts in accordance with the terms of the Plan under the
direction of the Finance Committee.
2.16 Arbitration.
Any dispute between a Participant and the Company, Holdings or
any of their respective Affiliates arising from or relating to the terms of the
Plan shall be submitted to arbitration under the auspices and in accordance
with the rules of the New York Stock Exchange, Inc. (or, in the case of any
such dispute between the Participants as a group and the Company, Holdings or
any of their respective Affiliates, the rules of the American Arbitration
Association (the "AAA")), and each Participant shall be deemed to have agreed
to such submission by becoming a Participant in the Plan. In the event of any
such dispute between the Participants as a group and the Company, Holdings or
any of their respective Affiliates, the party seeking relief shall give written
notice of its intention to seek resolution of such dispute to the other party.
The arbitral tribunal shall be appointed within 30 days of the notice of
dispute, and shall consist of three arbitrators, one of which shall be
appointed by Holdings (or the Company or the relevant Affiliates, as the case
may be), one by the Participants as a group (which first two arbitrators shall
have knowledge of the securities industry and familiarity with the compensation
practices of such industry), and the third jointly by such two arbitrators;
provided, however, that, if such two arbitrators shall be unable to select the
third arbitrator within such 30-day period, such third arbitrator shall be
chosen by the AAA as soon as practicable following notice to the AAA by such
two arbitrators of their inability to choose such third arbitrator; and
provided further that in the case of a third arbitrator so chosen by the AAA,
such third arbitrator shall be required to have knowledge of the securities
industry and be familiar with the compensation practices of such industry.
<PAGE> 16
12
2.17 Adjustments for Non-U.S. Participants.
The Finance Committee may approve such adjustments to the terms
of the Plan applicable to Participants who are subject to taxes in non-United
States jurisdictions as it deems appropriate in order to accomplish the
purposes of the Plan.
2.18 Governing Document.
The Plan (including any instruments or documents expressly
referred to herein) contains all of the terms and conditions of the program
described herein and shall be its sole governing document and authority, and
shall supersede all prior descriptions or understandings, both written and
oral, with respect to the subject matter of the Plan.
<PAGE> 17
13
PART III - DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth below:
3.1 "Affiliates" of a person means any enterprise (whether a
corporation, partnership, joint venture or other business or
legal entity) controlling, controlled by or under common control
with such person.
3.2 "Average Annual Risk-Adjusted Equity" means, for any given Year,
the sum of the total risk-adjusted equity (or the equivalent
thereof) of Lehman Brothers Division (with respect to 1993) or
Holdings (with respect to other Years) as of the first day of
such Year and as of the end of each month during such period
(each as determined by Holdings in accordance with United States
generally accepted accounting principles), divided by 13.
3.3 "Beneficiary" means the person or persons designated in writing
by a Participant under Section 2.3(b) above, or, in the absence
of an effective designation, or if such designated person shall
have died before the Participant, the legal representative of
the Participant's estate.
3.4 "Cause" means a material breach by a Participant of an
employment contract (if any) between the Participant and the
Company or an Affiliate, failure by a Participant to devote
substantially all business time exclusively to the performance
of his duties, willful misconduct, dishonesty related to the
business and affairs of his employer or an Affiliate of his
employer, conviction of a felony (or failure to contest
prosecution for a felony), habitual or gross negligence in the
performance of a Participant's duties or failure to
satisfactorily perform such duties after notification of such
failure and a reasonable opportunity to cure the same, the
violation of policies and practices adopted by his employer or
the parent of his employer or a material violation of the
conflict of interest, proprietary information or business ethics
policies of his employer or the parent of his employer.
<PAGE> 18
14
3.5 "Disability" shall have the meaning set forth in the Company's
Long-term Disability Program as in effect from time to time or
any successor thereto.
3.6 "Early Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after age
55 and ten full years of employment with not less than five full
years of participation in the Plan (including, for this purpose,
participation in the EBP and the Lehman Brothers Equity
Program).
3.7 "Finance Committee" means the Finance Committee of the Board of
Directors of Holdings, as constituted from time to time, or its
designee.
3.8 "Governmental Service" means full-time employment in an elective
or nonelective capacity with any federal or state government or
political subdivision thereof or any agency or instrumentality
thereof.
3.9 "Holdings" means Lehman Brothers Holdings Inc., a Delaware
corporation (and any successor corporation).
3.10 "Lehman Brothers Division" means the businesses of Lehman
Brothers as reflected in their Quarterly Financial Review as of
December 31, 1992, as such review may be amended as determined
by the President of Holdings.
3.11 "Net Income" means, for any given year, the after-tax net income
(or loss) of Lehman Brothers Division or Holdings, as the case
may be, for such Year, as determined by Holdings in accordance
with United States generally accepted accounting principles.
3.12 "Normal Retirement" means a Participant's termination of
employment with the Company and its Affiliates on or after 65
with not less than two full years of participation in the Plan
(including, for this purpose, participation in the EBP and the
Lehman Brothers Equity Program).
3.13 "Participant" means an employee of the Company or any of its
Affiliates who participates in the Plan.
<PAGE> 19
15
3.14 "PPP Account" means the bookkeeping account created and
maintained under the Plan for each Participant to or against
which deferred amounts are credited or charged pursuant to the
terms of the Plan.
3.15 "Quarter" means each calendar quarter during the term of the
Plan.
3.16 "RORAE" means, for any given Year, the Net Income of Holdings
for such Year (or the Net Income of Lehman Brothers Division, in
the case of 1993) divided by the Average Annual Risk-Adjusted
Equity of Holdings (or of Lehman Brothers Division, in the case
of 1993) for such Year.
3.17 "Year" shall mean each calendar year during the term of the Plan.
3.18 Miscellaneous. Where appropriate, all references in the Plan to
the masculine pronoun shall include the feminine, and all
references to the singular shall include the plural.
3.19 Other Defined Terms. The following terms are defined in the
Plan in the Section indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"AAA" 2.16
---
"Company" Introduction
-------
"EBP" Introduction
---
"Effective Date" 1.1
--------------
"Fixed Return" 1.1
------------
"Forfeiture Date" 1.2(c)
---------------
"In-Service Payment Date" 1.3(a)
-----------------------
"New Accretion" 1.1
-------------
"Notional Computervision Stock" 1.4
-----------------------------
"PPP Plan" Introduction
--------
"Termination Payment Date" 1.3(c)
------------------------
</TABLE>
<PAGE> 1
AMENDMENT TO THE
LEHMAN BROTHERS INC.
PARTICIPATING PREFERRED PLAN
AMENDMENT, effective as of April 29, 1994, to the Lehman Brothers Inc.
Participating Preferred Plan (the "Plan"). Capitalized terms herein and not
defined herein have the meanings assigned to them in the Plan.
W I T N E S S E T H:
WHEREAS, Section 2.9 of the Plan provides that the Finance Committee may
amend the Plan from time to time; and
WHEREAS, the Finance Committee has determined to amend the Plan as
hereinafter set forth, in order to provide for the termination of the Plan and
payment of all amounts credited to PPP Accounts under the Plan, as determined by
the Committee.
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 2.10 of the Plan is hereby amended by adding a new Section
2.10(c) as follows:
2.10(c). Termination of the Plan. Notwithstanding any other
provision of the Plan, the Plan shall terminate on such date as may be
designated by the Committee and, in connection with such termination, the
Company shall effect an in service redemption of each Participant's PPP
Account in accordance with Section 1.3(a) above; provided, however, that
(i) all unvested amounts credited to the Participant's PPP Account shall
vest and become nonforfeitable on the termination date designated by the
Committee, and (ii) the amount payable in accordance with Section 1.3(a)
shall be paid in the manner and at the time determined by the Committee.
<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
45,201,685 Shares of Common Stock
928 Shares of Redeemable Voting Preferred Stock
8,000,000 Shares of Cumulative Voting Preferred Stock
PURCHASE AND EXCHANGE AGREEMENT
May __, 1994
American Express Company
American Express Tower
World Financial Center
200 Vesey Street
New York, New York 10285
Ladies and Gentlemen:
Lehman Brothers Holdings Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with you with respect to the issuance
by the Company to you of an aggregate of 45,201,685 shares (as the same may be
adjusted in accordance with Section 2(a) hereof the "Common Shares") of the
Company's common stock, par value $0.10 per share ("Common Stock"), 928 shares
of the Company's Redeemable Voting Preferred Stock (the "Redeemable Preferred
Shares") and 8,000,000 shares of the Company's Cumulative Voting Preferred
Stock (the "Cumulative Preferred Shares" and, together with the Redeemable
Preferred Shares, the "Preferred Shares" and, together with the Redeemable
Preferred Shares and the Common Shares, the "Shares"). On the basis of the
representations, warranties and agreements herein contained, and upon the terms
and subject to the conditions herein set forth, the Company agrees to issue and
sell to you, and you agree to purchase from the Company, the Shares. Initially
capitalized terms not otherwise defined in this Agreement shall have the
definitions assigned thereto in the Certificate of Designations, Powers,
Preferences and Rights creating the Redeemable Preferred Shares, a copy of
which is attached hereto as Exhibit A (the "Redeemable
<PAGE> 2
Certificate"), and in the Certificate of Designations, Powers, Preferences and
Rights creating the Cumulative Preferred Shares, a copy of which is attached
hereto as Exhibit B (the "Cumulative Certificate" and, together with the
Redeemable Certificate, the "Certificates").
Section 1. Representations and Warranties.
(a) The Company represents and warrants to American Express
Company ("Amexco") that:
(i) The Company has been duly incorporated and is
validly existing and in good standing as a corporation under the laws of the
State of Delaware.
(ii) This Agreement has been duly authorized,
executed and delivered by the Company and is enforceable against the Company in
accordance with its terms, except as such enforceability may be affected by
bankruptcy and other similar laws affecting creditors' rights generally and by
general principles of equity.
(iii) The execution and delivery of this Agreement,
the issuance and delivery of the Shares, the consummation by the Company of the
transactions contemplated herein and compliance by the Company with the terms
of this Agreement and the Certificates, do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any significant
subsidiary thereof under (A) the Restated Certificate of Incorporation or
By-laws of the Company or (B) any existing applicable law, rule or regulation
or any judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its properties, except, with respect to this clause (B), such
conflicts, breaches, defaults or liens which individually and in the aggregate
will not have a material and adverse effect on the investment by Amexco
contemplated hereby or on Amexco's rights hereunder.
(iv) No filing, authorization, approval, consent,
order, registration, qualification or license of or with any court or
governmental regulatory body or authority (other than such consents, approvals,
authori-
2
<PAGE> 3
zations, registrations, qualifications or filings as have been made or
obtained or as may be required under the securities or blue sky laws of the
various states and other than the filing of the Certificates with the Secretary
of State of the State of Delaware) is required for (A) the valid authorization,
issuance, sale and delivery of the Shares, (B) the valid execution and delivery
by the Company of this Agreement or (C) the consummation by the Company of the
transactions contemplated in this Agreement, except, with respect to this
clause (C), filings and authorizations which may be required in connection with
the exercise of the registration rights referred to in Section 5 hereof.
(v) The Shares have been validly authorized and,
upon payment therefor as provided in this Agreement, will be validly issued and
outstanding, fully paid and nonassessable and free of preemptive rights, with
no personal liability attaching to the ownership thereof, and none of the
Shares will be subject to any lien, charge or encumbrance or any other claim of
any third party arising out of any act of the Company.
(vi) When issued, the Preferred Shares will have
such designation, preferences, limitations and relative rights as set forth in
the Certificates and such shares and such designation, preferences, limitations
and relative rights are valid under Delaware law. Except to the extent set
forth in the Investment Agreement, dated as of April 15, 1987, by and among
Amexco, the Company and Nippon Life Insurance Company, as such agreement has
been amended through the date hereof, no stockholders of the Company have any
preemptive or similar rights with respect to the Shares.
(vii) The Company does not have any Significant
Subsidiaries (as such term is defined in Rule 1-02 of Regulation S-X under the
Securities Act of 1933 (the "Act"), except for Lehman Brothers Inc., Lehman
Commercial Paper Inc. and Lehman Government Securities Inc. (the "Named
Subsidiaries").
(viii) Neither the Company nor any of the Named
Subsidiaries is in violation of its corporate charter or by-laws or in default
under any agreement, indenture or instrument, the effect of which violation or
3
<PAGE> 4
default would be material to the Company and its subsidiaries taken as a whole.
(b) Amexco represents and warrants to the Company that:
(i) Amexco has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the State of
New York.
(ii) This Agreement has been duly authorized,
executed and delivered by Amexco and is enforceable against Amexco in
accordance with its terms, except as such enforceability may be affected by
bankruptcy and other similar laws affecting creditors' rights generally and by
general principles of equity.
(iii) The execution and delivery of this Agreement
and the consummation by Amexco of the transactions contemplated herein and
compliance by Amexco with the terms of this Agreement do not and will not
conflict with, or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of Amexco or any
significant subsidiary thereof under (A) the Restated Certificate of
Incorporation, as amended, or By-laws of Amexco or (B) any existing applicable
law, rule or regulation or any judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over Amexco or any of its properties, except, with respect to this clause (B),
such conflicts, breaches, defaults or liens which individually and in the
aggregate will not have a material and adverse effect on the business of Amexco
and its subsidiaries taken as a whole.
(iv) No filing, authorization, approval, consent,
order, registration, qualification or license of or with any court or
governmental regulatory body or authority (other than such consents, approvals,
authorizations, registrations, qualifications or filings as have been made or
obtained) is required for (A) the valid execution and delivery by Amexco of
this Agreement or (B) the consummation by Amexco of the transactions
contemplated in this Agreement, except, with respect to this clause (B),
filings and authorizations as may be required
4
<PAGE> 5
in connection with the exercise of the registration rights referred to in
Section 5 hereof.
(v) Immediately prior to the Closing Date (as
defined below), Amexco will have good and valid title to the MMP Shares to be
transferred to the Company pursuant to Section 2 hereof, free and clear of all
liens, charges or encumbrances or any other claim of any third party arising
out of any act of Amexco (other than the interest of the Company therein
arising hereunder).
Section 2. Sale and Delivery to Amexco; Closing.
(a) At 10:00 A.M., New York City time, on May __, 1994, or
such other time or date agreed to by the parties hereto (the "Closing Date"),
delivery of certificates for the Shares, against receipt by the Company of the
consideration therefor, shall be made at the offices of the Company or such
other place as shall be agreed upon by Amexco and the Company. The
consideration for the issuance and sale of the Common Shares shall consist of
(i) in respect of 35,407,931 of the Common Shares, $903,839,657.00, or
approximately $25.52647 per share, in cash and (ii) in respect of 9,793,754 of
the Common Shares, the transfer by Amexco to the Company of all of Amexco's
right, title and interest in and to the 250 shares (the "MMP Shares") of the
Company's Money Market Cumulative Preferred Stock acquired from the Company by
Amexco pursuant to that certain Purchase Agreement, dated December 28, 1989,
between the Company and Amexco. The consideration for the issuance and sale of
the Redeemable Preferred Shares shall be $928.00, or $1.00 per share, in cash
and the consideration for the issuance of the Cumulative Preferred Shares shall
be $200,000,000.00, or $25.00 per share, in cash. Payment of the cash portion
of such consideration shall be made to the Company by wire transfer of
immediately available funds in the aggregate amount of $1,103,840,585.00 to
Account No. 056-23-787 maintained by the Company at Morgan Guaranty Trust
Company of New York (ABA routing number 021-000-238), and payment of the
noncash portion of such consideration shall be made by delivery to the Company
of the certificates represented by the MMP Shares, duly executed by Amexco for
transfer to the Company or accompanied by duly executed stock powers, in each
case, against delivery to Amexco of certificates representing the Shares. The
5
<PAGE> 6
number of Common Shares to be purchased and sold hereunder on the Closing Date
shall be subject to adjustment in the event that the actual reverse split ratio
referred to in the registration statement on Form S-1 of Holdings (File No.
33-52977) (the "Registration Statement") is other than 0.3179723, in which case
such number of shares shall equal that number determined utilizing the actual
reverse split ratio and the methodology heretofore employed in determining
share numbers for purposes of the Registration Statement.
(b) The certificates representing the Shares will be issued
in fully registered form and registered in the name of Amexco or its nominee in
accordance with the Company's Restated Certificate of Incorporation.
(c) Each certificate representing the Preferred Shares will
contain a legend stating that no sale, pledge, hypothecation or other transfer
of such Shares shall be made except in a transaction that is registered under
the Act or in a transaction that is not subject to, or that is exempt from, the
registration requirements of the Act. The Company will issue to Amexco or any
transferee of Amexco new certificates representing Shares which do not contain
such a legend if the Shares in question are sold pursuant to an effective
registration statement or pursuant to Rule 144.
Section 3. Covenants of the Company. The Company hereby
covenants and agrees as follows:
(a) On or prior to the Closing Date, the Certificates will be
filed with the Secretary of State of the State of Delaware without modification
to the forms thereof attached hereto as Exhibit A and Exhibit B.
(b) So long as Amexco or any of its affiliates is the holder
of any Shares, the Company will, if so requested, pay all dividends and other
sums becoming due on any of the Shares registered in the name of Amexco or any
affiliate of Amexco by wire transfer of immediately available funds to an
account designated in writing by such holder not less than 10 days preceding
the payment date thereof or by such other method as Amexco (or such affiliate)
shall have from time to time specified to the Company in writing at least 10
days prior to the date such payment shall be due. In addition, the Company
will
6
<PAGE> 7
agree to make payments on the Preferred Shares by wire transfer of immediately
available funds to any transferee from Amexco or an affiliate of Amexco (or
successive transferees from such a transferee) who so requests if such
transferee holds not less than 15% of the aggregate liquidation preference of
the Redeemable Preferred Shares or the Cumulative Preferred Shares at the time
outstanding. Upon request of Amexco, such affiliate or such a transferee, the
Company will enter into a written agreement with such transferee to the
foregoing effect.
Section 4. Conditions of Closing. The Company and Amexco
agree that the sale of the Shares shall be conditioned on and subject to the
accuracy on and as if made on the Closing Date of their respective
representations and warranties, performance of their respective covenants and
other obligations hereunder and to the following further conditions:
(a) Thomas A. Russo, Esq., counsel to the Company, shall have
furnished to Amexco his written opinion, dated the Closing Date, in form
reasonably satisfactory to Amexco and its counsel, to the effect that:
(i) the Company has been duly incorporated and is
validly existing and in good standing as a corporation under the laws of the
State of Delaware;
(ii) this Agreement has been duly authorized,
executed and delivered by the Company and is enforceable against the Company in
accordance with its terms (subject to customary exceptions);
(iii) the execution and delivery of this Agreement,
the issuance and delivery of the Shares, the consummation by the Company of the
transactions contemplated herein and compliance by the Company with the terms
of this Agreement and the Certificates do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the Named
Subsidiaries under (A) the Restated Certificate of Incorporation or By-laws of
the Company or (B) any material agreement, indenture or instrument or any
existing applicable law, rule or regu-
7
<PAGE> 8
lation (other than the securities or blue sky laws of the various states, as to
which such counsel need express no opinion) or any judgment, order or decree of
any court or governmental agency having jurisdiction over the Company, any of
the Named Subsidiaries or their property;
(iv) no filing, authorization, approval, consent,
order, registration, qualification or license of or with any court or
governmental regulatory body or authority (other than such consents, approvals,
authorizations, registrations, qualifications or filings as have been made or
obtained or as may be required under the securities or blue sky laws of the
various states) is required for (A) the valid authorization, issuance, sale and
delivery of the Shares, (B) the valid execution and delivery by the Company of
this Agreement or (C) the consummation by the Company of the transactions
contemplated in this Agreement, except, with respect to this clause (C),
filings and authorizations which may be required in connection with the
exercise of the registration rights referred to in Section 5 hereof;
(v) the certificates representing the Shares are in
due and proper form, and the Shares have been duly authorized and validly
issued and are fully paid and non-assessable, and no holder thereof will be
subject to personal liability by reason of being such a holder; the Preferred
Shares have such designation, preferences, limitations and relative rights as
set forth in the Certificates and the Preferred Shares and such designation,
preferences, limitations and relative rights are valid under Delaware law;
(vi) the Company does not have any Significant
Subsidiaries except for the Named Subsidiaries; and
(vii) neither the Company nor any of the Named
Subsidiaries is in violation of its corporate charter or By-laws or in default
under any agreement, indenture or instrument, the effect of which violation or
default would be material to the Company and its subsidiaries taken as a whole.
Such opinion, in addition, shall be to such further effect
with respect to other legal matters relat-
8
<PAGE> 9
ing to this Agreement and the issuance of the Shares hereunder as counsel to
Amexco may reasonably request.
(b) Counsel to Amexco shall have been furnished with all such
documents, certificates and opinions as they may reasonably request for the
purpose of enabling them to pass upon the issuance of the Shares and the
issuance and delivery of the Shares as herein contemplated and in order to
evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company, the performance of any of the
covenants of the Company, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company at or prior to the Closing
Date in connection with the authorization, issuance and delivery of the Shares
as herein contemplated shall be reasonably satisfactory in form and substance
to Amexco and its counsel.
(c) Amexco shall have executed and delivered to the Company a
Purchaser's Agreement substantially in the form of Exhibit C hereto.
Section 5. Registration Rights. The Company and Amexco
hereby agree that the Company and Amexco shall have the rights and obligations
set forth in (a) Exhibit D hereto with respect to the Preferred Shares and (b)
the Registration Rights Agreement, dated as of May 1, 1987, between Amexco and
the Company, with respect to the Common Shares.
Section 6. Transfer of Shares.
(a) Amexco may transfer all or any of the Shares to any of
its majority owned subsidiaries, and such majority owned subsidiaries shall
have the same rights and obligations as Amexco under this Agreement.
(b) Amexco may, subject to Section 6(e) hereof, transfer at
any time or from time to time in a private placement any or all of the Shares,
and any such transferee of Amexco may, subject to Section 6(e) hereof, further
transfer such Shares to a subsequent transferee.
In connection with each such transfer by Amexco or a Qualified
Transferee (as defined in Section 6(g) hereof), the Company shall as
expeditiously as possible
9
<PAGE> 10
and at the Company's expense prepare and deliver a Private Placement Memorandum
(a "Memorandum") which contains such disclosure that, in the opinion of legal
counsel to the Company (which opinion and counsel shall be reasonably
acceptable to Amexco or such Qualified Transferee), is required by law and
which shall otherwise be in form and substance reasonably satisfactory to
Amexco or such Qualified Transferee; provided, however, that the aggregate
number of Memoranda required to be prepared and delivered with respect to any
class of the Preferred Shares plus the number of demand registrations with
respect to such class requested pursuant to the registration provisions
referred to in Exhibit D hereto shall not exceed six and provided further that
the Company shall not be required to prepare and deliver more than two
Memoranda in any period of 360 consecutive days.
The Company represents, warrants and covenants to Amexco or
such Qualified Transferee that neither the Memorandum nor any information
supplied for use in connection with the transfer of the Shares thereunder will
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that the
foregoing will not apply to statements or omissions made in reliance upon and
in conformity with information relating to Amexco or such Qualified Transferee,
or relating to the transaction pursuant to which such transfer is to be
effected, furnished in writing to the Company by or on behalf of Amexco or such
Qualified Transferee, as the case may be, expressly for use in the Memorandum.
Notwithstanding the foregoing, the Company shall be entitled to defer for a
reasonable period of time, but not in excess of 90 days (a "Blackout Period"),
the delivery to potential transferees of the Shares of any Memorandum otherwise
required to be prepared and delivered by it, if in the good faith judgment of
the General Counsel of the Company, the delivery to such potential purchasers
of a Memorandum at such time would require the disclosure of material
information which is confidential and which the Company has a bona fide
business purpose for preserving as confidential or the Company is unable to
comply with securities law requirements such as the preparation of pro forma
financial information; provided, however that not more than two such Blackout
Periods may be commenced during any period of 360 consecutive days.
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<PAGE> 11
If a Blackout Period is commenced, the Company shall promptly make such
delivery as soon as the conditions which permit it to delay such delivery no
longer obtain, but in no event later than such 90th day. If the anticipated
delivery date of a Memorandum falls after 45 days and within 90 days subsequent
to the end of a fiscal year, and the Company would be required under applicable
law to include in the Memorandum audited financial statements for its most
recently completed fiscal year, then the Company may delay the delivery of a
Memorandum for such period (up to 90 days after the end of such fiscal year) as
is reasonably necessary in the Company's judgment to include therein its
audited financial statements for such fiscal year.
(c) In connection with any transfer by Amexco or such
Qualified Transferee pursuant to Section 6(b) hereof, the Company shall
(i) furnish to Amexco or such Qualified Transferee
such number of copies of the Memorandum in preliminary and final form
(including any exhibits thereto or documents referred to therein) as Amexco or
such Qualified Transferee may reasonably request;
(ii) furnish to Amexco, addressed to it, to such
Qualified Transferee, addressed to it, and, if requested by the transferee of
the Shares, to the transferee, addressed to it, an opinion of counsel for the
Company, dated the date of the closing of the transfer, with respect to matters
customarily opined on by issuer's counsel in transactions involving the
issuance of securities in a private placement;
(iii) amend or supplement such Memorandum to the
extent that, in the opinion of legal counsel to the Company (which opinion and
counsel shall be reasonably acceptable to Amexco or such Qualified Transferee),
is necessary in order to comply with applicable securities laws;
(iv) promptly notify Amexco or such Qualified
Transferee of the happening of any event as a result of which the Memorandum
includes an untrue statement of any material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and prepare, file
11
<PAGE> 12
as appropriate and furnish to Amexco or such Qualified Transferee as promptly
as possible as many copies as Amexco or such Qualified Transferee shall
reasonably request of a supplement to or amendment of such Memorandum which
shall correct such untrue statement or eliminate such omission; and
(v) take such other actions and execute and deliver
such other documents as may reasonably be necessary to give full effect to the
rights of Amexco or such Qualified Transferee hereunder and to effect the
transfer of the Shares.
(d) In connection with each such transfer, the Company shall,
subject to Section 6(e) hereof, take such action as is required to effectuate
the registration of the transfer of such Shares in the stock register of the
Company.
(e) In the case of any transfer of Shares pursuant to Section
6(a) or 6(b) hereof, no such transfer shall be effective and the Company shall
not be obligated to register the transfer of such Securities in the stock
register of the Company unless and until the transferee executes and delivers
to the Company a Purchaser's Agreement substantially in the form of Exhibit C
hereto and, in the case of Section 6(b) hereof, furnishes the Company (if the
Company shall so request) with an opinion of its counsel to the effect that
such transfer may be effected without registration under the Act. In the case
of any transfer of Securities pursuant to Section 6(a) or 6(b) hereof, the
Company shall acknowledge in writing that such transferee shall have the rights
then applicable to such transferee as set forth herein.
(f) In connection with any private placement by Amexco or any
majority owned subsidiary of Amexco contemplated by Section 6(b) hereof, the
Company shall indemnify and hold harmless Amexco, such majority owned
subsidiary of Amexco and their respective officers and directors and each
person, if any, who controls any of the foregoing persons within the meaning of
the Act, contribute to their losses and reimburse them for expenses to the same
extent, and upon the same procedures set forth in, Section 5 of the
Registration Rights Agreement.
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<PAGE> 13
(g) As used in this Section 6, the term "Qualified
Transferee" means a transferee or subsequent transferee of any Shares who does
not receive, (A) within 10 Business Days of its request therefor to the
Company, an unqualified legal opinion from legal counsel to the Company (which
opinion and counsel shall be reasonably acceptable to such transferee) to the
effect that the transfer of Shares then contemplated by such transferee is
exempt from the provisions of Section 5 of the Act (or any successor provision)
and (B) prior to the time of such proposed transfer, an unqualified legal
opinion from its counsel to the effect that the transfer of Shares then
contemplated by such transferee is exempt from the provisions of Section 5 of
the Act (or any successor provision). Notwithstanding the foregoing, a
Qualified Transferee shall not include a transferee from any person other than
Amexco if such person was not a Qualified Transferee at the time of its
transfer to such transferee.
(h) The restrictions on transfer contained in this Section 6
shall not apply to any transfer pursuant to an effective registration
statement, or Rule 144, under the Act and in compliance with all applicable
state securities laws.
(i) For so long as the Company is subject to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), the
Company shall timely file the reports required to be filed by it thereunder
(including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 under the Act) and the
rules and regulations adopted by the Commission thereunder.
Section 7. Other Agreements. (a) Notwithstanding anything
to the contrary contained herein or in the Certificates, so long as Amexco or
any of its subsidiaries is the holder of any Preferred Shares, such shares
shall be voted for and against any proposal or matter submitted to a vote of
the holders of Voting Stock in the same proportion as the votes cast by the
holders of the Common Stock.
(b) For so long as Amexco and Nippon Life, or either of
them, hold in the aggregate all of the issued and outstanding Redeemable
Preferred Shares, for purposes
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<PAGE> 14
of Section 2(g) and Section 2(n)(ii) of the Redeemable Certificate, the fair
market value of any distribution, purchase or capital stock shall be determined
(A) jointly by the Company and the holders of a majority of the shares of
Redeemable Preferred Stock outstanding on the Calculation Date or (B) if the
Company and such holders cannot so agree, by a nationally recognized
independent investment banking firm (an "Independent Banker") selected by the
Company and such holders, or (C) if the Company and such holders cannot agree
on the selection of an Independent Banker, by an Independent Banker selected by
two Independent Bankers, one of which shall be selected by the Company and the
other selected by such Holders and all of the fees, costs and expenses incurred
in connection with the engagement of such Independent Banker(s) shall be paid
(x) by the Company if, as a result of such determination, a Designated Event is
deemed to have occurred or (y) by such holders in all other cases.
(c) On the Closing Date, the Company will pay to Amexco
by wire transfer of immediately available funds to an account designated by
Amexco at least two business days prior to the Closing Date the sum of
$5,000,000.00 (the "Base Amount"). If Amexco requests a registration pursuant
to Section 1(a) of Exhibit D hereto in connection with an underwritten offering
and selects Lehman Brothers Inc. (or any other affiliate of the Company) as the
lead underwriter of such offering, then notwithstanding Section 4 of Exhibit D
hereto, the aggregate underwriting discount in connection with such offering
shall not exceed the Base Amount.
(d) Prior to the Closing Date, the Company and American
Express shall execute and deliver such agreements and documents that expressly
provide for all agreements between the parties, not theretofore evidenced by a
writing, disclosed in the Registration Statement as being in effect on or prior
to the Distribution Date (as defined in the Registration Statement) including,
but not limited to the Balcor Notes and the set-off rights with respect thereto
referred to in the Registration Statement.
Section 8. Notices. Any notice by the Company to Amexco
shall be sufficient if given in writing delivered in person or by mail or
facsimile (No. (212) ____) addressed to Amexco at its address set forth above,
to
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<PAGE> 15
the attention of each of Treasurer and General Counsel, and any notice by
Amexco to the Company shall be sufficient if given in writing delivered in
person or by mail or facsimile (No. (212) _______) addressed to the Company at
3 World Financial Center, New York, New York 10285, to the attention of each of
Treasurer and Chief Legal Officer or such other address as any party may, from
time to time, designate in a written notice in a like manner. Notice given by
facsimile shall be deemed delivered on the business day after it is received by
the recipient. Notice given by mail as set out above shall be deemed delivered
five calendar days after the date the same is mailed.
Section 9. Binding Agreement. This Agreement shall be
binding upon Amexco, the Company and Amexco's and the Company's respective
successors. This Agreement and the terms and provisions hereof are for the
sole benefit of only those persons, except (a) as set forth in Section 6 hereof
and (b) that the representations, warranties, indemnities and agreements of the
Company contained in this Agreement shall also be deemed to be for the benefit
of any person or persons who control Amexco within the meaning of Section 15 of
the Act. Nothing in this Agreement is intended or shall be construed to give
any person, other than the persons referred to in this Section, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
Section 10. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of New York, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law.
Section 11. Injunctions. Irreparable damage would occur in
the event that any provision of this Agreement was not performed in accordance
with its specific terms or was otherwise breached. Therefore, the parties
hereto shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.
15
<PAGE> 16
Section 12. Severability. If any term or provision of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term or provision.
Section 13. Further Assurances. Subject to the specific
terms of this Agreement, each of Amexco and the Company shall make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby.
Section 14. Waivers, Etc. No failure or delay on the part of
Amexco or the Company in exercising any power or right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of any
other right or power. No modification, waiver, discharge or termination of any
provision of this Agreement nor consent to any departure by Amexco or the
Company therefrom shall in any event be effective unless the same shall be in
writing, and then shall be effective only in the specific instance and for the
purpose for which given.
Section 15. Miscellaneous. This Agreement constitutes the
entire agreement and understanding of the parties hereto with respect to the
matters and transactions contemplated hereby and supersedes all prior
agreements and understandings whatsoever relating to such matters and
transactions. The headings in this Agreement are for the purposes of reference
only and shall not limit or otherwise affect the meaning hereof. This
Agreement may be executed in counterparts, each of which shall constitute an
original, but all of which shall together constitute one instrument.
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<PAGE> 17
If the foregoing correctly sets forth our agreement, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement between the Company and Amexco.
Very truly yours,
LEHMAN BROTHERS
HOLDINGS INC.
By: ____________________
Name:
Title:
ACCEPTED at New York, New
York as of the date first
above written.
AMERICAN EXPRESS COMPANY
By:_______________________
Name:
Title:
17
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT dated as of May _,
1994, between AMERICAN EXPRESS COMPANY, a New York
corporation ("Amexco"), and LEHMAN BROTHERS HOLDINGS
INC., a Delaware Corporation ("Holdings").
WHEREAS, upon consummation of the transactions contemplated by
the Purchase and Exchange Agreement, dated May __, 1994, between Amexco and
Holdings (the "Purchase Agreement"), Amexco will be the owner of 8,000,000
shares (the "Cumulative Preferred Shares") of Cumulative Voting Preferred Stock
of Holdings and 928 shares (the "Redeemable Preferred Shares") of Redeemable
Voting Preferred Stock of Holdings; and
WHEREAS, Holdings is granting to Amexco the registration
rights set forth below with respect to the Cumulative Preferred Shares and the
Redeemable Preferred Shares (collectively, the "Amexco Securities").
NOW, THEREFORE, upon the premises and the mutual promises
herein contained, and for good and valuable consideration, the receipt and
adequacy of which is acknowledged, the parties agree as follows:
<PAGE> 2
1. Registration Rights.
(a) Demand Registration. If Amexco shall request
Holdings in writing to register under the Securities Act of 1933, as amended
(the "Act"), any Amexco Securities held by it or any transferee as defined in
Section 8 (whether for purposes of a public offering, an exchange offer or
otherwise), Holdings shall as expeditiously as possible prepare and file and
use its best efforts to cause to become effective as soon as practicable a
registration statement under the Act to effect the offering of the Amexco
Securities specified in such request in the manner specified in such request.
If Amexco shall so request and Holdings is then eligible to register such
Amexco Securities on Form S-3 (or a successor form), Holdings will register
such Amexco Securities for offering on a delayed or continuous basis pursuant
to Rule 415 (or any successor rule or rules to similar effect) under the Act.
If Amexco shall so request, Holdings shall, at the expense of Amexco, take such
actions as shall be necessary or appropriate to permit any Amexco Securities
specified in such request to be offered and sold in compliance with the
securities laws or other relevant laws of any European jurisdiction or in Japan
(including, without limitation, listing such
2
<PAGE> 3
Amexco Securities on any foreign securities exchange in Europe or in Japan on
which the Common Stock of Holdings is then listed) and shall otherwise
cooperate in a timely manner in such offering. Notwithstanding the foregoing,
Holdings shall be entitled to defer for a reasonable period of time, but not in
excess of 90 days (a "Blackout Period"), the filing of any registration
statement otherwise required to be prepared and filed by it if in the good
faith judgment of the General Counsel of Holdings, the filing of a registration
statement at such time would require the disclosure of material information
which Holdings has a bona fide business purpose for preserving as confidential
or Holdings is unable to comply with SEC requirements such as the preparation
of pro forma financial information; provided, however, that not more than two
such Blackout Periods may be commenced during any period of 365 consecutive
days. If a Blackout Period is commenced, Holdings shall promptly make such
filing as soon as the conditions which permit it to delay such filing no longer
obtain. In the event of any such deferral, Amexco shall have the right to
withdraw its request for registration and such withdrawn request shall not be
considered as a demand registration under this Section 1(a). The aggregate
number of times that Amexco
3
<PAGE> 4
(together with any transferees of Amexco) shall have the right to exercise
demand registration rights pursuant to this Section 1(a) with respect to either
class of the Amexco Securities plus the number of private placement memoranda
required to be prepared and delivered by Holdings with respect to such class
pursuant to Section 6(b) of the Purchase Agreement shall not exceed six, and
Amexco (together with any transferees of Amexco) shall have the right to
exercise demand registration rights pursuant to this Section 1(a) up to two
times during any period of 365 consecutive days.
(b) Condition to Exercise of Rights. The
obligations of Holdings under paragraph (a) of this Section 1 shall be subject
to the limitation that Holdings shall not be obligated to register or take
other specified actions with respect to Amexco Securities, unless the number of
shares specified in such request shall be at least 10% of the total number of
shares of such class at the time outstanding; provided, however, that such
limitation shall not apply in the case of a demand for registration if such
sale is necessary or advisable in the good faith judgment of the General
Counsel of Amexco in order to comply with any applicable law or any order of a
regulatory authority or court. If
4
<PAGE> 5
the anticipated effective date of a filing falls after 45 days and within 90
days subsequent to the end of a fiscal year, and Holdings would be required to
include in the registration statement audited financial statements for its most
recently completed fiscal year, then Holdings may delay the filing of a
registration statement for such period (up to 90 days after the end of such
fiscal year) as is reasonably necessary in Holdings' judgment to include
therein its audited financial statements for such fiscal year. In addition,
Holdings shall not be required to file a registration statement for Amexco
pursuant to this Section l until a period of 90 days shall have elapsed from
the effective date of the most recent previous registration for Amexco under
this Section 1.
(c) Piggyback Registration. If prior to May 1,
2001, Holdings shall propose to register any securities for public sale under
the Act, including any registration by Holdings of securities for the account
of another securityholder of Holdings, on a form and in a manner which would
permit registration of the Amexco Securities for sale to the public, then
Holdings shall give the President or Chief Financial Officer of Amexco prompt
notice of the proposed registration and shall include in such registration such
number of Amexco
5
<PAGE> 6
Securities as Amexco shall request within 15 business days after the giving of
such notice; provided, however, that Holdings may at any time prior to the
effectiveness of any such registration statement, in its sole discretion and
without the consent of Amexco, abandon the proposed offering in which Amexco
had requested to participate. Notwithstanding the foregoing, (i) Holdings
shall not be obligated to include such Amexco Securities in such offering if
Holdings is advised in writing by a recognized independent investment banking
firm selected by Holdings (with a copy to Amexco) that inclusion in such
offering of all or a specified number of such Amexco Securities requested to be
included therein would interfere with the successful marketing of the
securities (other than such Amexco Securities) in such offering; provided,
however, that Holdings shall in any case be obligated to include such number or
amount of Amexco Securities in such offering, if any, as such investment
banking firm shall determine will not so interfere with such marketing, and
(ii) Holdings shall not be obligated to effect any registration of such Amexco
Securities incidental to the registration by Holdings of any of its securities
in connection with mergers, acquisitions, exchange offers, subscription offers,
dividend
6
<PAGE> 7
reinvestment plans or stock option or other director or employee benefit plans.
(d) Conversion of Other Securities. etc. Should
Amexco offer any options, rights, warrants or other securities issued by it or
any other person that are offered with, convertible into or exercisable or
exchangeable for any Amexco Securities, Holdings' obligations under this
Section l shall be applicable to such securities to be purchased upon such
conversion, exercise or exchange or offered with such other securities.
(e) Third Person Shares. Holdings shall have the
right to cause the registration of additional securities for sale for the
account of any person in any registration of Amexco Securities requested by
Amexco pursuant to Section l(a), provided, that, Holdings shall not have the
right to cause the registration of such additional securities if (i) Amexco is
advised in writing (with a copy to Holdings) by a recognized independent
investment banking firm selected by Amexco that, in such firm's opinion,
registration of such additional securities would interfere with the successful
marketing of such Amexco Securities, or (ii) Amexco does not receive assurances
satisfactory to it that the person for
7
<PAGE> 8
whose account such additional securities are being registered will pay its pro
rata share of the registration expenses. Amexco may require that any such
additional securities be included in the offering proposed by Amexco on the
same terms and conditions as the Amexco Securities are included therein.
2. Covenants of Holdings. In connection with any
offering of Amexco Securities pursuant to this Agreement, Holdings shall
(a) furnish to Amexco such number of copies of
any preliminary, base, interim or final prospectus, registration statement,
offering memorandum or other offering document (including any exhibits thereto
or documents referred to therein) as Amexco may reasonably request and a copy
of any and all transmittal letters or other correspondence with the Securities
and Exchange Commission (the "SEC") or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any domestic
or foreign securities exchange) relating to such offering of Amexco Securities;
(b) use its best efforts to qualify such Amexco
Securities for offer and sale under the securities, "blue sky" or similar laws
of such
8
<PAGE> 9
jurisdictions (including Japan and any country in Europe or any political
subdivision thereof) as Amexco or any underwriter shall reasonably request and
use its best efforts to obtain all appropriate registrations, permits and
consents required in connection therewith, except that Holdings shall not for
any such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general service
of process in any such jurisdiction; provided that, in the case of any such
registration or qualification in any non-United States jurisdiction,
notwithstanding Section 4, Amexco shall pay all costs and expenses incurred by
Holdings in connection with such registration or qualification in such
jurisdiction;
(c) furnish to Amexco, addressed to it, (i) an
opinion of counsel for Holdings, dated the date of the closing of the offering
of Amexco Securities, and (ii) a "cold comfort" letter signed by the
independent public accountants who have certified Holdings' financial
statements included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included
9
<PAGE> 10
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as Amexco may reasonably request;
(d) furnish unlegended certificates representing
ownership of the Amexco Securities being sold in such denominations as shall be
requested by Amexco or the lead underwriter;
(e) promptly inform Amexco (i) in the case of any
offering of Amexco Securities in respect of which a registration statement is
filed under the Act, of the date on which such registration statement or any
post-effective amendment thereto becomes effective (and, in the case of an
offering abroad of Amexco Securities, of the date when any required filing
under the securities and other laws of such foreign jurisdictions shall have
been made and when the offering may be commenced in accordance with such laws)
and (ii) of any request by the SEC, any securities exchange, government agency,
self-regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement
10
<PAGE> 11
or preliminary prospectus or prospectus included therein or any offering
memorandum or other offering document relating to such offering;
(f) until the earlier of (i) such time as all of
the Amexco Securities being offered have been disposed of in accordance with
the intended method of disposition by Amexco set forth in the Registration
Statement or other offering document (and the expiration of any prospectus
delivery requirements in connection therewith) or (ii) the expiration of nine
months after such Registration Statement or other offering document becomes
effective (unless the offering is a continuous offering of securities under
Rule 415, in which case until the offering is completed), keep effective and
maintain any registration, qualification or approval obtained in connection
with the offering of the Amexco Securities, and amend or supplement the
registration statement or prospectus or other offering document used in
connection therewith to the extent necessary in order to comply with applicable
securities laws and immediately notify Amexco of any such amendment or
supplement;
(g) use its best efforts to have such Amexco Securities
listed on any domestic and foreign securities exchanges as to which Amexco
shall request such listing;
11
<PAGE> 12
provided, however, that in the case of any such listing on any foreign
securities exchange, notwithstanding Section 4, Amexco shall pay all costs and
expenses incurred by Holdings in connection with such listing;
(h) promptly notify Amexco of the happening of
any event as a result of which any registration statement or any preliminary
prospectus or prospectus included therein or any offering memorandum or other
offering document includes an untrue statement of any material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and prepare, file as appropriate and furnish
to Amexco as promptly as possible as many copies as Amexco shall request of a
supplement to or amendment of such offering document which shall correct such
untrue statement or eliminate such omission;
(i) If Amexco so requests, use its best efforts
to establish, at the expense of Amexco, a depositary arrangement with respect
to the Redeemable Preferred Shares, in order that interests in the Redeemable
Preferred Shares may be sold via the use of depositary receipts; and
(j) take such other actions and execute and
deliver such other documents as may reasonably be
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<PAGE> 13
necessary to give full effect to the rights of Amexco under this Agreement.
3. Underwriting; Due Diligence.
(a) If requested by the underwriters for any
underwritten offering of Amexco Securities pursuant to a registration requested
hereunder, Holdings will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by Holdings and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution to
the effect and to the extent provided in Section 5 and the provision of
opinions of counsel and accountants' letters to the effect and to the extent
provided in Section 2(c). The holders of the Amexco Securities on whose behalf
the Amexco Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of Holdings to and for the
benefit of such underwriters, shall also be made to and for the benefit of such
holders of the Amexco Securities.
(b) In the event that any registration
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<PAGE> 14
pursuant to Section 1(c) shall involve, in whole or in part, an underwritten
offering, Holdings may require the Amexco Securities requested to be registered
pursuant to Section 1(c) to be included in such underwriting on the same terms
and conditions as shall be applicable to the other securities being sold
through underwriters under such registration. The representations and
warranties in such underwriting agreement by, and the other agreements on the
part of, Holdings to and for the benefit of such underwriters, shall also be
made to and for the benefit of the holders of the Amexco Securities.
(c) In connection with the preparation and filing
of each registration statement registering securities under the Act, Holdings
will give Amexco and the underwriters, if any, and their respective counsel and
accountants, such reasonable and customary access to its books and records and
such opportunities to discuss the business of Holdings with its officers and
the independent public accountants who have certified its financial statements
as shall be necessary, in the opinion of Amexco and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Act.
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<PAGE> 15
4. Expenses.
(a) All expenses incurred in complying with
Amexco's first four demands under Section 1(a) hereof, including, without
limitation, all registration and filing fees (including all expenses incident
to any filing with the National Association of Securities Dealers, Inc. or
listing on any domestic or foreign securities exchange), fees and expenses of
complying with securities and blue sky laws (including those of counsel
retained to effect such compliance) and printing expenses (collectively, the
"Registration Expenses") shall be borne by Holdings. All Registration Expenses
relating to any additional demands of Amexco shall be borne by Amexco.
Notwithstanding the foregoing (i) Amexco shall, subject to Section 7(c) of the
Purchase Agreement, pay all underwriting discounts and commissions and any
stamp, duty or transfer tax, and (ii) Holdings shall pay (x) the fees and
disbursements of its independent public accountants (including any such fees
and expenses incurred in performing any special audits required in connection
with any such offering and incurred in connection with the preparation of pro
forma financial statements and comfort letters for any such offering), (y)
transfer agents', depositaries' and registrars' fees
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<PAGE> 16
and the fees of any other agent appointed in connection with such offering, and
(z) all security engraving and security printing expenses, and (iii) each party
shall pay the fees and expenses of its counsel. In no event, however, shall
Amexco be required to pay any internal costs of Holdings.
(b) All expenses incurred in complying with
Section 1(c) hereof, including, without limitation, any Registration Expenses,
shall be paid by Holdings, except that (i) Amexco shall pay all underwriting
discounts, commissions and expenses specifically attributable to the inclusion
in the offering under said Section 1(c) of the Amexco Securities, including any
stamp, duty or transfer tax attributable to the Amexco Securities, and (ii)
each party shall pay the fees and expenses of its counsel.
5. Indemnification.
(a) Holdings Indemnity. In the case of each
offering of Amexco Securities made pursuant to this Agreement, Holdings agrees
to indemnify and hold harmless Amexco, its officers and directors, each
underwriter of Amexco Securities so offered and each person, if any, who
controls any of the foregoing persons within the meaning of the Act, against
any and all losses, claims, damages
16
<PAGE> 17
or liabilities, joint or several, to which they or any of them may become
subject under the Act, the Securities Exchange Act of 1934 (the "Exchange Act")
or other federal or state statutory law or regulation, at common law or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, and shall promptly reimburse them, as and when incurred, for any
legal or other expenses incurred by them in connection with investigating any
claims and defending any actions, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the registration statement, as originally filed or in any amendment thereof, or
in any preliminary, interim or final prospectus included therein, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
arise out of or are based upon any violation or alleged violation by Holdings
of the Act, any blue sky laws, securities laws or other applicable laws of any
state or country in which the Amexco Securities are offered and relating to
action or
17
<PAGE> 18
inaction required of Holdings in connection with such offering, and agrees to
promptly reimburse each such indemnified party, as and when incurred, for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that (i) Holdings will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of, or is
based upon, any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with
written information furnished to Holdings by Amexco specifically for use in
connection with the preparation thereof, and (ii) such indemnity with respect
to any preliminary, interim or, in the case of a Rule 415 offering, base
prospectus shall not inure to the benefit of Amexco (or any person controlling
Amexco), or any underwriter (or any person controlling such underwriter) from
whom the person asserting any such loss, claim, damage or liability purchased
the Amexco Securities which are the subject thereof if such person did not
receive a copy of the final prospectus at or prior to the confirmation of the
sale of such Amexco Securities to such person in any case where such delivery
is required
18
<PAGE> 19
by the Act and the untrue statement or omission of a material fact contained in
the preliminary, interim or base prospectus was corrected in the final
prospectus, unless such failure to deliver the final prospectus was a result of
noncompliance by Holdings with its obligations under this Agreement. This
indemnity agreement will be in addition to any liability which Holdings may
otherwise have.
(b) Amexco Indemnity. In the case of each
offering made pursuant to this Agreement, Amexco agrees to indemnify and hold
harmless Holdings, each of its directors, each of its officers who sign the
registration statement, and each person, if any, who controls Holdings within
the meaning of the Act (and if requested by the underwriters, each underwriter
who participates in the offering and each person, if any, who controls any such
underwriter within the meaning of the Act), from and against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject, under the Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of, or are based upon any
19
<PAGE> 20
untrue statement or alleged untrue statement of a material fact contained in
the registration statement, or in any preliminary, interim, base or final
prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that the
same was made therein in reliance upon and in conformity with written
information furnished to Holdings by Amexco specifically for use in the
preparation thereof, or arise out of or are based upon any violation or alleged
violation by Amexco of the Act, any blue sky laws, securities laws or other
applicable laws of any state or country in which the Amexco Securities are
offered and relating to action or inaction required of Amexco in connection
with such offering, and agrees to promptly reimburse each such indemnified
party, as and when incurred, for any legal or other expense reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action. This indemnity agreement will be in addition to
any liability which Amexco may otherwise have.
20
<PAGE> 21
(c) Procedure for Indemnification. Promptly
after receipt by an indemnified party under this Section 5 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 5. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent
that it may elect by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and either (i) the indemnifying
party or parties and the indemnified party or parties mutually agree or (ii)
representation of both the indemnifying party or parties and the indemnified
party or parties by
21
<PAGE> 22
the same counsel is inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them, the
indemnified party or parties shall have the right to select separate counsel
to assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its election so
to assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 5 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed counsel in connection with the assumption
of legal defenses in accordance with the proviso to the next preceding
sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. If the indemnified
22
<PAGE> 23
party or parties employ such separate counsel they will not enter into any
settlement agreement which is not approved by the indemnifying party, such
approval not to be unreasonably withheld. If the indemnifying party so assumes
the defense thereof, it may not agree to any settlement of any such claim or
action as the result of which any remedy or relief, other than monetary damages
for which the indemnifying party shall be responsible hereunder, shall be
applied to or against the indemnified party, without the prior written consent
of the indemnified party. If the indemnifying party does not assume the
defense thereof, it shall be bound by any settlement to which the indemnified
party agrees, irrespective of whether the indemnifying party consents thereto.
In any action hereunder as to which the indemnifying party has assumed the
defense thereof with counsel satisfactory to the indemnified party, the
indemnified party shall continue to be entitled to participate in the defense
thereof, with counsel of its own choice, but, except as set forth above, the
indemnifying party shall not be obligated hereunder to reimburse the
indemnified party for the costs thereof.
The parties hereto shall, and shall cause their respective
subsidiaries to, cooperate with each other in
23
<PAGE> 24
a reasonable manner with respect to access to unprivileged information and
similar matters in connection with any Action.
(d) Contribution. If the indemnification provided
for in this Section 5 shall for any reason be unavailable to an indemnified
party in respect of any loss, claim, damage or liability, or any action in
respect thereof, referred to therein, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability, or action in respect thereof, in such proportion as shall be
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
on the one hand or the indemnified party on the other, the intent of the
parties
24
<PAGE> 25
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission, but not by reference to Amexco's or any
other indemnified party's stock ownership in Holdings. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this paragraph
shall be deemed to include, for purposes of this paragraph, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
6. Amexco Affiliates.
The rights of Amexco under this Agreement with respect to any
Amexco Securities may be transferred by Amexco to any one or more corporations
or other entities as to which Amexco shall at the time of such transfer own 50%
or more of the outstanding securities thereof or interests therein having by
the terms thereof ordinary voting power to elect at least 50% of the Board of
Directors or others performing similar functions with
25
<PAGE> 26
respect to such corporation or other entity.
7. Rule 144. Holdings shall take such measures and file
such information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision).
8. Transfer of Rights.
(a) Amexco may transfer its rights under this
Agreement to any transferee (each, a "transferee") of an amount of Amexco
Securities owned by Amexco exceeding 10 percent of the outstanding class of
such Amexco Securities at the time of transfer. Any transfer of registration
rights pursuant to this Section shall be effective upon receipt by Holdings of
written notice from Amexco stating the name and address of any transferee and
identifying the Amexco Securities with respect to which the rights under this
Agreement are being transferred. In connection with any such transfer, the
term "Amexco" as used herein shall, where appropriate to assign the rights and
obligations of Amexco hereunder to such transferee, be deemed to refer to the
transferee holder of the Amexco Securities. Amexco and such transferees may
exercise the registration rights hereunder in such proportion as they shall
agree among themselves.
26
<PAGE> 27
(b) After any such transfer, Amexco shall retain
its rights under this Agreement with respect to all other Amexco Securities
owned by Amexco.
(c) Upon the request of Amexco, Holdings shall
execute a Registration Rights Agreement with such transferee or a proposed
transferee substantially similar to this Agreement, and any demand
registrations granted to such transferee shall reduce the then remaining number
of demand registrations to which Amexco is entitled under Section 1(a).
9. Miscellaneous.
(a) Injunctions. Irreparable damage would occur
in the event that any of the provisions of this Agreement was not performed in
accordance with its specific terms or was otherwise breached. Therefore, the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof in any court having jurisdiction, such remedy being
in addition to any other remedy to which they may be entitled at law or in
equity.
(b) Severability. If any term or provision of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or
27
<PAGE> 28
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term or provision.
(c) Further Assurances. Subject to the specific
terms of this Agreement, each of Amexco and Holdings shall make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby.
(d) Waivers, Etc. No failure or delay on the
part of Amexco or Holdings in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. No modification or waiver of any
provision of this Agreement nor consent to any departure by Amexco or Holdings
therefrom shall in any event be
28
<PAGE> 29
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
(e) Entire Agreement. This Agreement contains
the entire understanding of the parties with respect to the transactions
contemplated hereby and, with respect to the Cumulative Preferred Shares and
the Redeemable Preferred Shares, supersedes all prior agreements with respect
to such transactions, including the Registration Rights Agreement, dated as of
May 1, 1987, between Amexco and Holdings.
(f) Counterparts. For the convenience of the
parties any number of counterparts of this Agreement may be executed by the
parties hereto, and each such executed counterpart shall be, and shall be
deemed to be, an original instrument.
(g) Notices. All notices, consents, requests
instructions, approvals and other communications provided for herein shall be
validly given, made or served, if in writing and delivered personally by
facsimile or sent by registered mail, postage prepaid:
(i) If to Amexco, to
American Express Company
American Express Tower
World Financial Center
New York, New York 10285
29
<PAGE> 30
Attention: Treasurer and General Counsel
Facsimile No.: ( )
(ii) If to Holdings, to
Lehman Brothers Holdings Inc.
American Express Tower
World Financial Center
New York, New York 10285
Attention: Treasurer and Chief
Legal Officer
Facsimile No.: ( )
or such other address as any party may, from time to time, designate in a
written notice in a like manner. Notice given by facsimile shall be deemed
delivered on the business day after it is received by the recipient. Notice
given by mail as set out above shall be deemed delivered five calendar days
after the date the same is mailed.
(h) Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of New York applicable to contracts made and to be performed therein.
(i) Assignment. Except as provided herein, the
parties may not assign their rights under this Agreement. Holdings may not
delegate its obligations under this Agreement.
30
<PAGE> 31
IN WITNESS WHEREOF, Amexco and Holdings have caused this
Agreement to be duly executed as of the date first above written.
AMERICAN EXPRESS COMPANY
By_____________________________
Name:
Title:
LEHMAN BROTHERS
HOLDINGS INC.
By_____________________________
Name:
Title:
31
<PAGE> 1
OPTION AGREEMENT
OPTION AGREEMENT (this "Option Agreement"), made as of May , 1994, by and
among AMERICAN EXPRESS COMPANY ("AXP"), AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC. ("TRS"), AMERICAN EXPRESS BANK LTD. ("AEB"; AXP, TRS and
AEB each individually, an "AXP Co-tenant", and collectively, the "AXP
Co-tenants"), and LEHMAN BROTHERS INC. ("LB"), LEHMAN GOVERNMENT SECURITIES
INC. ("LGS"), LEHMAN BROTHERS COMMERCIAL PAPER INC. ("LCP"; LB, LGS AND LCP
each individually a "LB Co-tenant", and collectively, the "LB Co-tenants"; each
of the AXP Co-tenants and the LB Co-tenants individually, a "Co-tenant", and
all collectively, the "Co-tenants").
W I T N E S S E T H
WHEREAS, the Co-tenants, as tenants-in-common under the TIC Agreement (as
hereinafter defined), are owners of the leasehold interest in the land and
building (the "Premises") known as Three World Financial Center, New York, New
York, as more particularly described in Exhibit A attached hereto and made a
part hereof, pursuant to the Agreement of Severance Lease, dated as of June 15,
1983, by and between Battery Park City Authority, as landlord ("Landlord") and
Olympia & York Battery Park Company ("Assignor"), as tenant, as assigned (as so
assigned, the "Lease") by an Assignment of Severance Lease with Assumption,
dated as of June 15, 1983, between Assignor, as assignor, and the Co-tenants,
as assignee, for the joint occupancy of the Co-tenants, for an eighty-six (86)
year term commencing as of June 15, 1983;
<PAGE> 2
WHEREAS, as tenants-in-common and pursuant to the Lease, the liability of
the Co-tenants is joint and several;
WHEREAS, the Co-tenants share certain common areas and shared facilities,
and otherwise each occupy discrete premises within the Premises (as to each
(inclusive of its allocable share of such common areas and shared facilities),
its "Individual Premises"), all as further described in the Restated and
Amended Agreement of Tenants-in-Common (as amended from time to time, the "TIC
Agreement") among the Co-tenants, dated as of the date hereof, which TIC
Agreement sets forth the Co-tenants' agreements with respect to the occupancy
and operation of the Premises;
WHEREAS, the Co-tenants are also co-obligors under certain debt incurred by
them in connection with the construction and furnishing of the Premises,
consisting of (i) debt issued by the Co-tenants in the original principal
amount of approximately Six Hundred Forty-Nine Million Dollars ($649,000,000),
guaranteed by American Express, and (ii) debt issued by American Express in the
original principal amount of One Hundred Seventy-Five Million Dollars
($175,000,000) and reloaned to the Co-tenants, each maturing at various dates
through and including the year 2000, all as identified and described more
specifically in Appendix 1 hereto (collectively, and specifically including the
indentures, mortgages, notes, loan agreements and other documents evidencing
and securing the same in effect as of the date hereof, the "WFC Debt"; and the
holders, lenders, and mortgagees thereof, collectively, the "Lenders");
<PAGE> 3
WHEREAS, although the obligations of the Co-tenants as issuers with respect
to the WFC Debt are several as specified therein, the occurrence of certain
events (the "Causative Events") with respect to any of the Co-tenants may
constitute an event of default under the WFC Debt, and may result in the
acceleration thereof with respect to all the Co-tenants;
WHEREAS, certain of the Co-tenants are obligated under other indebtedness or
agreements pursuant to which acceleration of the WFC Debt may constitute an
event of default (collectively, the "Cross-Defaults");
WHEREAS, it is the goal of the Co-tenants by this Agreement to segregate
their status with respect to the WFC Debt, such that a Causative Event as to
any of them shall not cause Cross-Defaults for any others of them, or at a
minimum, such that a Causative Event as to an AXP Co-tenant shall not cause
Cross-Defaults for any LB Co-tenant, and a Causative Event as to an LB
Co-tenant shall not cause Cross-Defaults for any AXP Co-tenant;
WHEREAS, the Co-tenants desire to grant to one another the reciprocal Option
(as hereinafter defined) for the consideration and upon the terms, covenants
and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Co-tenants hereby agree as follows:
<PAGE> 4
I. Grant of Option.
Each Co-tenant hereby grants to each other Co-tenant and its successors and
assigns but only if such successor or assignee is a fifty percent (50%) or more
owned subsidiary of AXP or Holdings, as the case may be, the Option set forth
in this Section I pursuant to the terms hereof.
A. If, prior to the earlier of (i) the payment on maturity or earlier
satisfaction in full of the WFC Debt, and (ii) the date upon which the
Co-tenant with respect to which the Trigger Event (as hereinafter defined)
occurs is no longer an obligor pursuant to any of the WFC Debt:
1. an LB Trigger Event (as hereinafter defined) occurs, then AXP or
its designee guaranteed by AXP) shall be entitled to exercise the Option
described in paragraph C below, as the "Buyer", and LB, LGS and LCP (but in the
case of LB Trigger Events other than that set forth in Clause 5 thereof, only
to the extent the LB, LGS or LCP is a subsidiary of Holdings) collectively
shall be the "Seller" and each action to be taken by the Seller shall be taken
by LB, LGS and LCP; and
2. an AXP Trigger Event (as hereinafter defined) occurs as to AXP, a TRS
Trigger Event (as hereinafter defined) occurs as to TRS, or an AEB Trigger
Event (as hereinafter defined) occurs as to AEB, then LB or, at its option,
Lehman Brothers Holdings Inc. ("Holdings") or their designee, guaranteed by
Holdings, shall be entitled to exercise the Option described
<PAGE> 5
in paragraph C below, as the "Buyer", and the entity of AXP, TRS and AEB to
which its Trigger Event has occurred shall be the "Seller".
B. "LB Trigger Event": shall mean the occurrence of any one of the
following four events:
1. the average maturity for all commercial paper issued by Holdings and
all of its subsidiaries other than LB shall be less than fifteen (15)
days and Holdings shall fail, within three (3) business days after
such occurrence, to cause the average maturity of all such commercial
paper to be equal to or greater than fifteen (15) days, provided,
however, that if such average maturity for all such commercial paper
shall again fall below fifteen (15) days on or before the third (3rd)
month anniversary of the expiration of such three (3) business day
period with respect to the first such occurrence, then Holdings shall
not be entitled to such three (3) business day cure period as to such
second occurrence within such three-month period;
2. the aggregate of all uncommitted lines of credit (the "Uncommitted
Lines") to Holdings and all of its subsidiaries, on a consolidated
basis, is less than $6 billion;
<PAGE> 6
3. the aggregate of all committed lines of credit (the "Committed Lines")
available to Holdings and all of its subsidiaries, on a consolidated
basis, is less than $1.35 billion;
4. the total consolidated stockholders equity ("Net Worth") of Holdings
is less than $2.4 billion;
5. transfer of more than fifty percent (50%) of the voting stock in any
LB Co-tenant (other than Holdings) to any party other than another
directly or indirectly wholly-owned subsidiary of Holdings. In the
case of this trigger event, the Option shall only apply to the LB
Co-tenant so affected; or
6. if Holdings fails to deliver a notice required pursuant to clause a)
of Section I.I., within five business days, and AXP notifies Holdings
(by two copies, each set receipted by hand delivery, addressed
respectively to the attention of the Chief Financial Officer of
Holdings, together with same-day telecopy to the attention of each of
such persons, in both cases to the addresses and telecopy numbers set
forth in Section VII.A. hereof) of such failure, and Holdings fails
to deliver to AXP such required notice within three (3) business days
of receipt of such notice from AXP.
Upon the occurrence of one of the LB Trigger Events, AXP shall have the right
to exercise the Option for a period equal to such time as the applicable
Trigger Event shall remain outstanding, plus three (3) months, except in the
case of a LB Trigger Event
<PAGE> 7
set forth in (x) clause 5 above, in which case AXP shall have the right to
exercise the Option at any time, and (y) clause 6 above, in which case AXP
shall have the right to exercise the Option at any time prior to the delivery
by Holdings of a notice relating to a subsequent month pursuant to clause a) of
Section I.I. within the required time periods set forth therein.
"AXP Trigger Event": shall mean (x) the reduction of the long-term debt
rating of AXP to less than "BBB-" by Standard and Poor's Ratings Group ("S&P"),
or to less than "Baa3" by Moody's Investors Service ("Moody's"), or (y)
transfer of more than fifty percent (50%) of the voting stock in any AXP
Co-tenant (other than AXP) to any party other than another directly or
indirectly, wholly-owned subsidiary of AXP. Upon the occurrence of an AXP
Trigger Event, Holdings shall have the right to exercise the Option for a
period equal to such time as the AXP Trigger Event shall remain outstanding,
plus three (3) months, in the case of the event set forth in clause (x), or at
any time, in the case of the event set forth in clause (y). In the case of a
transfer of control, the Option shall only apply to the AXP Co-tenant so
affected.
"TRS Trigger Event": shall mean the reduction of the long-term debt rating
of TRS to less than "BBB-" by S&P, or to less than "Baa3" by Moody's. Upon the
occurrence of a TRS Trigger Event, Holdings shall have the right to exercise
the Option for a period equal to such time as the TRS Trigger Event shall
remain outstanding, plus three (3) months.
"AEB Trigger Event": shall mean the reduction of the long-term debt rating
of AEB to less than "BBB-" by S&P, or to less than "Baa3" by Moody's. Upon the
occurrence of an AEB Trigger Event, Holdings shall have the right to exercise
the
<PAGE> 8
Option for a period equal to such time as the AEB Trigger Event remains
outstanding, plus three (3) months.
"Trigger Event" shall be any of a LB Trigger Event, an AXP Trigger Event,
a TRS Trigger Event or an AEB Trigger Event.
C. The Buyer shall have the option (the "Option"), exercisable upon written
notice (the "Exercise Notice") to the Seller during the periods
specified in Section I.B. hereof, to take all (but not some) of the following
steps, as an entirety, whereupon the Seller shall accept, cooperate and take
all such actions necessary to facilitate the Buyer's exercise of the Option.
In furtherance thereof, upon the exercise of the Option (the "Option Exercise")
by the Buyer, such Buyer and the Seller shall take all actions necessary in
order for the transactions set forth in items (1) through (5) below to occur.
The transactions described in items (1) through (4) shall occur simultaneously
with the Option Exercise; and the transactions described in item (5) shall
occur thereafter in accordance with the provisions thereof, but shall
nonetheless constitute a required component of the Option.
1. The Buyer shall acquire for Fair Value (as hereinafter defined) by an
assignment (the "Tenancy Assignment") in substantially the form of Exhibit B
attached hereto and made a part hereof the Seller's entire interest (the
"Interest") as a tenant-in-common with respect to the Property (as such term is
defined in the WFC Debt) pursuant to the TIC Agreement. The Fair Value
consideration for such assignment may be paid, at the
<PAGE> 9
Buyer's election, in immediately available funds or by delivery of a
promissory note by the Buyer for the benefit of the Seller in substantially the
form of Exhibit C attached hereto and made a part hereof (the "Buyer Note").
The Buyer shall purchase the Interest "AS IS," based upon the status of the
Interest and the applicable Individual Premises as of the date of the Tenancy
Assignment. The Buyer acknowledges that the Seller makes no representations or
warranties, whether expressed or implied, by operation of law or otherwise,
with respect to the Interest or the applicable Individual Premises, including
without limitation representations or warranties respecting the existence of
any liens or encumbrances affecting the foregoing or the state of title
thereof;
2. The Buyer shall be substituted for the Seller as (i) obligor (and,
if the Seller is AXP, as guarantor if necessary) on the WFC Debt which contains
Cross-Defaults, and (ii) tenant under the Lease, pursuant to, respectively, (a)
an express assumption (the "Buyer Assumption") of all the obligations of the
Seller under the WFC Debt in substantially the form of Exhibit D attached
hereto and made a part hereof and (b) an assignment and assumption of the Lease
in recordable form (the "Lease Assignment") in substantially the form of
Exhibit E attached hereto and made a part hereof. Following the Buyer
Assumption, the Buyer shall be obligated to make all payments due from the
Seller under the WFC Debt and the Lease as and when due to the appropriate
parties;
<PAGE> 10
3. The Buyer shall lend to the Seller (the "Buyer Loan") as evidenced by
a note in substantially the form of Exhibit F attached hereto and made a part
hereof (the "Seller Note"), funds necessary to pay as and when due the Seller's
assigned share of the portion of the WFC Debt which include Cross-Defaults as
reflected in the TIC Agreement. In the event that any of the LB Co-tenants is
the Seller, then the performance and payment of the Seller Note shall be fully
guaranteed by Holdings. In the event that any of the AXP Co-tenants is the
Seller, then the performance and payment of the Seller Note shall be fully
guaranteed by AXP. Proceeds of the Buyer Loan shall be retained by the Buyer
and shall be earmarked and applied solely to payments by the Buyer in
satisfaction of the Seller's assigned share of the WFC Debt;
4. The Buyer shall sublease to the Seller the Individual Premises
attributable to the Seller, on the terms and conditions described in Section G
below, for a term to expire upon the earlier of the reconveyance of the
Individual Premises to the Seller, and two weeks after the maturity of the WFC
Debt (the "Sublease"); and
5. Upon the maturity and payment or earlier satisfaction of all the WFC
Debt, the Buyer shall reconvey to the Seller, who shall be obligated to accept
the same, the tenancy-in-common Interest previously acquired by the Buyer upon
exercise of the Option pursuant to documentation reasonably mutually
acceptable to the Buyer and the Seller. Upon such reconveyance,
<PAGE> 11
(i) the Buyer Note shall be cancelled, and (ii) the Buyer Assumption, the Lease
Assignment and the Sublease shall each be terminated and be of no further force
and effect and the TIC Agreement shall be reinstated and in full force and
effect with respect to the Seller. Upon such reconveyance, the condition of
title of the Interest and the applicable Individual Premises shall be the same
or better as conveyed to the Buyer. In the event of a casualty loss or
condemnation affecting the applicable Individual Premises following the
transfer of the Interest to the Buyer and prior to the reconveyance thereof,
any insurance and/or condemnation proceeds related thereto which have not been
applied to the restoration of the Individual Premises shall be reassigned to
the Seller or paid by the Buyer to the Seller, as applicable, simultaneously
with a reconveyance.
D. The determination by the Buyer whether to exercise the Option
shall be made acting in good faith.
E. Any out-of-pocket expenses incurred and owing to third parties,
including without limitation any Taxes due, in connection with the exercise of
the Option shall be borne equally by the Buyer and Seller. However, the
Buyer shall thereafter reimburse the Seller for the half of such expenses
borne by the Seller if: (1) prior to the maturity or earlier satisfaction of
the WFC Debt, a Causative Event has not occurred with respect to the Seller,
or (2) within 12 months after the Option Exercise, the Seller's Trigger Event
is no longer in effect and a Causative Event has not occurred.
<PAGE> 12
F. Appendix 2 hereof contains (i) a list of acceptable appraisers, (ii) the
terms pursuant to which such appraisers shall be retained from time to time,
and (iii) instructions to be provided to such appraisers in connection with any
appraisal of the Property. Pursuant to the foregoing parameters, an appraiser
will be retained by the Co-tenants to deliver updated reports on the Fair Value
(as hereinafter defined) of each Individual Premises as follows: (i) an
initial appraisal update or report, as appropriate, shall be completed within
thirty (30) days of the date hereof, and (ii) further appraisal updates shall
be performed annually thereafter, at the Co-tenants' shared cost. Appraisal
updates may also be obtained upon request of the Buyer or Seller at the time of
the Option Exercise. In the event of an Option Exercise, the "Fair Value"
shall be determined in accordance with the most recent appraisal with respect
to the applicable Individual Premises. In the event that the Buyer or the
Seller requests an additional appraisal update in connection with the Option
Exercise, the Buyer may purchase the Seller's tenant-in-common interest with
respect to its Individual Premises in accordance with the terms of this Option
Agreement prior to receipt of such requested appraisal update, the Fair Value
to be determined initially in accordance with the most recent appraisal update
received by the Co-tenants. The consideration paid by the Buyer in connection
with the Option Exercise (whether paid by delivery of the Buyer Note or
payment of immediately available funds) shall be adjusted promptly pursuant to
the updated ap-
<PAGE> 13
praisal requested in connection with the Option Exercise promptly upon receipt
thereof.
G. 1. Promptly after the date which is thirty (30) days after the date of
this Agreement, unless the parties agree otherwise, the parties will commence
and diligently proceed to negotiate the form and substance of the Sublease,
which shall be consistent in all respects with the obligations of the parties
under the TIC Agreement; however, the execution of the Sublease shall not be a
prerequisite to the effectiveness of, or affect the validity of, this Option
Agreement or the Sublease, which shall take effect immediately and
automatically upon the Buyer's purchase of the Seller's interest in the
Property at Option Exercise. The financial obligations of the tenant under the
Sublease will be at least equal to the financial obligations of the Seller
under the TIC Agreement.
2. The parties intend that the economic, legal and practical effect of
the Sublease shall be in all respects equal to that which would pertain if they
remained co-owners under the TIC Agreement at such time, so that the Co-tenants
each have the same general rights, powers, cost attributions, etc., as the TIC
Agreement provides; and the Sublease shall include such provisions, steps and
changes in format or procedure as may be necessary to achieve this ultimate
result. As an example, if the rent under the Sublease is equal to fair market
rent and such rent is greater than the sum of the obligations of the Seller
would have paid under the TIC Agreement and an amount equal to
<PAGE> 14
the interest payable on the Buyer Note, then the Buyer shall repay such
differential to the Seller.
3. To the extent that additional topics, unexpected at present and not
addressed in the TIC Agreement, may have arisen by the time the Sublease is to
become effective, the same shall be determined consistently with the approach
indicated in the TIC Agreement as much as possible, and where not analogous,
consistently with then-prevailing practices among co-owners, but giving effect
to the status of the Buyer, the Seller, or both, as Managing Co-tenant, as
either Buyer or Seller. If the Co-tenants are unable after good-faith efforts
to agree upon the same, the same shall be arbitrated as provided in Section II
below.
4. The parties acknowledge that the WFC Debt contains certain provisions
with respect to the terms of any leases. If at the time the Sublease becomes
effective either party believes the Sublease requires modification in order to
meet the requirements of the WFC Debt, the parties shall work together to
implement such modifications as are necessary to achieve the same, with
appropriate adjustments elsewhere to ensure the ultimate result described in
paragraph 2 of this Section, and if the Co-tenants are unable after good-faith
efforts to agree upon the same, the same shall be arbitrated as provided in
Section II below. Alternatively, the parties may agree to seek the Lenders'
waiver of the requirement in question.
<PAGE> 15
H. In the event that a Buyer and Seller each enter into a Buyer Note and a
Seller Note, respectively, in connection with the Option Exercise, and either
party defaults under its respective note, then, the non-defaulting party shall
have the right to offset one against the other to the fullest extent permitted
by law.
I. Holdings shall:
a) deliver to AXP within three (3) business days after the end of each
calendar month, a written confirmation that no LB Trigger Event has occurred;
b) deliver to AXP, if Holdings or its ultimate parent, if any, shall be a
publicly-traded company, within two (2) business days after the release of its
or such parent's quarterly earnings, or, if Holdings or its ultimate parent, if
any, shall not be a publicly-traded company, within forty-five (45) days after
the end of each calendar quarter, information specifying (x) the Uncommitted
Lines, (y) the Committed Lines, and (z) the Net Worth; and
c) deliver to AXP notice of the occurrence of any LB Trigger Event (but
without regard to any cure rights set forth in the LB Trigger Event described
in clause (1) thereof) immediately after the occurrence thereof.
Holdings shall have no reporting obligations to AXP other than as set
forth herein.
<PAGE> 16
J. AXP shall deliver to Holdings notice of the occurrence of any AXP
Trigger Event immediately after receiving notice from the applicable rating
agency that it is downgrading the relevant debt.
K. Prior to or on May 31, 1994, Skadden, Arps, Slate, Meagher & Flom
("Skadden") shall advise the Co-tenants as to whether there is a reasonable
chance of obtaining all or part of a tax ruling (a "Positive Tax Ruling") from
the Internal Revenue Service (the "IRS") providing that upon the Option
Exercise (i) no transfer or gains tax shall be due pursuant to the Gains and
Transfer Tax Laws, and/or (ii) no occupancy tax shall be due. If Skadden
determines that there is a reasonable chance of obtaining such a Positive Tax
Ruling, and no Co-tenant believes that there is any disadvantage to it in
pursuing such a Positive Tax Ruling, then the Co-tenants will cooperate to
apply together for such a Positive Tax Ruling, the costs incurred in connection
with such application to be borne equally by the Co-tenants. In the event that
within sixty (60) days of the date upon which Skadden issues the aforementioned
advice to the Co-tenants either (i) the IRS does not issue a Positive Tax
Ruling, or (ii) the Co-tenants do not elect to apply for a Positive Tax Ruling,
then the Co-tenants shall assemble the information (the "Information") and
back-up necessary for the purpose of calculating (A) any occupancy tax that
would be due and (B) any taxes that would be due under the Gains and Transfer
Tax Laws (collectively, the "Taxes"), including without limitation information
necessary to calculate the original purchase price of Seller's Interest herein
and back-up, all in a form appropriate
<PAGE> 17
for filing with the appropriate authorities. The Co-tenants shall update the
Information on an annual basis.
II. Expedited Arbitration of Disputes.
A. In the event of dispute between the Co-tenants hereunder with respect to
the matters set forth in Section I.G. hereof, either the sublessor or the
sublessee (the "Initiator"), may send notice thereof to the
other (the "Recipient"), and such dispute shall be settled and finally
determined by arbitration in New York, New York, in accordance with the
following provisions.
B. The Initiator's notice shall state that it wishes such dispute to be
arbitrated and shall set forth the names and addresses of up to three
arbitrators, any of whom the Initiator would be willing to have decide such
dispute and each of whom has agreed to act as provided herein. The Recipient
shall give a reply notice to the Initiator within five (5) business days from
receipt of the Initiator's notice; the Recipient's reply notice shall either
designate one or more of the Initiator's arbitrators as acceptable to the
Recipient or state that none of the same is acceptable and designate up to
three others who would be acceptable to the Recipients and each of whom has
agreed to act as provided herein. Within three (3) business days from receipt
of the Recipient's response notice, the Initiator shall designate one of the
Recipient's listed arbitrators either to perform the arbitration or to act
jointly with one of the Initiator's listed
<PAGE> 18
arbitrators to select a third, independent arbitrator, which such two
arbitrators shall do within a further three (3) business days. Should the
Recipient fail to respond timely to the Initiator's initial notice, then the
Initiator may designate any one of the arbitrators on their list to perform the
arbitration; should the Initiator fail to respond timely to the Recipient's
reply notice, then the Recipient may designate any one of the arbitrators on
their list to perform the arbitration. If two arbitrators have been appointed
and they are unable in good faith to identify a third arbitrator who is willing
to act hereunder, they may apply to the American Arbitration Association or any
successor organization thereto for the designation of such an arbitrator.
C. All arbitrators shall be persons with at least ten (10) years'
experience specializing in large-scale, sophisticated commercial real estate
transactions (sale, financing, leasing or operation, as appropriate to the
matter at issue) in New York, New York, as appraisers, attorneys, asset
managers or brokers, as appropriate to the matter at issue in accordance with
the terms hereof.
D. The arbitrator selected shall be required to rule in favor of either the
Initiator's position or the Recipient's position on the issue arbitrated, and
shall not be permitted to create a different ruling. In making his or her
determination, the arbitrator may request such information and conduct such
hearings as he/she deems appropriate, making a determination in
<PAGE> 19
writing and giving notice to the Co-tenants thereof within seven (7) business
days, if at all possible, after designation. The arbitrator shall also
determine by whom (and in what proportion) his/her fees and expenses, as well
as those of the two other nominating arbitrators if appropriate, shall be
borne, consistent with his/her ruling on the issue arbitrated. The
determination of the arbitrator shall be binding upon the Co-tenants, and may
be entered in any court having jurisdiction.
III. Documentation.
The following documents and agreements shall be executed and delivered by
the appropriate parties in connection with the Option Exercise:
A. Tenancy Assignment in substantially the form of Exhibit B;
B. Buyer Note (if applicable) in substantially the form of Exhibit C;
C. Buyer Assumption in substantially the form of Exhibit D;
D. Lease Assignment in substantially the form of Exhibit E;
E. Seller Note in substantially the form of Exhibit F;
F. Subject to the provisions of Section VII J. hereof, upon receipt of an
Exercise Notice, the Seller shall promptly execute, attest and deliver to the
Buyer the "transferor" form for the transactions contemplated by this Option
Agree-
<PAGE> 20
ment (the "Transaction") promulgated by the New York State Commissioner of
Taxation and Finance, with respect to the Gains Tax Law (as hereinafter
defined). In addition, the Buyer and the Seller agree to diligently comply
with the Pre-Transfer Audit Procedure promulgated pursuant to the Gains Tax Law
and cooperate with each other in order to satisfy the requirements of such
Pre-Transfer Audit Procedure as expeditiously as possible. The Buyer and
Seller hereby agree that in a timely manner each will execute, attest and
deliver, and Buyer agrees that it will file in a timely manner, all forms,
applications, affidavits and other documents (collectively, the "Tax Forms")
required in connection with the Transaction pursuant to, (i) Article 31-B of
the Tax Law of the State of New York and the regulations applicable thereto
(the "Gains Tax Law"), (ii) the Real Property Transfer Tax imposed by Title II
of Chapter 46 of the Administrative Code of the City of New York and (iii)
Article 31 of the Tax Law of the State of New York and regulations applicable
thereto (the laws and regulations set forth in the above items (i) through
(iii) referred to collectively as the "Gains and Transfer Tax Laws");
G. Form 1099, duly executed by the Seller, to be filed with the Internal
Revenue Service pursuant to the reporting requirement of the Internal Revenue
Code of 1986, as amended;
H. A certification by the Seller stating that the Seller is not a foreign
person, in a form then required by Sections 897 and 1445 of the Internal
Revenue Code of 1954, as
<PAGE> 21
the same may be amended, and any rules, regulations and orders which may be
promulgated thereunder;
I. Sublease Agreement;
J. Officer's certificate for the Seller to deliver under Section 19.2 of
the Superior Mortgage in substantially the form of Exhibit G; and
K. If required, opinion of tax counsel, or agreement or guarantee of an
appropriate entity related to the Buyer, for the Seller to deliver under
Section 19.2 of the Superior Mortgage (all capitalized terms in this Section K
and Section L below which are not otherwise defined in this Option Agreement
shall have the respective meanings assigned thereto in the TIC Agreement); and
L. If Seller is AXP, TRS or AEB, a form of supplemental indenture,
officer's certificate, and opinion of counsel to deliver under Section 10.01 of
both the ABC Indenture and the D Indenture and under Section 16.01 of both the
July Yen Loan Agreement and the August Yen Loan Agreement.
IV. Attorney-in-Fact.
Each Co-tenant, in the event it is deemed the Seller pursuant to this Option
Agreement, and solely in its capacity as, the Seller, appoints the Co-tenant
who would then be deemed the Buyer in connection therewith its attorney-in-fact
for the purpose of effectuating any exercise of the Option in accordance with
this Option Agreement and the execution and filing of any Tax Forms.
<PAGE> 22
V. Consent of Lenders.
The parties hereto acknowledge their collective opinion (but not by way of
representation to one another) that in the event a wholly-owned subsidiary of
AXP exercises the Option upon the terms contemplated herein, the consent of the
Lenders should not be required.
VI. Alternatives to the Option.
A. The Co-tenants desire to alleviate the risk that a Causative Event with
respect to one Co-tenant would cause a Cross-Default of other indebtedness and
agreements of the other Co-tenants. The Co-tenants have agreed to adopt the
Option described herein to achieve that goal. The Co-tenants will cooperate
with each other to discuss and consider implementing alternative proposals that
a Co-tenant may suggest in substitution of the Option, including proposals
which may be beneficial to one Co-tenant in a material respect while being, on
balance, neither beneficial nor detrimental to another in any material way. No
Co-Tenant shall be obligated to agree to any alternative proposal.
B. If the Co-tenants agree to pursue a particular course of action, the
same may be conditional upon the obtaining of any consents or modifications
required of the Lenders or their trustees, the Landlord, or any other third
party. The Co-tenants will agree, as part of the decision-making process, upon
the strategy and presentation to be adopted, and the parties who will
<PAGE> 23
be designated, to solicit such consents or modifications. Any documentation
implementing an agreed upon course of action will require the approval of all
the Co-tenants, acting reasonably.
After execution of this Option Agreement with respect to the Option, the
Co-tenants together may seek to amend Section 10.03 and any other operative
sections of the WFC Debt to provide that a Co-tenant may at any time assign all
or any part of its interest in the Property and/or the WFC Debt to the other
Co-tenants as contemplated by, and in order to effectuate the intent of, the
Option.
C. Any out-of-pocket expenses incurred to third parties (except for any
expenses incurred by Seller, if it shall form a new entity, to capitalize the
same) in identifying, analyzing, and considering proposals and implementing an
agreed upon course of action to achieve the overall goal described in this
Section VI above shall be shared by the AXP Co-tenants and the LB Co-tenants
equally.
VII. Miscellaneous.
A. Any notice or other communication required or permitted to be given
hereunder and any approval by any party shall be in writing and shall be
personally delivered or delivered by overnight courier, in each case with
receipt acknowledged, or deposited in an official depository of the United
States Post Office, postage prepaid, by registered or certified mail, return
receipt requested, to the other party or parties at the addresses listed below.
All notices and other communications
<PAGE> 24
shall be deemed to have been duly given on (a) the date of receipt thereof
(including all required copies thereof as set forth below) if delivered
personally, by overnight courier or by telex or telecopy or (b) three (3)
business days after the date of mailing thereof (including all required copies
thereof as set forth below) if transmitted by mail. Each party may change its
address for receipt of notices by a notice given to the other parties in
accordance with this Paragraph. Notices shall be addressed as follows:
[ ]
B. If a Co-tenant exercises the Option in accordance with, and shall
perform all of its obligations under, this Option Agreement and if any other
party hereto shall fail or refuse to proceed to closing under such Option as
required by the terms hereof, or if any party otherwise shall be in default in
the performance of its obligations hereunder, then the Co-tenant exercising
such Option, in addition to any other rights or remedies it may have hereunder
or at law or in equity, shall be entitled to specific performance of such
party's obligations hereunder, it being acknowledged and agreed that the
subject matter of this transaction is unique.
C. The Option shall be a covenant running with the land, and the
obligations of the "Seller" hereunder (but not the rights of the "Buyer"
(except as specifically set forth in Section I hereof)) shall be binding on the
owners of the Premises regardless of any transfer by any of the parties hereto.
This
<PAGE> 25
Option Agreement shall be binding upon the Co-tenants and their respective
successors and assigns without the execution of any additional documentation;
provided, however, that any such successor or assign shall execute an
acknowledgement and ratification hereof at the request of any Co-tenant.
D. This Option Agreement shall be construed and governed by the laws of the
State of New York.
E. Whenever the singular or the masculine gender is used in this Option
Agreement, it shall be construed as if the plural, or the feminine or neuter
gender, respectively, had been used where the context so requires, and vice
versa, and the rest of the sentence shall be construed as if the grammatical
and terminological changes thereby rendered necessary had been made.
F. This Option Agreement contains the entire understanding of the parties
with respect to the subject matter hereof and may not be changed or modified
orally.
G. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
H. In addition, each Co-tenant hereby agrees to execute and deliver such
other certificates, agreements and documents and take such other actions as may
reasonably be requested by and in cooperation with any other party hereto in
order to consummate, implement or effectuate the transactions contemplated
herein. In furtherance thereof, upon the Option Exercise, each Co-tenant shall
use best efforts to effectuate the
<PAGE> 26
Option Exercise as soon as possible from the Seller to the Buyer pursuant to
the terms hereof.
I. The parties agree to record a memorandum of this Option Agreement within
thirty (30) days following the execution hereof, the costs of which recording
shall be borne equally between the Co-tenants.
J. Notwithstanding the provisions of Section III. F. hereof, the Buyer may
require that Option Exercise be completed prior to receipt of a tentative
assessment in connection with the Gains Tax Law, provided that the Buyer shall
deliver to the Seller, in form and substance reasonably acceptable to the
Seller, an indemnity, indemnifying the Seller, its affiliates and their
respective officers and directors, employees, agents and shareholders, from any
and all liabilities (including, without limitation, interest and penalties)
that may be incurred solely as a result of such early completion.
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
on the date and year first above written.
AMERICAN EXPRESS COMPANY
By:
Name:
Title:
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By:
Name:
Title:
AMERICAN EXPRESS BANK LTD.
By:
Name:
Title:
LEHMAN BROTHERS INC.
By:
Name:
Title:
LEHMAN GOVERNMENT
SECURITIES, INC.
By:
Name:
Title:
LEHMAN BROTHERS COMMERCIAL
PAPER INC.
By:
Name:
Title:
<PAGE> 28
[Acknowledgements to be attached]
<PAGE> 29
Appendix 2
1. List of appraisers
[To Follow]
2. Terms of employment
[To Follow]
3. Instructions:
The appraiser will be instructed to take into consideration the following
factors in determining the Fair Value for the Seller's Individual Premises:
1) the then-existing occupancy and buildout;
2) the fact that 3 World Financial Center is a corporate headquarters;
3) the amenity package available to tenants of the World Financial Center
(such as the Winter Garden, the retail operations, etc.);
4) the then special conditions related to the existing work environment,
including, without limitation, the cafeteria, the health and fitness center,
the medical center, the conference center, and the above-standard improvements
to the space and above-standard infrastructure of the building;
5) all improvements to the Seller's Individual Premises;
6) the condition of the Seller's Individual Premises;
7) the location of the building and the proximity to the financial markets;
8) to the extent relevant in the determination of the Fair Value, the
economic factors inherent in a relocation, costs of disruption of business and
impairment of productivity associated with such relocation; and
9) the nature of the Seller's ownership interest as a tenant-in-common of the
Lease.
10) Operating Costs of 3 World Financial Center and its share of the Winter
Garden, Central Plant, Arts and Events and other Shared Expense areas.
<PAGE> 30
Exhibit A
[Legal Description]
[ To Follow ]
<PAGE> 31
Exhibit B
[Co-tenant Interest]
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as
of , 199 , made by [APPLICABLE AXP OR LB ENTITY] ("Assignor"), in
---------- -- -
favor of [APPLICABLE AXP OR LB ENTITY] ("Assignee").
KNOW, THAT Assignor, in consideration of TEN DOLLARS ($10) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, hereby assigns without recourse, representation or
warranty (except as otherwise specifically set forth herein) unto Assignee all
of Assignor's right, title and interest (the "Interest") as a tenant-in-common
with respect to the property known as Three World Financial Center, New York,
New York, pursuant to the Restated and Amended Agreement of Tenants-In-Common
(the "TIC Agreement"), dated as of , 1994 by and among American
------------
Express Company, American Express Bank Ltd., American Express Travel Related
Services Company, Inc., Lehman Brothers Inc., Lehman Government Securities,
Inc., and Lehman Commercial Paper Inc. (collectively, the "Co-tenants").
TO HAVE AND TO HOLD the same unto the Assignee and to the successors,
legal representatives and assigns of Assignee forever.
ASSIGNEE hereby accepts the foregoing assignment of Interest, subject
to Assignee's obligation to reconvey its Interest pursuant to Section I(C)(5)
of the Option Agreement, dated as of , 1994 by and among the Co-tenants,
------
and agrees to assume, and be bound by, all of the terms, covenants and
provisions of the TIC Agreement.
ASSIGNOR is hereby released, from and after the date hereof, from all
claims, demands, actions, obligations and liabilities of every kind and nature
whatsoever arising out of the TIC Agreement.
2
<PAGE> 32
ASSIGNOR hereby represents and warrants to Assignee, as of the date
hereof, that Assignor is duly authorized to execute and deliver this Assignment
and has the power and authority to perform its obligations hereunder.
ASSIGNEE hereby represents and warrants to Assignor (i) as of the date
hereof, that Assignee is duly authorized to execute and deliver this Assignment
and has the power and authority to perform its obligations hereunder and (ii)
Assignee shall not sell, assign, transfer, pledge, hypothecate or convey the
Interest assigned herein to any other party.
ASSIGNEE hereby indemnifies and holds Assignor free and harmless from
and against any and all costs, expenses, damages, claims, and liabilities,
including reasonable attorneys' fees and disbursements, which may be incurred
by, or asserted against, Assignor on account of Assignee's failure to pay,
perform or observe any of the terms, covenants, obligations and restrictions of
the TIC Agreement assumed by it hereunder from and after the date hereof.
Assignor hereby indemnifies and holds Assignee free and harmless from and
against any and all costs, expenses, damages, claims, and liabilities,
including reasonable attorneys' fees and disbursements, which may be incurred
by, or asserted against, Assignee on account of Assignor's failure to pay,
perform or observe any of the terms, covenants, obligations and restrictions of
the TIC Agreement accruing prior to the date hereof.
3
<PAGE> 33
IN WITNESS WHEREOF, this Assignment has been executed by Assignor and
Assignee as of the date first above written.
Witnessed;
signed and acknowledged
in the presence of;
attested to by:
ASSIGNOR:
[APPLICABLE AXP OR LB ENTITY]
- ----------------------------
Name:
By:
- ---------------------------- ----------------------------
Name: Name:
Its:
ASSIGNEE:
- ---------------------------- [APPLICABLE AXP OR LB ENTITY]
Name:
By:
- ---------------------------- ----------------------------
Name: Name:
Its:
4
<PAGE> 34
Exhibit C
[Buyer to Seller]
PROMISSORY NOTE
$
-----------
New York, New York
, 199-
- --------- --
FOR VALUE RECEIVED, the undersigned, [Buyer] ("Maker")
promises to pay on to the order of [Seller] ("Holder") at the
-----
following address , or such other place as the Holder hereof may from
------
time to time designate in writing, the sum of Dollars ($ ),
---------- ---------
in lawful money of the United States together with interest in the amounts and
on the due dates as provided herein.
AND IT IS EXPRESSLY AGREED AS FOLLOWS:
1. The whole of the principal sum outstanding shall forthwith
become due and payable at the option of Holder on the date of reconveyance of
the tenancy-in-common interest of Holder to Maker, , 2000.
-----
2. Such amount of the principal sum as shall remain
outstanding from time to time shall bear interest at a rate equal to the thirty
(30) day LIBOR Rate. Interest shall be payable monthly by Maker to Holder, the
first day of each calendar month, for so long as the principal sum shall remain
outstanding. For purposes hereof, "LIBOR Rate" shall mean the per annum rate
of interest (rounded upward, if necessary, to the nearest 1/100th of one
percent) at which
<PAGE> 35
dollar deposits in an amount comparable to the principal amount are, or would
be, offered for a period of thirty (30) days in the London interbank market at
11:00 a.m. (London time) two business days prior to the commencement of such
interest period, by the reference bank to prime banks.
3. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby waived.
4. This Note may not be changed or terminated orally, but
only by an instrument in writing signed by the party against whom such change
or termination is sought to be enforced.
5. This Note is and shall be deemed to have been made and
delivered in the State of New York and in all respects shall be governed and
construed in accordance with the laws of the State of New York.
6. This Note may be prepaid, in whole or in part, at any
time, without premium or penalty.
7. The word "Maker" shall include Maker's legal
representatives, successors, and assigns, and the word "Holder" shall include
the Holder's legal representatives, successors and assigns.
By: [APPLICABLE AXP OR LB ENTITY]
By:
----------------------
President
<PAGE> 36
Exhibit D
[Debt Obligations]
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of --------
- --, 199-, made by [applicable AXP or LB entity] ("Assignor"), in favor of
[applicable AXP or LB entity] ("Assignee").
KNOW, THAT Assignor hereby assigns and Assignee, in
consideration of TEN DOLLARS ($10) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, hereby assumes
from Assignor all of Assignor's obligations and liabilities, including
obligations of performance and payment, arising under and pursuant to those
indentures, mortgages and other documents executed in connection with that
certain debt issued by the parties ("Co-tenants") to the Restated and Amended
Agreement of Tenants-In-Common ("TIC Agreement"), dated as of ------, 1994, by
and among American Express Company, American Express Bank Ltd., American
Express Travel Related Services Company, Inc., Lehman Brothers Inc., Lehman
Government Securities Inc., and Lehman Brothers Commercial Paper Inc. in the
original principal amount of approximately Six Hundred Forty-Nine Million
Dollars ($649,000,000), guaranteed by American Express Company, and that
certain debt issued by American Express Company in the original principal
amount of One Hundred Seventy-Five Million Dollars ($175,000,000) and reloaned
to the Co-tenants, each maturing at various dates through and including the
year 2000, all as identified and described more specifically on Appendix 1
attached hereto and made a part hereof (collectively, and specifically
including the indentures, mortgages and other documents evidencing, securing
and otherwise executed in connection with the same, the "WFC Debt Documents").
TO HAVE AND TO HOLD the same unto the Assignee and to the
successors, legal representatives and assigns of Assignee forever.
<PAGE> 37
ASSIGNEE in making the aforementioned assumption, agrees to be
bound by, all of the terms, covenants and provisions of the WFC Debt Documents.
ASSIGNOR is hereby released, from and after the date hereof,
from all claims, demands, actions, obligations and liabilities of every kind
and nature whatsoever arising out of the WFC Debt Documents.
ASSIGNEE hereby represents and warrants to Assignor (i) as of
the date hereof, that Assignee is duly authorized to execute and deliver this
Assignment and has the power and authority to perform its obligations hereunder
and (ii) Assignee shall not sell, assign, transfer, pledge, hypothecate, or
convey the interest assigned herein to any party.
ASSIGNEE hereby indemnifies and holds Assignor free and
harmless from and against any and all costs, expenses, damages, claims, and
liabilities, including reasonable attorneys' fees and disbursements, which may
be incurred by, or asserted against, Assignor on account of Assignee's failure
to pay, perform or observe any of the terms, covenants, obligations and
restrictions of the WFC Debt Documents assumed by it hereunder from and after
the date hereof. Assignor hereby indemnifies and holds Assignee free and
harmless from and against any and all costs, expenses, damages, claims, and
liabilities, including reasonable attorneys' fees and disbursements, which may
be incurred by, or asserted against, Assignee on account of Assignor's failure
to pay, perform or observe any of the terms, covenants, obligations and
restrictions of the WFC Debt Documents accruing prior to the date hereof.
2
<PAGE> 38
IN WITNESS WHEREOF, this Agreement has been executed by
Assignor and Assignee as of the date first above written.
Witnessed;
signed and acknowledged
in the presence of;
attested to by:
ASSIGNOR:
- ------------------------- [applicable AXP or LB entity]
Name:
By:
- ------------------------- -------------------------
Name: Name:
Its:
ASSIGNEE:
- ------------------------- [applicable AXP or LB entity]
Name:
By:
- ------------------------- -------------------------
Name: Name:
Its:
3
<PAGE> 39
Exhibit E
ASSIGNMENT AND ASSUMPTION OF SEVERANCE LEASE
(Covering Parcel C of the Battery Park City
Commercial Center)
between
[applicable AXP or LB entity]
and
[applicable AXP or LB entity]
---------------------------------------------------------
Dated: As of ----- --, 1994
Section: 1
Block: 16
Lot: 140
County: New York
Record and Return to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 Third Avenue
New York, New York 10022
ATTN: Martha Feltenstein, Esq.
<PAGE> 40
Exhibit E
ASSIGNMENT AND ASSUMPTION OF SEVERANCE LEASE
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of_________,
199_, made by [applicable AXP or LB entity] ("Assignor"), in favor of
[applicable AXP or LB entity] ("Assignee").
WHEREAS, Assignor is a co-tenant under that certain Agreement
of Severance Lease, dated as of June 15, 1983, by and between Battery Park City
Authority, as landlord, and Olympia & York Battery Park Company, as tenant,
covering the property (the "Premises") known as Three World Financial Center,
New York, New York as more particularly described on Exhibit A attached hereto
and made a part hereof, as assigned by that certain Assignment of Severance
Lease with Assumption, dated as of June 15, 1983, and as further assigned by
that certain Assignment and Assumption of Severance Lease, dated as of May 30,
1985 (collectively, the "Lease"); and
WHEREAS, Assignor desires to assign to Assignee all of the
right, title and interest of Assignor in, to and under the Lease to Assignee,
and Assignee desires to accept such assignment and assume all of the
obligations of Assignor under the Lease.
NOW, THEREFORE, for TEN DOLLARS ($10) and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
THAT Assignor does hereby assign, transfer and set over unto
Assignee all of the right, title and interest of Assignor in, to and under the
Lease.
TOGETHER with all of the right, title and interest of Assignor
in and to the Premises, the buildings and improvements thereon and therein as
of the date hereof, and the easements, franchises, licenses, rights and
incorporeal hereditaments appurtenant thereto.
TO HAVE AND TO HOLD the same unto Assignee and Assignee's
successors and assigns, from the date hereof, for all the rest and remainder of
the term of the Lease, subject, however, to the terms, covenants, conditions
and provisions contained in the Lease.
AND Assignee hereby assumes, covenants and agrees, subject to
Assignee's obligation to reconvey its Interest
<PAGE> 41
pursuant to Section I(C)(5) of the Option Agreement, dated as of ____________,
1994, by and among American Express Company, American Express Bank Ltd.,
American Express Travel Related Services Company, Inc., Lehman Brothers Inc.,
Lehman Government Securities Inc. and Lehman Brothers Commercial Paper Inc.
[and Article 43 and Section 42.04 of the Lease,] expressly for the benefit of
the landlord under the Lease, and its successors and assigns, to comply with,
observe and perform each and every term, covenant, condition and agreement
contained in the Lease on the part of tenant thereunder to be performed on and
after this date.
ASSIGNOR is hereby released, as of the date hereof, from all
claims, demands, actions, obligations and liabilities of every kind and nature
whatsoever arising out of the Lease.
ASSIGNEE hereby represents and warrants to Assignee, as of the
date hereof, that Assignee is duly authorized to execute and deliver this
Assignment and has the power and authority to perform its obligations hereunder
and (ii) Assignee shall not assign, sell, transfer, pledge, hypothecate, or
convey the interest assigned herein to any party.
ASSIGNOR hereby represents and warrants to Assignee, as of the
date hereof, that Assignor is duly authorized to execute and deliver this
Assignment and has the power and authority to perform its obligations
hereunder.
ASSIGNEE hereby indemnifies and holds Assignor free and
harmless from and against any and all costs, expenses, damages, claims, and
liabilities, including reasonable attorneys' fees and disbursements, which may
be incurred by, or asserted against, Assignor on account of Assignee's failure
to pay, perform or observe any of the terms, covenants, obligations and
restrictions of the Lease assumed by it hereunder from and after the date
hereof. Assignor hereby indemnifies and holds Assignee free and harmless from
and against any and all costs, expenses, damages, claims, and liabilities,
including reasonable attorneys' fees and disbursements, which may be incurred
by, or asserted against, Assignee on account of Assignor's failure to pay,
perform or observe any of the terms, covenants, obligations and restrictions of
the Lease accruing prior to the date hereof.
<PAGE> 42
IN WITNESS WHEREOF, this Agreement has been executed by
Assignor and Assignee as of the date first above written.
Witnessed;
signed and acknowledged
in the presence of;
attested to by:
ASSIGNOR:
[applicable AXP or LB entity]
- ----------------------------
Name:
By:
- ---------------------------- ----------------------------
Name: Name:
Its:
ASSIGNEE:
- ---------------------------- [applicable AXP or LB entity]
Name:
By:
- ---------------------------- ----------------------------
Name: Name:
Its:
<PAGE> 43
Exhibit F
[Seller to Buyer]
PROMISSORY NOTE
$____________________
New York, New York
_________ __, 199_
FOR VALUE RECEIVED, the undersigned, [seller] ("Maker")
promises to pay to the order of [buyer] ("Holder") at the following address
______, or such other place as the Holder hereof may from time to time
designate in writing, the sum of ____________________ Dollars ($_________), in
lawful money of the United States together with interest in the amounts and on
the due dates as stipulated in Schedule A, attached hereto and made a part
hereof [I.E., AS DUE AND PAYABLE BY MAKER PRIOR TO ASSIGNMENT OF ITS SHARE OF
the WFC Debt].
AND IT IS EXPRESSLY AGREED AS FOLLOWS:
1. Portions of the principal sum outstanding and any interest
earned thereon shall forthwith become due and payable at the option of Holder
upon the acceleration of some or all of the [WFC Debt], in an amount equal to
the amount so accelerated.
2. Any payments not made on the date due will bear interest
at a rate equal to the rate announced from time to time by Citibank, N.A. as
its "base rate", plus two percent.
<PAGE> 44
3. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby waived.
4. This Note may not be changed or terminated orally, but
only by an instrument in writing signed by the party against whom such change
or termination is sought to be enforced.
5. This Note is and shall be deemed to have been made and
delivered in the State of New York and in all respects shall be governed and
construed in accordance with the laws of the State of New York.
6. This Note may be prepaid, in whole or in part, at any
time, without premium or penalty.
7. The word "Maker" shall include Maker's legal
representatives, successors, and assigns, and the word "Holder" shall include
the Holder's legal representatives, successors and assigns.
By: [SELLER]
By:
------------------
President
<PAGE> 45
Exhibit G
[Officer's Certificate]
[To Follow]
<PAGE> 1
LEHMAN BROTHERS HOLDINGS INC.
1994 AGREEMENT
April 27, 1994
Nippon Life Insurance Company
1-1, Yurakucho 1-chome
Chiyoda-ku
Tokyo, 100
Japan
Ladies and Gentlemen:
Lehman Brothers Holdings Inc., a Delaware corporation (the "Company"),
hereby confirms its agreement with you with respect to the issuance by the
Company to you of an aggregate of 3,492,858 shares (the "Common Shares") of the
Company's common stock, par value $0.10 per share ("Common Stock") and 72
shares of the Company's Redeemable Voting Preferred Stock (the "Preferred
Shares" and, together with the Common Shares, the "Shares") and its sale to you
of a 7.24% interest in certain agreements between the Company and Smith Barney
Shearson, Inc. (the "Interest"), and American Express Company, a New York
corporation ("Amexco"), at present the owner of all the Common Stock, hereby
confirms with you certain related agreements set forth herein. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms and subject to the conditions herein set forth, the Company agrees to
sell to you, and you agree to purchase from the Company, the Shares and the
Interest. Initially capitalized terms not otherwise defined in this Agreement
shall have the definitions assigned thereto in the Certificate of Designation,
Powers, Preferences and Rights creating the Redeemable Preferred Shares, a copy
of which is attached hereto as Exhibit A (the "Preferred Share Certificate"
and, with the Amended and Restated Certificate of the Designation, Powers,
Preferences and Rights of the Cumulative Convertible Voting Preferred Stock,
Series A (the "Series A Preferred Stock") in the form of Exhibit B hereto (the
"Series A Certificate"), the "Certificates").
Section 1. Representations and Warranties.
(a) The Company represents and warrants to Nippon Life Insurance Company
("NLI") that:
(i) The Company has been duly incorporated and is validly existing and in
good standing as a corporation under the laws of the State of Delaware.
(ii) This Agreement and each of the Existing Documents (as defined in
paragraph (vi) below) has been duly authorized,
<PAGE> 2
executed and delivered by the Company and is enforceable against the Company in
accordance with its terms, except as such enforceability may be affected by
bankruptcy and other similar laws affecting creditors' rights generally and by
general principles of equity.
(iii) The execution and delivery of this Agreement and each of the
Existing Documents, the issuance and delivery of the Shares and the transfer of
the Interest hereunder and the issuance and delivery of the Common Stock
issuable on conversion thereof (the "Conversion Shares"), the Warrant and the
Common Stock issuable on exercise thereof (the "Warrant Shares"), the
consummation by the Company of the transactions contemplated herein and in the
Existing Documents and compliance by the Company with the terms of this
Agreement, the Existing Documents and the Certificates do not and will not
conflict with, or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
significant subsidiary thereof under (A) the Restated Certificate of
Incorporation or By-laws of the Company or (B) any existing applicable law,
rule or regulation or any judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its properties, except, with respect to this clause
(B), such conflicts, breaches, defaults or liens which individually and in the
aggregate will not have a material and adverse effect on the investment by NLI
contemplated hereby or on NLI's rights hereunder.
(iv) No filing, authorization, approval, consent, order, registration,
qualification or license of or with any court or governmental regulatory body
or authority (other than such consents, approvals, authorizations,
registrations, qualifications or filings as have been made or obtained or as
may be required under the securities or blue sky laws of the various states and
filings referred to under Section 4(e) hereof (including filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976) and other than the filing
of the Certificates with the Secretary of State of the State of Delaware) is
required for (A) the valid authorization, issuance, sale and delivery of the
Shares and the transfer of the Interest hereunder and sale of the Conversion
Shares, the Warrant and the Warrant Shares, (B) the valid execution and
delivery by the Company of this Agreement or (C) the consummation by the
Company of the transactions contemplated in this Agreement except with respect
to registration rights contained in the 1990 Agreement and filings for listing
the Common Stock.
(v) The Shares, the Series A Preferred Stock, the Conversion Shares and
the Warrant Shares have been validly
2
<PAGE> 3
authorized, and the Series A Preferred Stock is, and the Shares, upon payment
therefor as provided in this Agreement, the Conversion Shares on issuance
pursuant to the Series A Certificate and the Warrant Shares on issuance
pursuant to the Warrant will be, validly issued and outstanding, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and none of the Shares will be subject to any lien, charge or encumbrance or
any other claim of any third party arising out of any act of the Company. The
Common Stock will be listed on the New York Stock Exchange.
(vi) When issued, the Preferred Shares, and when the Series A Certificate
is filed the Series A Preferred Stock, will have such designation, preferences,
limitations and relative rights as set forth in the respective Certificates and
such shares and such designation, preferences, limitations and relative rights
are valid under Delaware law. Except to the extent set forth in the Investment
Agreement, dated as of April 15, 1987, by and among NLI, the Company and
Amexco, as such agreement has been amended through the date hereof (the
"Investment Agreement" and with the 1990 Agreement between NLI and Amexco (the
"1990 Agreement") and the Warrant referred to in Section 2(d), the "Existing
Documents"), no stockholders of the Company have any preemptive or similar
rights with respect to the Shares.
(vii) The Company does not have any Significant Subsidiaries (as such
term is defined in Rule 1-02 of Regulation S-X under the Securities Act of 1933
(the "Act")), except for Lehman Brothers Inc., Lehman Commercial Paper Inc. and
Lehman Government Securities Inc. (the "Named Subsidiaries").
(viii) Neither the Company nor any of the Named Subsidiaries is in
violation of its corporate charter or by-laws or in default under any
agreement, indenture or instrument, the effect of which violation or default
would be material to the Company and its subsidiaries taken as a whole.
(ix) The authorized, issued and outstanding capital stock of the Company
(as defined in the S-1 referred to below) are as described in the Registration
Statement on Form S-1 (Registration No. 33-52977) filed by the Company under
the Act (as amended by one or more amendments in the form heretofore furnished
to NLI, the "S-1"). All such outstanding shares are or will at the time of the
Distribution referred to in the S-1 be duly and validly issued and are or will
at the time of such Distribution be fully paid and nonassessable. Except as
set forth in the S-1, (A) there are no outstanding subscriptions, warrants,
options, calls or commitments of any character relating to or entitling any
person to purchase or otherwise acquire any stock of the Company or any Named
Subsidiary; (B) there are no
3
<PAGE> 4
obligations or securities convertible into or exchangeable for shares of any
stock of the Company or any Named Subsidiary or any commitments of any
character relating to or entitling any Person to purchase or otherwise acquire
any such obligations or securities; and (C) there are no preemptive or similar
rights to subscribe for or to purchase any stock of the Company or any Named
Subsidiary.
(x) The financial statements included in the S-1 have been prepared in
conformity with generally accepted accounting principles and fairly present in
all material respects the consolidated financial position and results of
operations and changes in financial position of the Company and its
subsidiaries as of the dates and for the periods indicated. Except as may be
disclosed in the S-1, since December 31, 1993, the Company and its subsidiaries
taken as a whole have not suffered any material adverse change in their
properties, business, operations, assets, liabilities or condition (financial
or other).
(xi) The S-1 contains no untrue statement of a material fact and does not
omit to state a material fact necessary to make the statements contained
therein not misleading.
(xii) The sale of the Shares hereunder is exempt from the registration
and prospectus delivery requirements of the Act. The Company agrees that
neither it, nor anyone acting on its behalf, will offer any securities for
issuance or sale if the sale of the Shares and any such securities would be
integrated as a single offering resulting in a violation of the Act.
(b) NLI represents and warrants to the Company that:
(i) NLI has been duly incorporated and is validly existing and in good
standing as a corporation under the laws of Japan.
(ii) This Agreement has been duly authorized, executed and delivered by
NLI and is enforceable against NLI in accordance with its terms, except as such
enforceability may be affected by bankruptcy and other similar laws affecting
creditors' rights generally and by general principles of equity.
(iii) The execution and delivery of this Agreement and the consummation
by NLI of the transactions contemplated herein and compliance by NLI with the
terms of this Agreement do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of NLI or any significant subsidiary thereof under (A)
the charter or similar instrument of NLI or (B) any existing applicable law,
rule or regulation or any
4
<PAGE> 5
judgment, order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over NLI or any of its
properties, except, with respect to this clause (B), such conflicts, breaches,
defaults or liens which individually and in the aggregate will not have a
material and adverse effect on the business of NLI and its subsidiaries taken
as a whole.
(iv) No filing, authorization, approval, consent, order, registration,
qualification or license of or with any court or governmental regulatory body
or authority (other than the consent of the Bank of Japan and the Ministry of
Finance (which NLI will use reasonable efforts to obtain), such consents,
approvals, authorizations, registrations, qualifications or filings as have
been made or obtained, filings to be made in the ordinary course and the
filings referred to in Section 4(e)) is required for (A) the valid execution
and delivery by NLI of this Agreement or (B) the consummation by NLI of the
transactions contemplated in this Agreement.
Section 2. Sale and Delivery to NLI; Closing.
(a) At 10:00 A.M., New York City time, on __________, 1994, or such other
time or date agreed to by the parties hereto (the "Closing Date"), delivery of
certificates for the Shares and sale of the Interest, against receipt by the
Company of the consideration therefor, shall be made at the offices of the
Company or such other place as shall be agreed upon by NLI and the Company.
The consideration for the issuance of the Shares and sale of the Interest is
$89,160,406 to be paid to the Company hereunder. In addition, in connection
with the sale of the Shares and the Interest by the Company to NLI, NLI will
agree to make additional payments in respect of the Interest as set forth in
that certain letter agreement between NLI and Amexco to be dated the Closing
Date in the form heretofore agreed (the "Letter Agreement"). Payment of the
cash portion of such consideration owing to the Company shall be made by wire
transfer of immediately available funds to Account No. 056-23-787 maintained by
the Company at Morgan Guaranty Trust Company of New York (ABA routing number
021-000-238). Contemporaneously therewith, the Agreement in Connection with
Assignment in the form of Exhibit C hereto and the Assignment Agreement in the
form of Exhibit D hereto (together, the "Assignment Agreements") shall be
executed and delivered by the parties hereto.
(b) The certificates representing the Shares will be issued in fully
registered form and registered in the name of NLI or its nominee in accordance
with the Company's Restated Certificate of Incorporation.
5
<PAGE> 6
(c) Each certificate representing the Shares will contain a legend
stating that no sale, pledge, hypothecation or other transfer of such Shares
shall be made except in a transaction that is registered under the Act or in a
transaction that is not subject to, or that is exempt from, the registration
requirements of the Act. The Company will issue to NLI or any transferee of
NLI new certificates representing Shares which do not contain such a legend if
the Shares in question are sold pursuant to an effective registration statement
or pursuant to Rule 144, or otherwise in a manner that does not require
registration under the Act.
(d) At the closing, the Company shall deliver to NLI an amended warrant
to purchase Common Stock dated the Closing Date in the form attached hereto as
Exhibit D-1 ("the Warrant").
(e) If at the closing any of the conditions to the closing specified in
Section 4 of this Agreement shall not have been fulfilled or if the closing
fails to occur on or before July 31, 1994, NLI shall, at its election and
notwithstanding anything to the contrary in this Agreement, be relieved of all
further obligations under this Agreement.
(f) At the closing, Amexco shall pay to an account designated by NLI (or
at its option credit against NLI's obligation under the Letter Agreement in
accordance with the terms thereof) $3,620,000.
Section 3. Covenants of the Company. The Company hereby covenants and
agrees as follows:
(a) Before the closing, the Company shall file an amendment to its
certificate of incorporation in the form attached hereto as Exhibit E (the
"Charter Amendment"), and immediately thereafter shall file the Certificates,
with the Secretary of State of the State of Delaware without modification to
the forms thereof attached hereto (except that the Charter Amendment may be
combined with the Series A Certificate in a manner satisfactory to NLI).
(b) So long as NLI or any of its affiliates is the holder of any Shares,
and notwithstanding anything contained herein or in the Certificate or in the
Charter Amendment to the contrary, the Company will, if so requested, pay all
dividends and other sums becoming due on any of the Shares registered in the
name of NLI or any affiliate of NLI by wire transfer of immediately available
funds to an account designated in writing by such holder not less than 10 days
preceding the payment date thereof or by such other method as NLI (or such
affiliate) shall have from time to time specified to the Company in writing at
least 10 days prior to the date such payment shall be due.
6
<PAGE> 7
Notwithstanding the provisions of the Certificate, the Company will agree to
make payments on the Preferred Shares by wire transfer of immediately available
funds to any transferee from NLI or an affiliate of NLI (or successive
transferees from such a transferee) who so requests if such transferee holds
not less than 15% of the aggregate liquidation preference of the Preferred
Shares at the time outstanding. Upon request of NLI, such affiliate or such a
transferee, the Company will enter into a written agreement with such
transferee to the foregoing effect. Nothing in this paragraph shall affect the
rights of any holder of Preferred Shares who is not entitled or does not elect
to receive payments in accordance with this paragraph to receive dividends as
provided in the Certificate.
(c) The Company will use reasonable efforts to cause the New York Stock
Exchange to determine that NLI may exercise its rights under Section 5.1(d) of
the Investment Agreement from time to time without the necessity of a
stockholder vote, and will provide NLI with an opportunity to comment on
submissions to and (subject to the Company's reasonable discretion) to attend
meetings with the New York Stock Exchange in this regard. Unless the New York
Stock Exchange rules that no such stockholder approval is required, the Company
will submit to stockholders at its 1995 annual meeting, and use its best
efforts to cause them to approve, a proposal reserving 13.7 million shares of
common stock for issuance to NLI on exercise of its preemptive rights. Whenever
all such shares have been used, the Company will submit to its stockholders at
its next annual meeting, and use its best efforts to cause them to approve, an
additional reservation of not less than the same number of shares for the same
purpose. If at any such meeting such a proposal is defeated, the Company shall
have no further obligations to submit such proposals to its stockholders.
(d) Except as explicitly provided for herein, before the closing the
Company shall not do any act that would result in an adjustment of the exercise
price under the Warrant had it been issued on the date hereof or the Conversion
Price of the Series A Preferred Stock.
(e) So long as NLI holds any Preferred Shares, the Company will not
without NLI's written consent permit any amendment to the Certificate that
adversely affects the preferences, special rights or powers thereof.
Section 4. Conditions of Closing. The Company and NLI agree that the
sale of the Shares and the Interest shall be conditioned on and subject to the
accuracy on and as if made on the Closing Date of the other's representations
and warranties, performance of the other's covenants and other obligations
hereunder, receipt of a certificate signed by an authorized
7
<PAGE> 8
officer of the other confirming such accuracy and performance and in the case
of NLI's obligations to the following further conditions:
(a) Thomas A. Russo, Esq., counsel to the Company, shall have furnished
to NLI his written opinion, dated the Closing Date, in form reasonably
satisfactory to NLI and its counsel, to the effect that:
(i) the Company has been duly incorporated and is validly existing and in
good standing as a corporation under the laws of the State of Delaware;
(ii) this Agreement has been duly authorized, executed and delivered by
the Company and is, and the Existing Documents as amended hereby each is,
enforceable against the Company in accordance with its terms (subject to
customary exceptions);
(iii) the execution and delivery of this Agreement, the issuance and
delivery of the Shares and the transfer of the Interest, the consummation by
the Company of the transactions contemplated herein and compliance by the
Company with the terms of this Agreement and the Existing Documents as amended
hereby and the Certificates do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of the Named Subsidiaries under
(A) the Restated Certificate of Incorporation or By-laws of the Company or (B)
any material agreement, indenture or instrument or any existing applicable law,
rule or regulation (other than the securities or blue sky laws of the various
states, as to which such counsel need express no opinion) or any judgment,
order or decree of any court or governmental agency having jurisdiction over
the Company, any of the Named Subsidiaries or their property;
(iv) no filing, authorization, approval, consent, order, registration,
qualification or license of or with any court or governmental regulatory body
or authority (other than such consents, approvals, authorizations,
registrations, qualifications or filings as have been made or obtained or as
may be required under the securities or blue sky laws of the various states and
filings referred to under Section 4(e) hereof (including filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976) and other than the filing
of the Certificates with the Secretary of State of the State of Delaware) is
required for (A) the valid authorization, issuance, sale and delivery of the
Shares and the transfer of the Interest hereunder and of the Conversion Shares,
the Warrant and the Warrant Shares, (B) the valid execution and delivery by the
Company of this Agreement or (C) the consummation by the Company
8
<PAGE> 9
of the transactions contemplated in this Agreement except with respect to
registration rights contained in the 1990 Agreement and filings for listing the
Common Stock;
(v) the certificates representing the Shares are in due and proper form,
and the Shares have been duly authorized and validly issued and upon payment of
the consideration provided in Section 2, will be fully paid and non-assessable,
and no holder thereof will be subject to personal liability by reason of being
such a holder; the shares of Common Stock issuable on conversion of the Series
A Preferred Stock and exercise of the Warrant have been duly authorized and
reserved for issuance upon conversion or exercise, and when issued upon
conversion or exercise will be validly issued, fully paid and non-assessable,
and no holder thereof will be subject to personal liability by reason of being
such a holder; the Preferred Shares and the Series A Preferred Stock have such
designation, preferences, limitations and relative rights as set forth in the
respective Certificates and such designation, preferences, limitations and
relative rights are valid under Delaware law;
(vi) the Company does not have any Significant Subsidiaries except for
the Named Subsidiaries; and
(vii) neither the Company nor any of the Named Subsidiaries is in
violation of its corporate charter or By-laws or in default under any
agreement, indenture or instrument, the effect of which violation or default
would be material to the Company and its subsidiaries taken as a whole.
Such opinion, in addition, shall be to such further effect with respect to
other legal matters relating to this Agreement as counsel to NLI may reasonably
request.
(b) Counsel to NLI shall have been furnished with all such documents,
certificates and opinions as they may reasonably request for the purpose of
enabling them to pass upon the issuance of the Shares and the issuance and
delivery of the Shares and the sale of the Interest as herein contemplated and
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company, the performance of
any of the covenants of the Company, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company at or
prior to the Closing Date in connection with the authorization, issuance and
delivery of the Shares as herein contemplated shall be reasonably satisfactory
in form and substance to NLI and its counsel.
(c) Simultaneously with the sale to NLI of the Shares and the Interest to
be purchased by it at the closing, the Company shall have sold and received
payment for the securities
9
<PAGE> 10
to be purchased by Amexco in accordance with the Purchase and Exchange
Agreement between it and the Company in the form heretofore furnished by the
Company to NLI and Amexco shall have sold approximately 441,600 shares of
Common Stock to the Company's executive officers for a price of approximately
$11.3 million.
(d) The long-term senior debt securities of the Company shall be rated
"A3" by Moody's Investor Services and "A" by Standard & Poor's and shall not
have been placed on Creditwatch or any similar list with negative implications.
(e) All applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 shall have expired, all other applicable government
approvals (including those of the Bank of Japan and the Ministry of Finance)
shall have been obtained in form reasonably satisfactory to NLI and no action
or proceeding shall be pending or threatened challenging NLI's acquisition of
the Shares or the Interest.
(f) The Assignment Agreements and the Consent to Assignment in the form
of Exhibit F shall have been executed and delivered by all parties thereto and
shall be in full force and effect (it being understood that the Company and
Amexco will continue to request that the parties to the Consent to Assignment
execute it in a form containing the changes heretofore proposed by NLI).
The obligations of the Company hereunder are conditioned on the execution
and delivery to the Company by NLI of a Purchaser's Agreement substantially in
the form of Exhibit G hereto.
Section 5. Amendments to Existing Documents.
(a) Effective as of the closing:
(i) The definition of Registrable Securities in Exhibit 1 to the
Investment Agreement and in Exhibit 13 to the 1990 Agreement shall be amended
to read in its entirety as set forth in Exhibit H-1 hereto.
(ii) Exhibit 13 to the 1990 Agreement shall be amended by adding thereto
a new Section 4.4 to read as set forth in Exhibit H-2 hereto.
(iii) Section 7.1 of the Investment Agreement shall be amended to read in
its entirety as set forth in Exhibit H-3 hereto.
10
<PAGE> 11
(iv) Section 7.4 of the 1990 Agreement shall be amended to read in its
entirety as set forth in Exhibit H-4 hereto.
(v) The first paragraph of Section 5.1(d) of the Investment Agreement
shall be amended to read in its entirety as set forth in Exhibit H-5 hereto.
(vi) The introduction to Section 4.1 of Exhibit 13 to the 1990 Agreement
shall be amended to read in its entirety as set forth in Exhibit H-6 hereto.
(vii) Section 5.3(a) of the Investment Agreement shall be amended to read
in its entirety as set forth in Exhibit H-7 hereto.
(viii) Article VIII of the 1990 Agreement shall be deleted.
(ix) The definition of Investor Minimum Investment in Schedule 1 to the
Investment Agreement shall be amended to read in its entirety as set forth in
Schedule H-8 hereto.
(b) Except as herein provided, the Existing Agreements and the Series A
Preferred Stock shall remain unchanged and in full force and effect, and each
reference to any of the Existing Agreements and words of similar import in the
Existing Agreements and the Series A Preferred Stock shall be a reference to
such Existing Agreement or the Series A Preferred Stock as amended hereby or
pursuant hereto and as the same may be further amended, supplemented and
otherwise modified and in effect from time to time.
(c) NLI hereby waives its rights under Section 5.2(d) of the Investment
Agreement, as amended by the 1990 Agreement.
Section 6. Notices. Any notice to NLI shall be sufficient if given in
writing delivered in person or by mail or courier addressed to NLI at its
address set forth above, to the attention of the International Finance and
Planning Department, any notice to the Company shall be sufficient if given in
writing delivered in person or by mail or facsimile (No. (212) __________)
addressed to the Company at 3 World Financial Center, New York, New York 10285,
to the attention of each of Treasurer and Chief Legal Officer and any notice to
Amexco shall be sufficient if given in writing delivered in person or by mail
or facsimile (No. (212) 267-9061) addressed to it at American Express Tower,
World Financial Center, 200 Vesey Street, New York, New York 10285, to the
attention of each of Treasurer and General Counsel, or such other address as
any party may, from time to time, designate in a written notice in a like
manner.
11
<PAGE> 12
Notice shall be deemed delivered on the business day after it is received by
the recipient.
Section 7. Binding Agreement. This Agreement shall be binding upon NLI,
the Company and Amexco and their respective successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that the representations, warranties, indemnities and agreements of the
Company contained in this Agreement shall also be deemed to be for the benefit
of any person or persons who control NLI within the meaning of Section 15 of
the Act. Nothing in this Agreement is intended or shall be construed to give
any person, other than the persons referred to in this Section, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
Section 8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
Section 9. Injunctions. Irreparable damage would occur in the event
that any provision of this Agreement was not performed in accordance with its
specific terms or was otherwise breached. Therefore, the parties hereto shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.
Section 10. Severability. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
Section 11. Further Assurances. Subject to the specific terms of this
Agreement, the parties shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby.
Section 12. Waivers, Etc. No failure or delay on the part of any party
hereto in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any
12
<PAGE> 13
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification, waiver, discharge or termination of any
provision of this Agreement nor consent to any departure by any party hereto
therefrom shall in any event be effective unless the same shall be in writing,
and then shall be effective only in the specific instance and for the purpose
for which given.
Section 13. Publicity. No party hereto shall make any disclosure
concerning the contents of this Agreement prior to the Closing Date unless the
form of such disclosure is acceptable to the others, unless required by law.
Section 14. Miscellaneous. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the matters
and transactions contemplated hereby and supersedes all prior agreements and
understandings whatsoever relating to such matters and transactions including
without limitation the letter of intent dated April 4, 1994. The headings in
this Agreement are for the purposes of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which
shall together constitute one instrument.
Section 15. Indemnity. NLI agrees that it will indemnify the Company for
any income tax expense that it might incur, Federal and state and local
(including interest and penalties) as well as any penalty for failure to
withhold tax, arising out of the transfer by the Company to NLI of the property
described in this Agreement. NLI further agrees to reimburse the Company for
any costs incurred as a result of the above. However, the Company agrees,
should NLI so request and the Company in its good faith discretion concur, to
permit at its own cost NLI's selected counsel to contest the assertion by any
tax authority of any amount for which indemnification is provided. The
foregoing, however, shall not include any indemnification for amounts received
by the Company from Amexco under Section 17 of the Tax Allocation Agreement in
the form heretofore provided, entered into between the Company and American
Express, as that provision relates to the NLI purchase described above.
13
<PAGE> 14
If the foregoing correctly sets forth our agreement, please so indicate in
the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement among the Company, Amexco and NLI.
Very truly yours,
LEHMAN BROTHERS HOLDINGS INC.
By:_________________________
Name:
Title:
AMERICAN EXPRESS COMPANY
By:__________________________
Name:
Title:
ACCEPTED at Tokyo, Japan
as of the date first
above written.
NIPPON LIFE INSURANCE COMPANY
By:__________________________
Name:
Title:
14
<PAGE> 15
Exhibit C
AGREEMENT IN CONNECTION WITH ASSIGNMENT
American Express Company ("AXP"), Nippon Life Insurance Company ("NL") and
Lehman Brothers Inc. ("LB") hereby notify Smith Barney Shearson Inc. (formerly
Smith Barney, Harris Upham & Co. Incorporated) ("SBS") that LB has assigned to
AXP and NL, as assignees, all of LB's right, title and interest in, to and
under that certain ADDITIONAL PURCHASE PRICE-BASED ON PROFIT PARTICIPATION
AGREEMENT and that certain ADDITIONAL PURCHASE PRICE BASED ON REVENUE
AGREEMENT, each dated as of July 31, 1993, and entered into by and between LB
and SBS (collectively, the "Additional Purchase Price Agreements").
1. Payments Due On and After the Date Hereof. LB directs that from and
after the date hereof, SBS shall make all payments which are due from and after
the date hereof under the Additional Purchase Price Agreements to AXP and NL as
jointly instructed by NL and AXP, and LB agrees that LB shall have no interest
in or right to receive any such payments from SBS under the Additional Purchase
Price Agreements. AXP and NL agree to hold SBS harmless from any claim by LB
that LB is entitled to receive any payment under the Additional Purchase Price
Agreements that SBS has made to AXP and NL pursuant to such assignment and in
accordance with their joint payment instructions.
2. Joint Payment Instructions. NL and AXP jointly instruct SBS from
and after the date hereof to wire transfer the funds payable under the
Additional Purchase Price Agreements as follows:
(a) ______ percent of each payment to AXP as follows:___________,
(b) __________percent of each payment to NL, as follows:
__________________.
Each party may change its bank account for the wire transfer of funds by
notification to SBS, but any change in the percentage of
<PAGE> 16
each payment to be made to AXP and NL shall be effective only upon instructions
given to SBS signed by both AXP and NL.
3. Objections, consultations and determinations. AXP and NL hereby agree
that (a) AXP shall be the sole assignee entitled to present objections to SBS
regarding any calculations made by SBS under the Additional Purchase Price
Agreements and shall be the sole assignee entitled to resolve any such
objections with SBS or pursuant to the arbitration procedure called for under
the Additional Purchase Price Agreements, and (b) AXP shall be the sole
assignee entitled to consult with SBS and make the determinations and
adjustments envisioned by Section 3 of the ADDITIONAL PURCHASE PRICE-BASED ON
PROFIT PARTICIPATION AGREEMENT. SBS shall be fully protected in dealing solely
with AXP with respect to resolving any such objections and making any such
consultations, determinations and adjustments and shall have no obligation
whatsoever to consult with, notify or obtain consent of NL in connection
therewith. AXP on its part shall have no obligation whatsoever to consult
with, notify or obtain consent of NL in regard to presenting any such
objections, resolving any such objections, or making any such consultations,
determination and adjustments and its actions taken in this regard shall bind
both assignees. AXP may take or refrain from taking any such action in its
sole discretion and it shall have no liability whatsoever to NL with regard to
any such action taken or with regard to its omission to take any such action,
and NL agrees that while AXP's actions shall be final, conclusive and binding
upon both AXP and NL for purposes of the Additional Purchase Price Agreements,
AXP does not undertake to act as an agent of or a fiduciary for NL.
4. LB acknowledges that it has no further rights under the Additional
Purchase Price Agreements with respect to any such objections, determinations
or adjustments and that LB shall no longer be deemed a party thereto.
Dated: _________________
AMERICAN EXPRESS COMPANY
By:_____________________
NIPPON LIFE INSURANCE COMPANY
By:____________________
<PAGE> 17
LEHMAN BROTHERS INC.
By:____________________
ACKNOWLEDGED:
SMITH BARNEY SHEARSON INC.
By:_________________________
<PAGE> 18
Exhibit D
ASSIGNMENT AGREEMENT
ASSIGNMENT made this ___ day of 1994, by Lehman Brothers Inc. (formerly
known as Shearson Lehman Brothers Inc., "LB") to American Express Company
("AXP") and Nippon Life Insurance Company ("NL").
1. Assignment. LB hereby assigns to AXP and to NL, in the
respective proportions set forth on Exhibit A hereto, all right, title and
interest of LB in, to and under that certain ADDITIONAL PURCHASE PRICE-BASED ON
PROFIT PARTICIPATION AGREEMENT and that certain ADDITIONAL PURCHASE PRICE BASED
ON REVENUE AGREEMENT, each dated as of July 31, 1993 and entered into by and
between LB and Smith Barney, Harris Upham & Co. Incorporated (now known as
Smith Barney Shearson Inc., "SBS"), (collectively, the "Additional Purchase
Price Agreements", true copies of which including amendments have been
furnished to AXP and NL) and all amounts receivable which LB is entitled to
receive thereunder on and after the date hereof under the Additional Purchase
Price Agreements; provided, however, that (a) AXP shall be the sole assignee
entitled to present objections to SBS regarding any calculations made by SBS
under the Additional Purchase Price Agreements and shall be the sole assignee
entitled to resolve any such objections with SBS or pursuant to the arbitration
procedure called for under the Additional Purchase Price Agreements, and (b)
AXP shall be the sole assignee entitled to consult with SBS and make the
determinations and adjustments envisioned by Section 3 of the ADDITIONAL
PURCHASE PRICE-BASED ON PROFIT PARTICIPATION AGREEMENT. SBS shall be fully
protected in dealing solely with AXP with respect to resolving any such
objections and making any such consultations, determinations and adjustments
and shall have no obligation whatsoever to consult with, notify or obtain
consent of NL in connection therewith. AXP on its part shall have no
obligation whatsoever to consult with, notify or obtain consent of NL in regard
to presenting any such objections, resolving any such objections, or making any
such consultations, determinations and adjustments and its actions taken in
this regard shall bind both assignees. AXP may take or refrain from taking any
such action in its sole discretion and it shall have no liability whatsoever to
NL with regard to any such action taken or with regard to its omission to take
any such action, and NL agrees that while AXP's actions shall be final and
conclusive for purposes of the Additional Purchase Price Agreements, AXP does
not undertake to act as an agent of or a fiduciary for NL; provided, that AXP
shall act in good faith and in a manner that is fair to and does not
<PAGE> 19
discriminate aginst NL. AXP shall keep NL reasonably informed with respect to
its actions hereunder, and will not be entitled to receive any remuneration for
its performance hereunder.
2. Representations and Warranties. LB represents and warrants
to AXP and NL as follows:
(a) LB is a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware, and has full corporate power
and authority to execute, deliver and perform this Assignment. The execution
and delivery of this Assignment and consummation the transactions provided for
herein have been duly authorized by LB by all necessary corporate action.
(b) The execution, delivery and performance by LB of this Assignment
does not and will not conflict with, violate, result in a breach of any of the
material terms or provisions of, or constitute (with or without notice or lapse
of time or both) a material default under, any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which LB is a party or by which
it is bound or to which any of its assets are subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of LB or
any material violation of any statute or any order, rule or regulation of any
court or governmental authority or administrative agency or self regulatory
organization applicable to or having jurisdiction over LB or any of its
subsidiaries.
(c) There are no proceedings or investigations pending or, to the
best of LB's knowledge, threatened against LB, before any court or regulatory
body, administrative agency, arbitration or other tribunal or governmental
instrumentality seeking to prevent the execution, delivery or performance of
this Assignment or seeking any determination or ruling that, in LB's reasonable
judgment, would adversely affect LB's execution, delivery or performance of
this Assignment.
(d) No consent, approval, authorization, or order of, or filing or
registration with, any court or governmental agency or body, and no consent or
approval of any other person, corporation or entity is required for the
execution, delivery and performance of this Assignment.
(e) LB is the sole owner of any interest in the Additional Purchase
Price Agreements and LB's rights in, to and under such Agreements are owned by
LB free and clear of all liens, encumbrances, equities or claims; upon
execution and delivery of this Assignment, all of LB's interest in, to and
under the Agreements will by assigned and conveyed to AXP and NL, in the
proportions set forth on Exhibit A, free and clear of all liens,
<PAGE> 20
encumbrances, equities or claims of any person claiming through or under LB or
any of its affiliates.
(f) This Assignment constitutes a legal, valid and binding
obligation of LB, enforceable against LB in accordance with its terms subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of creditors'
rights generally and except as such enforceability may be limited by general
principles of equity.
3. Other Documents. LB shall deliver to AXP and NL all other documents
that may be necessary to effectuate the purposes of this Assignment.
4. Binding Effect. This Agreement shall inure to the benefit of the
successors and assigns of AXP and NL, and shall be binding upon the successors
and assigns of LB.
5. Notices. All notices or other documents under this Agreement shall be
in writing and delivery personally or mailed by certified mail, postage
prepaid, addressed to the parties at their addresses set forth in Exhibit B.
6. Non-Waiver. No delay or failure by either party to exercise any
right under this Agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right, unless otherwise
expressly provided herein.
7. Headings. Headings in this Agreement are for convenience only
and shall not be used to interpret or construe its provisions.
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
<PAGE> 21
9. Relationship. This Agreement shall not be deemed to create a
partnership or tenancy-in-common between AXP and NL, and AXP shall have no
rights with respect to the property assigned to NL hereunder except as
explicitly provided in paragraph 1.
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instruments.
IN WITNESS WHEREOF, LB has caused this Assignment to be executed by this
duly authorized offices as of the date first above written
LEHMAN BROTHERS INC.
By: ____________________________
Name:
Title:
ATTEST:
________________________
Name:
Secretary:
The undersigned hereby accept the foregoing assignment upon the terms and
conditions stated above.
AMERICAN EXPRESS COMPANY
By:_____________________________
Name:
Title:
NIPPON LIFE INSURANCE COMPANY
By:____________________________
Name:
Title:
<PAGE> 22
Exhibit A to
Assignment Agreement
AXP shall be entitled to receive ____% of all amounts receivable which LB
is entitled to receive on and after ___________, 1994 under the Additional
Purchase Price Agreements.
NL shall be entitled to receive _____% of all amounts receivable which LB
is entitled to receive on and after ________, 1994 under the Additional
Purchase Price Agreements.
<PAGE> 23
Exhibit F to
1994 Agreement
CONSENT TO ASSIGNMENT
Smith Barney Shearson Inc. ("SBS") hereby consents to the assignment by
Lehman Brothers Inc. ("LB") to American Express Company ("AXP") and to Nippon
Life Insurance Company ("NL"), as assignees, of all of LB's right, title and
interest in, to and under that certain ADDITIONAL PURCHASE PRICE-BASED ON
PROFIT PARTICIPATION AGREEMENT and that certain ADDITIONAL PURCHASE PRICE BASED
ON REVENUE AGREEMENT, each dated as of July 31, 1993, and entered into by and
between LB and SBS (the "Additional Purchase Price Agreements"), provided that
(a) AXP and NL shall jointly instruct SBS as to where SBS shall make payment of
the amounts payable under the Additional Purchase Price Agreements and as to
the delivery of the statement and calculations to be provided to AXP and NL
thereunder and (b) AXP, NL and LB shall deliver their agreement in the form of
Exhibit A hereto to SBS.
Dated:
SMITH BARNEY SHEARSON INC.
By:______________________
THE TRAVELERS INC.
By:_______________________
<PAGE> 24
Exhibit G to
1994 Agreement
(NLI Letterhead)
May __, 1994
Lehman Brothers Holdings Inc.
3 World Financial Center
New York, NY 10285
Attention: Treasurer
Dear Sirs:
We have purchased for our own account from you ______ shares of Redeemable
Voting Preferred Stock and ______ shares of Common Stock (the "Securities") of
Lehman Brothers Holdings Inc. (the "Company").
All of the Securities should be registered in the name of:
(Purchaser's Name)
We understand that the Securities have not been registered under the
Securities Act of 1933 (the "Act") or under state securities laws, and we
hereby advise you that we intend to hold the Securities for our own account and
for investment purposes and (subject to our property being at all times within
our control) not with a view to any resale, distribution or other disposition
thereof in violation of any federal or state securities laws. We further
understand that the certificate(s) for the Securities bear a legend to the
effect that the Securities may not be reoffered, resold or otherwise pledged,
hypothecated or transferred unless registered or exempt from registration under
the Act and applicable state securities laws.
We hereby advise the Company that we have sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of our investment in the Securities and we are capable of
bearing the economic risks of such investment, including a complete loss of our
investment.
We will not offer to sell, sell or otherwise dispose of any of the
Securities in violation of the Act.
NIPPON LIFE INSURANCE COMPANY
By __________________________
Name:
Title:
<PAGE> 25
Exhibit H-1
"Registrable Securities" means Series A Shares and any shares of Company
Common Stock either held by Investor or any direct or indirect transferee of
Investor or issuable upon any exercise or conversion. As to any proposed offer
or sale of Registrable Securities, such securities shall cease to be
Registrable Securities with respect to such proposed offer or sale when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement or (ii) such
securities are permitted to be distributed pursuant to Rule 144 (or any
successor provision to such Rule) under the Securities Act.
<PAGE> 26
Exhibit H-2
4.4. Offerings Not Involving a Registration Statement. At the request of
the Investor in connection with an offering of Registrable Securities not to be
effected pursuant to a registration statement, the Company, will, as soon as
practicable, prepare in cooperation with the Investor and the managing
underwriters (if any) for such proposed offering a suitable offering circular
containing a description of Company, the proposed offering and other
appropriate matters. In any case where an offering is not being effected
pursuant to a registration statement, to the extent applicable, the obligations
under this Agreement shall apply, mutatis mutandis, to any such offering
circular and offering procedures. In furtherance but not in limitation of the
foregoing, Company shall keep such offering circular current so that it does
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading for so long as shall be necessary to permit the distribution of
the Registrable Securities in accordance with such offering circular and any
related underwriting agreement (but in any event not longer than six months),
and the agreements of Company herein shall be appropriately modified to reflect
the fact that such offering is not being made pursuant to a registration
statement or pursuant to the registration provisions of the Securities Act.
<PAGE> 27
Exhibit H-3
Section 7.1. Company's Rights of First Refusal. Subject to Sections
5.3(a) and 8.1(b), prior to making any offer to sell, sale or transfer (whether
for cash or other consideration) of Voting Stock of the Company, the Investor
shall give the Company the opportunity to purchase such Voting Stock in the
following manner:
(a) The Investor shall give notice (the "Transfer Notice") to the Company
in writing of such intention, specifying the name of the proposed transferee(s)
or the proposed manner of sale to transferees not then known, the amount and
class (or series) of Voting Stock proposed to be sold, the proposed price per
share therefor (which price may be a price determined by application of a
formula, such as the average closing price for such Voting Stock on the New
York Stock Exchange or the American Stock Exchange for a specified number of
days prior to a sale date) (the "Transfer Price"), the other material terms
upon which such sale is proposed to be made and all other relevant information
requested by the Company.
(b) The Company shall have the right, exercisable by written notice given
by the Company to the Investor within ten Business Days after receipt of such
Transfer Notice, to purchase all of the Voting Stock specified in the Transfer
Notice, for cash at a price per share equal to the Transfer Price; provided,
however, that if the Investor proposes to sell Voting Stock pursuant to a third
party offer consisting in whole or in part of consideration other than cash,
and the Company exercises its rights of first refusal, the Company shall pay to
the Investor, in lieu of such non-cash consideration, an amount equal to the
then fair cash value thereof. The then fair-cash value of any such non-cash
consideration shall be agreed upon by the Company and the Investor or failing
such agreement, shall be conclusively determined, at the request of the Company
or the Investor by such internationally recognized investment banking or other
advisory firm as the Company and the Investor shall agree upon for such
purpose. For this purpose, the Company and the Investor shall use their best
efforts to cause any determination of the value of any securities or other
property included in the Transfer Price to be made within seven Business Days
after the date of delivery of the Transfer Notice. If the Company and the
Investor are unable to agree upon the value of any such securities or other
property within such seven-day period, the determination of such independent
investment banking or other advisory firm of international standing shall be
conclusive. Delivery of and payment for the shares purchased pursuant to this
clause (b) may be delayed by the Company or by the Investor for such reasonable
time as is required for such determination to be made and communicated to the
Company and the Investor. The fees and reimbursable expenses of any person or
persons making the foregoing determinations shall be shared equally by the
Company and the Investor.
<PAGE> 28
(c) If the Company exercises its right of first refusal hereunder, the
closing of the purchase of the Voting Stock with respect to which such right
has been exercised shall take place on a Business Day within the later of 30
days after (i) the Company gives notice of such exercise or (ii) the
determination by such investment banking or other advisory firm, and for such
time as the Company may reasonably require in order to comply with applicable
laws and regulations. Upon exercise by the Company of the right of first
refusal under this Section 7.1, the Company and the Investor shall be legally
obligated to consummate the purchase contemplated thereby and shall use its
best efforts to secure any approvals required, and to comply with all Federal,
state and foreign laws and regulations and stock exchange listing requirements
applicable, in connection therewith as soon as practicable.
(d) If the Company does not exercise its right of first refusal hereunder
within the time specified for such exercise, the Investor shall be free, during
the period of 60 calendar days following the expiration of such time for
exercise, to sell the Voting Stock specified in such Transfer Notice at a price
at least as high (or at a price determined by the same, or more favorable to
the Investor, formula), in the manner and on terms no less favorable to the
Company than were specified in the Transfer Notice. Voting Stock not so sold
by the Investor within such period shall again become subject to the procedures
provided in this Section 7.1.
(e) Anything herein to the contrary notwithstanding, the Company's rights
of first refusal shall not apply with respect to a sale in an underwritten
public offering designed to result in a broad distribution of shares.
<PAGE> 29
Exhibit H-4
Section 7.4. Company Purchase Rights on Series A Shares. (a) In addition
to the rights of redemption set forth in Section 5 of Exhibit 14, Company may
at its option require Investor or Investor's Affiliates to sell to Company
outstanding Series A Shares on any Dividend Payment Date on or after June 15,
1992 upon at least 30 days' and not more than 45 days' prior written notice to
Investor thereof at the purchase price of $39.10 per share plus accumulated and
unpaid dividends (whether or not earned or declared) to the date fixed for
purchase:
Number of Shares Investor is
is Required to Sell
----------------------------
<TABLE>
<S> <C>
to and including
June 15, 1993. . . . . . . . . up to 2,600,000 minus the number of Series A Shares redeemed pursuant to
the terms thereof, converted into shares of Company Common Stock or
exchanged for Parent Common Shares prior to the date fixed for sale.
thereafter to and including
June 15, 1994. . . . . . . . . up to 5,200,000 minus the number of Series A Shares redeemed pursuant to
the terms thereof, converted into shares of Company Common Stock or
exchanged for Parent Common Shares or purchased by Company pursuant to
this Section 7.4 prior to the date fixed for sale.
thereafter to and including
June 15, 1995. . . . . . . . . up to 7,800 minus the number of Series A Shares redeemed pursuant to the
terms thereof, converted into shares of Company Common Stock or exchanged
for Parent Common Shares or purchased by Company pursuant to this Section
7.4 prior to the date fixed for sale.
thereafter to and including
June 15, 1996. . . . . . . . . up to 10,400,000 minus the number of Series A Shares redeemed pursuant to
the terms thereof, converted into shares
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
of Company Common Stock or exchanged for Parent Common Shares or purchased
by Company pursuant to this Section 7.4 prior to the date fixed for sale.
thereafter. . . . . . . . . . up to 13,000,000 minus the number of Series A Shares redeemed pursuant to
the terms thereof, converted into shares of Company Common Stock or
exchanged for Parent Common Shares or purchased by Company pursuant to
this Section 7.4 prior to the date fixed for sale.
</TABLE>
provided, however, the Company shall not have the right to require such a sale
of Series A Shares unless the Average Market Price of Parent Common Shares on
the date upon which notice of required sale is first given is above the
applicable Exchange Price then in effect; and provided further that the
effective date of any required sale pursuant to this Section 7.4 shall be
delayed for up to one (1) year to the extent necessary for Investor or Company,
as the case may be, to allow compliance with any laws or regulations applicable
to the exercise of Investor's exchange rights.
<PAGE> 31
Exhibit H-5
(d) Equity Purchase Rights. So long as the Investor owns directly or
indirectly at least the Investor Minimum Investment, if the Company shall not
have outstanding Public Company Stock, or if it shall have outstanding Public
Company Stock and such stock shall be listed on a national securities exchange
in the United States, which exchange does not prohibit the granting of equity
purchase rights of the type set forth in this clause (d) (the "Equity Purchase
Rights"), the Investor shall have Equity Purchase Rights.
<PAGE> 32
Exhibit H-6
4.1. Registration and Qualification. If and whenever Company is required
to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2 and 3 hereof,
Company will cooperate with the Investor as it reasonably requests in order to
or facilitate as soon as practicable the registration and disposition of such
Registrable Securities and will as promptly as is practicable:
<PAGE> 33
Exhibit H-7
Section 5.3. Covenants of Investor.
(a) Transfers. Neither the Series A Preferred Stock nor any shares
of Voting Stock received upon conversion thereof nor any Equity Purchase Shares
purchased with respect thereto ("Agreement Shares") owned by the Investor shall
be transferable prior to the seventh anniversary of the Closing Date without
the prior written consent of the Company. Shares of Voting Stock (including
any Equity Purchase Shares purchased with respect thereto) otherwise acquired
by the Investor, and, after the seventh anniversary of the Closing Date,
Agreement Shares, shall be freely transferable, subject only to the Company's
rights of first refusal under Section 7.1, and provided that, in the case of
Agreement Shares, each such transferee agrees to be bound by the provisions of
Sections 5.3 and 7.1 as if such transferee were the Investor.
Notwithstanding the preceding paragraph, the foregoing restrictions on
transfers shall not apply:
(i) to transfers to or among Affiliates of the Investor or back
to the Investor, if the transferee agrees to be bound by this Agreement
as if it were the Investor, in which case such transferee shall have all
of the benefits of this Agreement;
(ii) to transfers to the Parent or to Affiliates of the Parent;
(iii) other than the Company's rights of first refusal pursuant to
Section 7.1, to transfers made upon the exercise by the Purchaser of a
Registration Reduction Option pursuant to Section 5.2(d)(ii);
(iv) after the seventh anniversary of the Closing Date, other than the
Company's rights of first refusal pursuant to Section 7.1, to Company
Common Stock if the Company has Public Company Stock outstanding and the
Investor exercises its registration rights under Exhibit 13 to the 1990
Agreement with respect to such Company Common Stock or otherwise proposes
to sell such Common Stock;
(v) (a) at such time that the Company has Public Company Common
Stock outstanding or (b) subject to the Company's rights of first refusal
pursuant to Section 7.1, after December 31, 1999, to transfers of Voting
Stock (including any Equity Purchase Shares purchased with respect
thereto) otherwise acquired by the Investor, in an aggregate amount of not
more than 2% of the then Outstanding Voting Stock in any six-month period
commencing on January 1 and ending on June 30, and commencing on July 1
and ending on December 31 of each year; and
<PAGE> 34
(vi) to transfers to any Person, where the offer by such Person to
purchase the Voting Stock owned by the Investor (whether in the context of
a tender offer, a merger or otherwise) has been approved by the Company.
The above restrictions on transfer shall not apply to the Company Warrant
or to the Company Warrant Common Stock (or to Equity Purchase Shares or other
Voting Stock received with respect thereto), each as defined in the 1990
Agreement, which securities shall be subject to the restrictions of Section 7.3
of the 1990 Agreement.
2
<PAGE> 35
Exhibit H-8
"Investor Minimum Investment" means an amount of Series A Shares or Voting
Stock having an aggregate value, determined on the basis of each Series A Share
or share of Voting Stock having a value equal to the purchase price therefor
(or in the case of Voting Stock issued on conversion of the Series A Shares,
the Conversion Price, or in the case of Voting Stock issued on exercise of the
Warrant, the Warrant Price, in each case as in effect at the time of conversion
or exercise, of not less than two- thirds (2/3) the Aggregate Purchase Price.
The purchase price of Series A Shares or Voting Stock shall be proportionately
adjusted in the event of any dividend consisting of Series A Shares or Voting
Stock, as the case may be, or any subdivision or combination of such Series A
Shares or Voting Stock.
<PAGE> 1
LEHMAN BROTHERS INC.
VOLUNTARY DEFERRED
COMPENSATION PLAN
(FOR SELECT EXECUTIVES)
AS AMENDED EFFECTIVE JANUARY 1, 1991
AND SUBSEQUENTLY AMENDED THROUGH JULY 31, 1993
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
Deferred Compensation Account Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
Deferred Compensation Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V
Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI
Payment of Deferred Compensation; Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VIII
Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE X
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 3
LEHMAN BROTHERS INC.
VOLUNTARY DEFERRED
COMPENSATION PLAN
(FOR SELECT EXECUTIVES)
AS AMENDED EFFECTIVE JANUARY 1, 1991 AND SUBSEQUENTLY
AMENDED THROUGH JULY 31, 1993
ARTICLE I
Definitions
1.1 As used in this Plan, the following terms shall have
the meanings hereinafter set forth:
"Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Beneficiary" means any person(s) or legal entity(ies)
designated by the Participant or otherwise in accordance with Section 11.8.
"Bonus" means the bonus paid by the Employer to an Officer,
Branch Manager or Key Employee during any Plan Year.
"Branch Manager" means a person employed by the Employer as
the Manager of a domestic branch office.
"Cause" means willful misconduct, dishonesty, conviction of a
felony, persistent incompetence or habitual or gross negligence in the
performance of a Participant's duties to the Company other than as a result of
total or partial incapacity due to disability, persistent failure to abide by
the policies and regulations of the Company or American Express Company, or
such other similar conduct as determined by the Committee in its sole
discretion.
"CBT" means the Chicago Board of Trade.
"CEA" means the Commodity Exchange Act, as in effect from time
to time.
"CFTC" means the Commodity Futures Trading Commission.
"Commissions" means the gross commissions credited by the
Employer for sales made by a Financial Consultant for any Plan Year.
"Committee" means the Employee Benefit Plans Committee of the
Company which administers the Plan in accordance with ARTICLE IX.
<PAGE> 4
"Company" means Lehman Brothers Inc., a Delaware corporation,
and its successors and assigns.
"Deferred Compensation Account" means the account established
and maintained under the Plan for a Participant for each Participation Year.
"Disability" means (a) prior to the Restatement Date,
disability as defined under the Lehman Brothers Inc. Long-Term Disability Plan,
and (b) on or subsequent to the Restatement Date, termination of a
Participant's employment with the Company by reason of total and permanent
disability, determined in accordance with the Shearson Lehman Brothers Inc.
Long-Term Disability Plan, as in effect from time to time.
"Effective Date" means January 1, 1979.
"Eligible Employee" means, (a) with respect to any deferrals
for Plan Years beginning prior to January 1, 1993, any Officer, Branch Manager,
Financial Consultant or Key Employee (other than a "Transferred Participant,"
as that term is defined under the provisions of the Lehman Brothers Inc.
Voluntary Deferred Compensation Plan (for Transferred Participants)), whose
"compensation" for calendar year 1992 (or for such earlier calendar year for
which such person last had compensation) was less than $200,000, and (b) with
respect to any deferrals for any Plan Year beginning on or after January 1,
1993, any Officer, Branch Manager, Financial Consultant or Key Employee (other
than a Transferred Participant) whose "compensation" for the immediately
preceding Plan Year is less than $200,000 (or such other dollar amount as may
from time to time be established by the Committee.
Compensation for this purpose, for any Plan Year, shall equal
the sum of (a) the amount reported on such person's Federal Form W-2 for such
Year and (b) any amounts that would otherwise have been so included on such
Form W-2 for such Year, but for (i) the provisions of Sections 125 or 402(e)(3)
of the Internal Revenue Code (or any such predecessor provision) or (ii) the
deferral of any amounts pursuant to the terms of any non-qualified deferred
compensation plans or arrangements maintained by the Company.
"Employer" means the Company and any subsidiary or affiliate
thereof which shall be designated by the Committee as a participating employer
under the Plan.
"Exchange" means the New York Stock Exchange, Inc.
"Financial Consultant" means a person employed by the Employer
as a Financial Consultant.
-2-
<PAGE> 5
"Financial Hardship" means severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or a dependent, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The circumstances that
will constitute a Financial Hardship will depend upon the facts of each case
and will be determined by the Committee in its sole discretion, but
distributions may not be made to the extent that such hardship is or may be
relieved (i) through reimbursement or compensation by insurance or otherwise or
(ii) by liquidation of the Participant's assets, to the extent the liquidation
of such assets would not itself cause severe financial hardship.
"Installments" means substantially equal installments payable
annually as of the last day of the applicable calendar quarter and as of the
anniversary thereof in each succeeding year over a period certain not to exceed
15 years, as elected by a Participant in accordance with Section 6.1.
"Interest" on a Deferred Compensation Account shall have the
meaning set forth in Section 4.3.
"Key Employee" means a highly-compensated key employee of the
Employer other than an Officer, Branch Manager or Financial Consultant
designated by the Committee as such.
"NASD" means the National Association of Securities Dealers,
Inc.
"Officer" means an officer of the Employer as defined in the
Employer's By-Laws.
"Participant" for any Plan Year means an Eligible Employee who
elects to participate in the Plan in accordance with ARTICLE II.
"Participation Year" means each Plan Year for which a
Participant elects to participate in the Plan.
"Plan" means the Lehman Brothers Inc. Voluntary Deferred
Compensation Plan (for Select Executives), as embodied herein and as amended
from time to time.
"Plan Year" means the calendar year beginning on the Effective
Date and each succeeding calendar year the Plan remains in effect.
"Restatement Date" means January 1, 1991.
"Retirement" means (a) prior to the Restatement Date, a
Participant's retirement from employment with the Company under (i) the
provisions of the Company's Retirement Plan, or (ii) some other
-3-
<PAGE> 6
arrangement, but only if approved in advance by the Committee, and (b) on or
after the Restatement Date, termination of a Participant's employment with the
Company as a result of his retirement, determined pursuant to the provisions of
the Lehman Brothers Holdings Inc. Retirement Plan, as in effect from time to
time.
"Rule" means Rule 15c3-l under the Act.
"Salary" means the basic salary paid to an Officer, Branch
Manager or Key Employee for any Plan Year by the Employer.
"SEC" means the Securities and Exchange Commission.
"Separation from Service" means termination of a Participant's
employment with his Employer or the Company by reason of Retirement,
Disability, death or otherwise.
"SIPA" means the Securities Investor Protection Act of 1970,
as in effect from time to time.
1.2 Wherever any words are used herein in the masculine
gender, they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form, they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
ARTICLE II
Participation
2.1 (a) Prior to the December 4 preceding a Plan Year, or
such other date(s) as determined by the Committee, each Eligible Employee may
elect to participate in the Plan for the Plan Year by written notice to the
Committee, which notice must specify, subject to the provisions of Sections 2.2
and 6.1, the percentage of Salary, Commissions and Bonus to be deferred and the
time and form of payment; provided, however, that the Committee may establish
procedures and forms which are applicable to all Eligible Employees under which
Eligible Employees may elect to participate in the Plan on a prospective basis
as of some other date(s) specified in such procedures.
(b) Notwithstanding paragraph (a) of this
Section, an Eligible Employee who is first employed by the Employer during any
Plan Year may elect to participate in the Plan for such Plan Year by written
notice to the Committee otherwise consistent with Section 2.1(a) not later than
15 days after his date of employment.
-4-
<PAGE> 7
(c) Notwithstanding the other provisions of this
Section 2.1, upon application of any Participant and approval thereof by the
Committee, the Participant may at any time during a Participation Year revoke,
by reason of Financial Hardship, his election to participate in the Plan for
such Participation Year. Upon such revocation, any amount credited to his
Deferred Compensation Account for such year shall be paid to him without
interest as soon as practicable thereafter.
2.2 (a) The elections pursuant to Section 2.1 may
defer any whole number percentage of the Eligible Employee's Salary,
Commissions and Bonus; provided, however, that the maximum amount which may be
deferred for any Plan Year is 50% of an Eligible Employee's Salary, Commissions
and Bonus for such Plan Year, unless the Committee determines and establishes
some other percentage and/or specific dollar amount applicable to all elections
under the Plan.
(b) In the event an Eligible Employee's
Separation from Service occurs prior to the end of any Participation Year, his
election to participate in the Plan for such Participation Year shall be deemed
revoked and any amount credited to the Deferred Compensation Account for such
Plan Year shall be paid to him (or his Beneficiary) without Interest as soon as
practicable thereafter.
2.3 Notwithstanding anything herein to the contrary, a
Participant ceases to be a Participant on the date of his Separation from
Service; provided, however, that if a Participant continues to be employed by
an affiliate or subsidiary of the Company, he shall not incur a Separation from
Service until such time as he incurs a Separation from Service with such
affiliate or subsidiary.
ARTICLE III
Deferred Compensation Account Credits
3.1 The Committee shall cause to be credited to each
Participant's Deferred Compensation Account for a Participation Year the
amounts which he elected to defer in accordance with Section 2.1 as of the
effective date of deferral, in accordance with such rules and procedures as
shall be established by the Committee.
3.2 Notwithstanding any provisions herein to the contrary,
the Committee in its sole discretion may suspend any and all contributions
under the Plan for such period of time as it determines.
-5-
<PAGE> 8
ARTICLE IV
Deferred Compensation Accounts
4.1 The Committee shall establish and maintain a Deferred
Compensation Account for each Participant for each Participation Year
commencing on and after the Effective Date. Notwithstanding any of the
provisions of this ARTICLE IV, the subordination provisions contained herein in
ARTICLE VIII shall become effective as to any Deferred Compensation Account for
a Participation Year on the December 31 following commencement of that
Participation Year.
4.2 Interest shall be credited on amounts credited to each
Deferred Compensation Account as of the last day of each calendar quarter from
the effective date of deferral to the last day of the calendar quarter
immediately preceding the date on which such amounts are distributed to the
Participant at an annual rate equal to the average 30-day U.S. Treasury Bill
rate during such quarter and such interest shall be compounded annually
commencing with the first day of each Plan Year; provided, however, that (a) if
Section 6.2 is applicable, no interest shall be credited to the Participant's
Deferred Compensation Account after the last day of the calendar quarter in
which his Separation from Service occurred until such time as payment is made,
and (b) if Section 2.2(b) is applicable, no Interest shall be credited to
the Participant's Deferred Compensation Account for the applicable
Participation Year.
ARTICLE V
Vesting
5.1 Except as otherwise provided in Section 5.2, a
Participant shall at all times be fully vested in his Deferred Compensation
Account for any Participation Year.
5.2 Effective as of the Restatement Date, and
notwithstanding anything herein to the contrary, a Participant shall forfeit
his Deferred Compensation Account, including all earnings credited to such
Deferred Compensation Account, if the Participant is terminated for Cause;
provided, however, that in such event the Committee may decide, in its sole
discretion, whether the Participant shall continue to be vested in any portion
of the Deferred Compensation Account.
ARTICLE VI
Payment of Deferred Compensation; Withdrawals
6.1 At the time an Eligible Employee elects to become a
Participant for any Participation Year, he shall also elect in writing to the
Committee, on a form provided by the Committee, to
-6-
<PAGE> 9
have his Deferred Compensation Account for such year paid (a) in a lump sum as
soon as practicable following the second anniversary of the last day of the
applicable Participation Year or (b) as soon as practicable following the last
day of the calendar quarter coincident with or next following the date which is
six months following his Separation of Service as a result of his Retirement,
Disability of death, in a single lump sum or, in the event of a Separation of
Service on account of Retirement, Installments (as indicated on such election).
6.2 Notwithstanding the provisions of Section 6.1, if a
Participant's Separation from Service occurs other than by reason of
Retirement, Disability or death, payment of the amounts credited to his
Deferred Compensation Accounts for all Participation Years preceding the
current Participation Year shall be made in a lump sum as soon as practicable
after the last day of the calendar quarter in which the first anniversary of
his Separation from Service occurs and no Installment payments, if applicable,
shall be made during the one-year period prior to such date.
6.3 If a Participant fails to make a timely election in
accordance with procedures established by the Committee and on the form
provided by the Committee, a Participant shall have the amount credited to his
Deferred Compensation Account for each Participation Year paid to him in
accordance with clause (b) of Section 6.1.
6.4 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, distributions of a Participant's Deferred
Compensation Accounts shall commence as soon as practicable following the
commencement of distributions to the Participant under the Shearson Lehman
Brothers Holdings Inc. Retirement Plan, even if the Participant has made a
previous election to defer payment and even if the Participant has not
otherwise incurred a Retirement, Disability, death, or other Separation from
Service, with the form of payments being made in the manner elected by the
Participant in accordance with the provisions of Section 6.1; provided,
however, that no such distribution of an amount held in the Participant's
Deferred Compensation Account shall occur until the date which is one year
following the last day of the Plan Year in which such amount was credited to
such Deferred Compensation Account.
6.5 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, any amounts payable hereunder may be retained
by the Company in the event the Participant owes the Company any funds at the
time such Participant is otherwise entitled to receive amounts credited to his
Deferred Compensation Account.
-7-
<PAGE> 10
6.6 Plan payments shall not be included in the calculation of
Financial Consultant production levels or be utilized for any similar purpose,
and all such payments shall be considered cash compensation to the Participant
when paid, subject to all applicable federal, state and local income taxes and
withholding.
6.7 Amounts paid under the Plan shall not be eligible for
further deferral under the Plan.
6.8 If a Participant dies, his Beneficiary shall be entitled
to receive, as soon as administratively practicable after the date of his
death, the payment of his Deferred Compensation Account, with such payment
being made in the form elected by the Participant in accordance with the
provisions of Section 6.1, less any applicable federal, state and local income
taxes and withholding, if any.
6.9 No Interest or other earnings shall be paid on any amount
payable under the Plan for the period commencing on the last day of the
calendar quarter in which payment is required to be made and ending on the date
payment is actually made.
6.10 No payments shall be required or made if, in the opinion
of the Committee, such payment would not comply with the rules and regulations
of the NASD, the SEC, the CBT, any state securities regulatory authority, or
any other applicable law, rule or regulation, or the Participant is subject to
the provisions of Section 11.4.
6.11 Notwithstanding anything herein to the contrary, a
Participant may request and receive a hardship distribution, provided the
Participant is able to demonstrate, to the satisfaction of the Committee, that
he has suffered a Financial Hardship. A hardship distribution request must be
made on the form provided by the Committee and is subject to the rules
established by the Committee governing hardship distributions. The amount
distributed cannot exceed the lesser of (a) the Participant's Deferred
Compensation Account, or (b) the amount necessary to satisfy the Participant's
Financial Hardship. No distribution may be made prior to the time the
Committee approves the distribution, and payment is subject to the provisions
of Section 8.3.
6.12 Any Participant who transfers to the employ of a
subsidiary or affiliate of the Company and who later incurs a Separation from
Service with such subsidiary or affiliate shall receive a distribution of his
Deferred Compensation Account, in accordance with the provisions of this
ARTICLE VI, upon a termination of employment with such subsidiary or affiliate.
6.13 Any payment made to a Participant or his Beneficiary or
estate pursuant to the terms of the Plan shall constitute a
-8-
<PAGE> 11
complete discharge of the obligations of the Company and the Committee with
respect thereto.
ARTICLE VII
Funding
7.1 All amounts credited under the Plan shall come solely
from the general assets of the Company.
7.2 All amounts credited to Participants' Deferred
Compensation Accounts shall, at all times, (a) be subordinated debt of the
Company, (b) be dealt with in all respects as capital of the Company, (c) be
subject to the risk of the Company's business, and (d) may be deposited in an
account or accounts in the Company's name in any bank or trust company.
ARTICLE VIII
Subordination Provisions
8.1 The Company's obligation to pay amounts credited to a
Participant's Deferred Compensation Account on the date such payment is
otherwise due and payable in accordance with the terms of the Plan (the "Fixed
Payment Date") shall be suspended and shall not mature for any period of time
during which after giving effect to such payment (together with (a) the payment
of any other obligation of the Company payable at or prior to such payment and
(b) the return of any Secured Demand Note as defined in the Rule as in effect
at the time such payment is to be made and the collateral therefor held by the
Company and returnable at or prior to such payment):
(i) If the Company is not operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the aggregate indebtedness
of the Company would exceed 1200 per centum of its
net capital (or its "adjusted net capital" as defined
in the regulations under the CEA) as those terms are
defined in the Rule as in effect at the time payment
is to be made or such lesser per centum as may be
made applicable to the Company from time to time by
the Exchange (or other domestic exchange, board of
trade, clearing association or similar organization
of which the Company is a member) or a domestic
governmental agency or body having appropriate
authority; or
(ii) if the Company is operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the net capital of the
Company (or its "adjusted net capital" as defined in
the regulations
-9-
<PAGE> 12
under the CEA) would be less than the greater of (x)
5 per centum of aggregate debit items computed in
accordance with Exhibit A to Rule 15c3-3 under the
Act or any successor rule as in effect at the time
payment is to be made, (y) if the Company is
registered as a futures commission merchant with the
CFTC, 6 per centum of the funds required to be
segregated pursuant to the CEA and the regulations
promulgated thereunder and the foreign futures or
foreign options secured amounts, less the market
value of commodity options purchased by option
customers on or subject to the rules of a contract
market or foreign board of trade; provided, however,
the deduction for each option customer shall be
limited to the amount of customer funds in such
option customer's account(s) and the foreign futures
and foreign options secured amounts (if greater), or
(z) such greater per centum as may be made applicable
to the Company from time to time by the Exchange (or
any other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market maker transactions in
options listed on a national securities exchange or
facility of a national securities association, the
amounts required to be deducted and maintained as
required by the provisions of paragraphs (a)(6)(v),
(a)(7)(iv) or (c)(2)(x)(b)(l) of the Rule would
exceed 1000 per centum of its net capital (or its
"adjusted net capital" as defined in the regulations
under the CEA), as defined in the Rule as in effect
at the time such payment is made or such lesser per
centum as may be made applicable to the Company by
the Exchange (or any other domestic exchange, board
of trade, clearing association or similar
organization of which the Company is a member) or a
domestic governmental agency or body having
appropriate authority.
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<PAGE> 13
During any such suspension the Company shall, as promptly as
is consistent with the protection of its customers, reduce its business to a
condition whereby the amounts the payment of which has been suspended could be
paid (together with (c) the payment of any other obligation of the Company
payable at or prior to the payment of such amounts and (d) the return of any
Secured Demand Note and the collateral therefor held by the Company or
returnable at or prior to the payment of such amounts) without the Company's
net capital being below the applicable minimums set forth above in this Section
8.1 or its "adjusted net capital" being below the amount required as aforesaid,
at which time the Company shall pay the amounts credited to a Participant's
Deferred Compensation Account the payment of which has been suspended
(including Interest thereon calculated pursuant to the terms of the Plan, if
any) on not less than five (5) days' prior written notice to the Exchange and
the CBT. The first day on which under this ARTICLE VIII the Company has an
obligation to pay amounts is hereinafter referred to as the "payment date."
If, pursuant to the terms hereof, the Company's obligation to pay amounts
credited to a Participant's Deferred Compensation Account is suspended, the
Company recognizes and agrees that the Company may be summarily suspended by
the Exchange. The Company agrees that, if its obligation to pay amounts
credited to a Participant's Deferred Compensation Account is ever suspended for
a period of six (6) months, it will promptly take whatever steps are necessary
to effect a rapid and orderly complete liquidation of its business.
8.2 If payment is made of all or any part of the amounts
credited to a Participant's Deferred Compensation Account on the payment date
and if immediately after any such payment the Company's net capital is less
than the applicable minimums set forth above in Section 8.1, the Participant by
electing to participate agrees irrevocably, for himself, his beneficiaries,
heirs and assigns (whether or not the Participant had any knowledge or notice
of such fact at the time of any such payment) to repay to the Company, its
successors or assigns, the sum so paid, to be held by the Company pursuant to
the provisions hereof as if such payment had never had been made; provided,
however, that any suit for the recovery of any such payment must be commenced
within two (2) years of the date of such payment.
8.3 No payment of all or any portion of amounts credited to
a Participant's Deferred Compensation Account shall be made prior to the Fixed
Payment Date (whether as a consequence of Financial Hardship or otherwise, any
such payment being herein called a "Prepayment") unless at least one year has
passed from the effective date of the deferral and the Company shall have
received the prior written permission of the Exchange after consultation with
the SEC if the Exchange deems such consultation appropriate and the prior
written permission of the CBT. Furthermore, no Prepayment shall be made if
after giving effect thereto (and to all
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<PAGE> 14
other payments of principal of outstanding subordination agreements of the
Company, including the return of any Secured Demand Note and the collateral
therefor held by the Company, the maturity or accelerated maturity of which are
scheduled to occur within six (6) months after the date such Prepayment is to
occur, or on or prior to the date on which the Participant has elected to
receive payment of the amounts credited to his Deferred Compensation Account
disregarding such proposed payment, whichever date is earlier) without
reference to any projected profit or loss of the Company:
(i) if the Company is not operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the aggregate indebtedness
of the Company would exceed 1000 per centum of its
net capital (or its "adjusted net capital" as defined
in the regulations under the CEA), as those terms are
defined in the Rule as in effect at the time
Prepayment is to be made; or such lesser per centum
as may be made applicable to the Company from time to
time by the Exchange (or any other domestic exchange,
board of trade, clearing association or similar
organization of which the Company is a member) or a
domestic governmental agency or body having
appropriate authority; or
(ii) if the Company is operating pursuant to such
alternative net capital requirement, its net capital
(or its "adjusted net capital" as defined in the
regulations under the CEA) would be less than the
greater of: (x) 5 per centum of aggregate debit items
as those terms are defined in Exhibit A to Rule
15c3-3 of the Act or any successor rule as in effect
at such time; (y) if the Company is registered as a
futures commission merchant with the CFTC, 6 per
centum of the funds required to be segregated
pursuant to the CEA and the regulations promulgated
thereunder and the foreign futures or foreign options
secured amounts, less the market value of commodity
options purchased by option customers on or subject
to the rules of a contract market or foreign board of
trade; provided, however, the deduction for each
option customer shall be limited to the amount of
customer funds in such option customer's account(s)
and foreign futures and foreign options secured
amounts (if greater); or (z) such greater per centum
as may be made applicable to the Company from time to
time by the Exchange (or any other domestic exchange,
board of trade, clearing association or similar
organization of which the Company is a member) or a
domestic governmental agency or body having
appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as
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<PAGE> 15
defined in the Rule or any successor rule as in
effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market transactions in options
listed on a national securities exchange or facility
of a national securities association, the amounts
required to be deducted and maintained as required by
the provisions of paragraphs (a)(6)(v), (a)(7)(iv) or
(c)(2)(x)(b)(l) of the Rule would exceed 1000 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule as in effect at the time
such payment is made or such lesser per centum as may
be made applicable to the Company by the Exchange (or
any other exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority.
If Prepayment is made of all or any part of the amounts
credited to a Participant's Deferred Compensation Account on or prior to the
Fixed Payment Date, and if the Company's net capital is less than the amount
required to permit such payment pursuant to the previously cited provisions of
this Section 8.3, the Participant agrees irrevocably by electing to participate
in the Plan (whether or not such Participant had any knowledge or notice of
such fact at the time of any such Prepayment) to repay the Company, its
successors or assigns, the sum so paid to be held by the Company pursuant to
the provisions hereof as if such Prepayment had never been made; provided,
however, that any suit for the recovery of any such Prepayment must be
commenced within two (2) years of the date of such Prepayment.
8.4 A Participant, by making an election to participate in
this Plan, irrevocably agrees that the obligations of the Company under the
Plan with respect to the payment of amounts credited to a Participant's
Deferred Compensation Account are and shall be subordinate in right of payment
and subject to the prior payment or provision for payment in full of all claims
of all other present and future creditors of the Company whose claims are not
similarly subordinated (claims under the Plan shall rank pari passu with claims
similarly subordinated) and to claims which are now or hereafter expressly
stated in the instruments creating such claims
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<PAGE> 16
to be senior in right of payment to claims arising under the Plan, arising out
of any matter or event occurring prior to the payment date of the amounts
credited to that Participant's Deferred Compensation Account under the Plan.
In the event of the appointment of a receiver or trustee of the Company or in
the event of its insolvency, liquidation pursuant to SIPA or otherwise, its
bankruptcy, assignment for the benefit of creditors, reorganization whether or
not pursuant to bankruptcy laws, or any other marshalling of the assets and
liabilities of the Company, a Participant shall not be entitled to participate
or share, ratably or otherwise, in the distribution of the assets of the
Company until all claims of all other present and future creditors of the
Company, whose claims are senior to claims arising under the Plan, have been
fully satisfied, or provision has been made therefor.
8.5 Notwithstanding anything herein to the contrary:
(a) a Participant shall not be entitled to receive any
payment in respect of amounts credited to his
Deferred Compensation Account or to participate in
the distribution of assets of the Company in respect
thereof if such payment or distribution would
constitute a violation of the express terms of any
Senior Subordinated Debt, as hereinafter defined (or
any agreement under or pursuant to which the same may
be outstanding);
(b) the right of a Participant to receive any payment in
respect of amounts credited to his Deferred
Compensation Account shall be subordinated to claims
of the holders of Senior Subordinated Debt so that,
in the case of any distribution of assets of the
Company in complete or partial liquidation,
reorganization, arrangement or other marshalling of
assets and liabilities of the Company, no such
distribution or payment will be made with respect to
amounts credited to a Participant's Deferred
Compensation Account unless and until the principal
of and interest on the Senior Subordinated Debt are
paid in full; and
(c) a Participant shall promptly return to the Company
any amounts (whether cash, securities or otherwise)
received from the Company if the payment by the
Company of such amounts constituted a violation of
the express terms of any Senior Subordinated Debt (or
any agreement under or pursuant to which the same may
be outstanding).
8.6 The term "Senior Subordinated Debt" as used herein shall
mean and include all indebtedness of the Company (other than the Company's
obligations under the Company's 13 1/8% Subordinated Note due March 15, 1994,
the Company's 10 3/4% and 15 1/4% Subordinated Notes due from June 30, 1994
through December 31, 2025, the Company's obligations under the Plan, the
Company's Asset
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<PAGE> 17
Compensation Plan for Financial Consultants, the Company's Deferred
Compensation Plan for Branch Managers, the Company's Deferred Compensation Plan
for Financial Consultants, the Company's Recognition Award Plans (including the
Lehman Brothers Equity Unit and Bonus Plan), the Company's E.F. Hutton
Partnership Award Plan and those similar agreements with other Participants
each of which rank pari passu with the obligations of the Company under the
Plan) constituting part of its Net Capital (as defined in the Rule as in effect
from time to time), and shall include without limitation thereto the
indebtedness represented by the Company's obligations under the Company's 7
7/8% Senior Subordinated Notes Due August 15, 1993; the Company's 12 1/2%
Senior Subordinated Notes Due October 15, 1994; the Company's Floating Rate
Subordinated Note with American Express Company due April 1, 1994; the
Company's 8 3/4% Senior Subordinated Debentures Due March 1, 1996; the
Company's 10 3/4% Senior Subordinated Notes Due April 29, 1996; the Company's 9
1/2% Senior Subordinated Notes Due June 15, 1997; the Company's Senior
Subordinated Notes Due May 15, 1999; the Company's 9 7/8% Senior Subordinated
Notes Due October 15, 2000; the Company's 11 5/8% Senior Subordinated
Debentures Due May 15, 2005; the Company's 9 7/8% Senior Subordinated Note Due
October 1, 1993; the Company's 10 3/4% Senior Subordinated Notes due from June
30, 1994 through December 31, 2025 held by various subsidiaries and affiliates
of the Company; the Company's Floating Rate Senior Subordinated Notes due from
January 27, 1994 through September 30, 1994 held by an affiliate of the
Company; the Company's 6% Senior Subordinated Notes due December 30, 1994; the
Company's Floating Rate Senior Subordinated Notes due July 14, 1994; and the
Company's Floating Rate Senior Subordinated Notes due May 17, 1996 unless, in
each case, in the instrument evidencing or creating the same, or in any
agreement under or pursuant to which it shall be outstanding, such indebtedness
shall be declared not to be Senior Subordinated Debt. Senior Subordinated Debt
(and any agreement under or pursuant to which the same may be outstanding) may
be amended, the commitment under such agreements may be increased, provisions
thereof may be waived, time of payment of the Senior Subordinated Debt may be
extended and other indulgences granted to the Company in respect thereof all
from time to time without notice to or assent of any Participant under the
Plan.
8.7 Each Participant, by making an election to participate in
this Plan, irrevocably agrees and acknowledges that:
(a) such election is not being made in reliance upon the
standing of the Company as a member organization of
the Exchange or upon the Exchange's surveillance of
the Company's financial position or its compliance
with the constitution, rules and practices of the
Exchange;
(b) the Participant is not relying upon the Exchange to
provide any information concerning or relating to the
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<PAGE> 18
Company and the Exchange has no responsibility to
disclose to the Participant any information
concerning or relating to the Company which it may
now, or at any future time, have; and
(c) neither the Exchange, its Special Trust Fund, nor any
director, officer, trustee or employee of the
Exchange or said Trust Fund shall be liable to any
Participant with respect to this Plan or the payment
of amounts credited to a Participant's Deferred
Compensation Account.
8.8 Upon termination of the Company as a member of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
Examining Authority. The term Examining Authority shall refer to such
regulatory body having responsibility for inspecting or examining the Company
for compliance with financial responsibility requirements under Section 9(c) of
SIPA and Section 17(d) of the Act. References herein to the Exchange or the
Examining Authority shall also be deemed to refer to the CBT and to any other
exchange, board of trade, clearing association or similar organization of which
the Company is a member and which requires such reference as a condition to
inclusion of the amounts credited to Deferred Compensation Accounts hereunder
in the Company's net capital as computed for the purposes of such organization.
8.9 References in the Plan to the Exchange or Examining
Authority shall also be deemed to refer to the organization(s) designated as
the self-regulatory organization(s) (also known as DSRO) of the Company
pursuant to a plan filed with the CFTC pursuant to Regulation 1.52 under the
CEA to the extent such references are required as a condition to inclusion of
the amounts credited to Deferred Compensation Accounts in the Plan in the
Company's net capital as computed for purposes of such organization(s).
8.10 All amounts credited to Deferred Compensation Accounts
shall be dealt with in all respects as capital of the Company, shall be subject
to the risks of its business, and may be deposited in an account or accounts in
the Company's name in any bank or trust company.
8.11 Notwithstanding any other provisions in this ARTICLE
VIII, all amounts which are from time to time credited to Participants'
Deferred Compensation Accounts shall be subject to the terms of subordination
set forth in this ARTICLE VIII.
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<PAGE> 19
ARTICLE IX
Administration
9.1 The complete authority to control and manage the
operation and administration of the Plan and the responsibility for carrying
out its provisions belongs to the Committee. The Committee shall consist of at
least three members appointed from time to time by the Board of Directors to
serve at the pleasure thereof. Any member of the Committee may resign by
delivering his written resignation to the Board of Directors.
9.2 The Committee shall from time to time establish rules
of administration and interpretation of the Plan. The determination of the
Committee as to any disputed questions shall be conclusive and binding on all
parties, including the Participant, his Beneficiary, the Company and the
Employer.
9.3 Any act which the Plan authorizes or requires the
Committee to do may be done by a majority of its members. The action of such
majority, expressed by a vote at a meeting or in writing without a meeting,
shall constitute the action of the Committee and shall have the same effect for
all purposes as if assented to by all members of the Committee.
9.4 The members of the Committee may authorize one or more of
their number to execute or deliver any instrument, make any payment or perform
any other act which the Plan authorizes or requires the Committee to do.
9.5 The Committee may employ counsel and other agents and may
procure such clerical, accounting, and other services as they may require in
carrying out the provisions of the Plan.
9.6 No member of the Committee shall receive any compensation
for his services as such. All expenses of administering the Plan, including
but not limited to, fees of accountants and counsel, shall be paid by the
Company.
9.7 The Company shall indemnify and save harmless each member
of the Committee against all expenses and liabilities arising out of membership
on the Committee, excepting only expenses and liabilities arising from his own
gross negligence or willful misconduct, as determined by the Board of
Directors.
ARTICLE X
Amendment and Termination
10.1 The Company, by action of the Committee, may at any
time or from time to time modify or amend any or all of the provisions of the
Plan or may at any time terminate the Plan; provided,
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<PAGE> 20
however, that no action taken shall adversely affect the rights of any
Participant hereunder to amounts due and payable to such Participant at the
time such action is taken, unless the Participant otherwise consents thereto.
ARTICLE XI
General Provisions
11.1 No Participant, Branch Manager, Financial Consultant,
Officer, Key Employee or employee of the Company or any Employer shall have any
right to any payment or benefit hereunder except to the extent provided in the
Plan.
11.2 The employment rights of any Participant shall not be
enlarged, guaranteed or affected by reason of any of the provisions of the
Plan.
11.3 Assignment, pledge or other encumbrance of any payments
or benefits under the Plan shall not be permitted or recognized and to the
extent permitted by law, no such payments or benefits shall be subject to legal
process or attachment for the payment of any claim of any person entitled to
receive the same.
11.4 The Company shall have the right to retain or to use any
amounts payable under the Plan to satisfy or otherwise offset amounts the
Participant owes to the Company as a result of his actions or in the event he
is terminated for Cause. Amounts payable under the Plan may also be used to
offset amounts the Company is required to pay a client or a regulatory agency
or any other person or entity as a result of the Participant's actions.
11.5 If the Committee determines that any person to whom a
payment is due hereunder is a minor or incompetent by reason of physical or
mental disability, the Committee shall have the power to cause the payments
then due to such person to be made to another for the benefit of the minor or
incompetent, without responsibility of the Company or the Committee to see to
the application of such payment, unless claim prior to such payment is made
therefor by a duly appointed legal representative. Payments made pursuant to
such power shall operate as a complete discharge of the Company and the
Committee.
11.6 The validity of the Plan or any of its provisions shall
be determined under, and it shall be construed and administered according to,
the laws of the state of New York.
11.7 Any controversy or dispute hereunder shall be resolved
by arbitration pursuant to the Constitution of the Exchange or the NASD.
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<PAGE> 21
11.8 Each Participant may designate, in writing and on a form
provided by the Committee, any person(s) or legal entity(ies), including his
estate, as his Beneficiary under the Plan; provided, however, that a
Participant may designate a trust as his Beneficiary only with the prior
written approval of the Committee. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary at any time prior to his
death by filing with the Committee the appropriate beneficiary designation
form. If no person or legal entity shall be designated by a Participant as his
Beneficiary or if no designated Beneficiary survives him, his Beneficiary shall
be his estate. To be effective, any designation or revocation of Beneficiary
must be on the appropriate form provided by the Committee and on file with the
Committee prior to the date of the Participant's death. The provisions of the
Plan shall be binding on the Participant, the Company, and their respective
heirs, executors, administrators, successors and assigns.
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<PAGE> 1
LEHMAN BROTHERS INC.
VOLUNTARY DEFERRED
COMPENSATION PLAN
(FOR TRANSFERRED PARTICIPANTS' VESTED AMOUNTS
AS OF JULY 31, 1993)
AS AMENDED EFFECTIVE JANUARY 1, 1991
AND SUBSEQUENTLY AMENDED THROUGH JULY 31, 1993
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
Deferred Compensation Account Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
Deferred Compensation Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V
Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI
Payment of Deferred Compensation; Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VII
Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII
Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IX
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE X
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 3
LEHMAN BROTHERS INC.
VOLUNTARY DEFERRED
COMPENSATION PLAN
(FOR TRANSFERRED PARTICIPANTS'
VESTED AMOUNTS AS OF JULY 31, 1993)
AS AMENDED EFFECTIVE JANUARY 1, 1991 AND SUBSEQUENTLY
AMENDED THROUGH JULY 31, 1993
ARTICLE I
Definitions
1.1 As used in this Plan, the following terms shall have the
meanings hereinafter set forth:
"Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Beneficiary" means any person(s) or legal entity(ies)
designated by the Participant or otherwise in accordance with Section 11.8.
"Bonus" means the bonus paid by the Employer to an Officer,
Branch Manager or Key Employee during any Plan Year.
"Branch Manager" means a person employed by the Employer as
the Manager of a domestic branch office.
"Cause" means willful misconduct, dishonesty, conviction of a
felony, persistent incompetence or habitual or gross negligence in the
performance of a Participant's duties to the Company other than as a result of
total or partial incapacity due to disability, persistent failure to abide by
the policies and regulations of the Company or American Express Company, or
such other similar conduct as determined by the Committee in its sole
discretion; provided, however, that for purposes of applying this definition
with respect to any Participant, on and after the date that such person becomes
employed by Smith Barney (as of the Closing Date or later) in connection with
the Smith Barney Transaction, the term "Company" shall mean Smith Barney.
"CBT" means the Chicago Board of Trade.
"CEA" means the Commodity Exchange Act, as in effect from time
to time.
"CFTC" means the Commodity Futures Trading Commission.
<PAGE> 4
"Closing Date" means the closing date of the Smith Barney
Transaction.
"Commissions" means the gross commissions credited by the
Employer for sales made by a Financial Consultant for any Plan Year.
"Committee" means the Employee Benefit Plans Committee of the
Company which administers the Plan in accordance with ARTICLE IX.
"Company" means Lehman Brothers Inc., a Delaware
corporation, and its successors and assigns and, where and only where the text
specifically so indicates, Smith Barney.
"Deferred Compensation Account" means the account established
and maintained under the Plan for a Participant for each Participation Year.
"Disability" means (a) prior to the Restatement Date,
disability as defined under the Lehman Brothers Inc. Long-Term
Disability Plan, and (b) on or subsequent to the Restatement Date, termination
of a Participant's employment with the Company by reason of total and permanent
disability, determined in accordance with the Lehman Brothers Inc.
Long-Term Disability Plan, as in effect from time to time. For purposes of
applying clause (b) above with respect to any Participant, on and after the
date that such person becomes employed by Smith Barney (as of the Closing Date
or later) in connection with the Smith Barney Transaction, the term "Company"
shall mean Smith Barney.
"Effective Date" means January 1, 1979.
"Eligible Employee" means an Officer, Branch Manager,
Financial Consultant or Key Employee who is a Transferred Participant. A
person who is so classified as an Eligible Employee shall automatically remain
so classified for all periods on and after the Closing Date.
"Employer" means the Company and any subsidiary or affiliate
thereof which shall be designated by the Committee as a participating employer
under the Plan and, where and only where the text specifically so indicates,
Smith Barney.
"Exchange" means the New York Stock Exchange, Inc.
"Financial Consultant" means a person employed by the Employer
as a Financial Consultant.
"Financial Hardship" means severe financial hardship to the
Participant resulting from a sudden and unexpected illness or
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<PAGE> 5
accident of the Participant or a dependent, loss of the Participant's property
due to casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. The
circumstances that will constitute a Financial Hardship will depend upon the
facts of each case and will be determined by the Committee in its sole
discretion, but distributions may not be made to the extent that such hardship
is or may be relieved (i) through reimbursement or compensation by insurance or
otherwise or (ii) by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship.
"Installments" means substantially equal installments payable
annually as of the last day of the applicable calendar quarter and as of the
anniversary thereof in each succeeding year over a period certain not to exceed
15 years, as elected by a Participant in accordance with Section 6.1.
"Interest" on a Deferred Compensation Account shall have the
meaning set forth in Section 4.3.
"Key Employee" means a highly-compensated key employee of the
Employer other than an Officer, Branch Manager or Financial Consultant
designated by the Committee as such.
"NASD" means the National Association of Securities Dealers,
Inc.
"Non-Vested Plan" means the Lehman Brothers, Inc.
Voluntary Deferred Compensation Plan (for Lehman Non- Vested Amounts as of July
31, 1993) (as such plan may be renamed following its assumption by Smith Barney
as of the Closing Date), or such similar plan as may be adopted by Smith Barney
as of the Closing Date, pursuant to which, with respect to any Participant,
Interest on amounts held in Deferred Compensation Accounts of such person prior
to the date that such person becomes employed by Smith Barney (as of the
Closing Date or later) in connection with the Smith Barney Transaction will
accumulate as provided in the Non-Vested Plan.
"Officer" means an officer of the Employer as defined in the
Employer's By-Laws.
"Participant" for any Plan Year means an Eligible Employee who
elects to participate in the Plan in accordance with ARTICLE II.
"Participation Year" means each Plan Year for which a
Participant elects to participate in the Plan.
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<PAGE> 6
"Plan" means the Lehman Brothers Inc. Voluntary
Deferred Compensation Plan (for Transferred Participants' Vested Amounts as of
July 31, 1993), as embodied herein and as amended from time to time.
"Plan Year" means the calendar year beginning on the Effective
Date and each succeeding calendar year the Plan remains in effect.
"Primerica Retirement Plan" means the defined benefit pension
plan sponsored by Smith Barney or an affiliate thereof which covers a Smith
Barney Participant at the time of his retirement thereunder.
"Restatement Date" means January 1, 1991.
"Retirement" means (a) prior to the Restatement Date, a
Participant's retirement from employment with the Company under (i) the
provisions of the Company's Retirement Plan, or (ii) some other arrangement,
but only if approved in advance by the Committee, and (b) on or after the
Restatement Date, termination of a Participant's employment with the Company as
a result of his retirement, determined pursuant to the provisions of the
Lehman Brothers Holdings Inc. Retirement Plan, as in effect from time
to time, and (c) on and after the date that a Participant becomes employed by
Smith Barney (as of the Closing Date or later) in connection with the Smith
Barney Transaction, termination of such Participant's employment with Smith
Barney as a result of his retirement, determined pursuant to the provisions of
the Primerica Retirement Plan, as in effect from time to time.
"Rule" means Rule 15c3-l under the Act.
"Salary" means the basic salary paid to an Officer, Branch
Manager or Key Employee for any Plan Year by the Employer.
"SEC" means the Securities and Exchange Commission.
"Separation from Service" means termination of a Participant's
employment with his Employer or the Company by reason of Retirement,
Disability, death or otherwise; provided, however, that for purposes of the
preceding clause, on and after the date that a Participant becomes employed by
Smith Barney (as of the Closing Date or later) in connection with the Smith
Barney Transaction, the terms "Company" and "Employer" shall mean Smith Barney.
"SIPA" means the Securities Investor Protection Act of 1970,
as in effect from time to time.
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"Smith Barney" means Smith, Barney, Harris Upham & Co.,
Incorporated and Primerica Corporation and their successors and assigns.
"Smith Barney Transaction" means the sale of certain Company
assets to Smith Barney pursuant to an Asset Purchase Agreement dated as of
March 12, 1993 among the Company, Shearson Lehman Brothers Holdings Inc., Smith
Barney, Primerica Corporation and American Express Company.
"Transferred Participant" means any person who, but for the
establishment of the Plan and the related changes made under the Lehman
Brothers Inc. Voluntary Deferred Compensation Plan (the "Lehman Plan"), would
have been eligible to participate under the Lehman Plan for any Plan Year prior
to or including the Closing Date, and who became employed by Smith Barney as of
the Closing Date or later in connection with the Smith Barney Transaction.
1.2 Wherever any words are used herein in the masculine
gender, they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form, they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
ARTICLE II
Participation
2.1 (a) Prior to the December 4 preceding a Plan Year, or
such other date(s) as determined by the Committee, each Eligible Employee may
elect to participate in the Plan for the Plan Year by written notice to the
Committee, which notice must specify, subject to the provisions of Sections 2.2
and 6.1, the percentage of Salary, Commissions and Bonus to be deferred and the
time and form of payment; provided, however, that the Committee may establish
procedures and forms which are applicable to all Eligible Employees under which
Eligible Employees may elect to participate in the Plan on a prospective basis
as of some other date(s) specified in such procedures.
(b) Notwithstanding paragraph (a) of this Section, an
Eligible Employee who is first employed by the Employer during any Plan Year
may elect to participate in the Plan for such Plan Year by written notice to
the Committee otherwise consistent with Section 2.1(a) not later than 15 days
after his date of employment.
(c) Notwithstanding the other provisions of this Section 2.1,
upon application of any Participant and approval thereof by the Committee, the
Participant may at any time during a
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Participation Year revoke, by reason of Financial Hardship, his election to
participate in the Plan for such Participation Year. Upon such revocation, any
amount credited to his Deferred Compensation Account for such year shall be
paid to him without interest as soon as practicable thereafter.
2.2 (a) The elections pursuant to Section 2.1 may
defer any whole number percentage of the Eligible Employee's Salary,
Commissions and Bonus; provided, however, that the maximum amount which may be
deferred for any Plan Year is 50% of an Eligible Employee's Salary, Commissions
and Bonus for such Plan Year, unless the Committee determines and establishes
some other percentage and/or specific dollar amount applicable to all elections
under the Plan.
(b) In the event an Eligible Employee's Separation from
Service occurs prior to the end of any Participation Year, his election to
participate in the Plan for such Participation Year shall be deemed revoked and
any amount credited to the Deferred Compensation Account for such Plan Year
shall be paid to him (or his Beneficiary) without Interest as soon as
practicable thereafter.
2.3 Notwithstanding anything herein to the contrary, a
Participant ceases to be a Participant on the date of his Separation from
Service; provided, however, that if a Participant continues to be employed by
an affiliate or subsidiary of the Company, he shall not incur a Separation from
Service until such time as he incurs a Separation from Service with such
affiliate or subsidiary.
ARTICLE III
Deferred Compensation Account Credits
3.1 The Committee shall cause to be credited to each
Participant's Deferred Compensation Account for a Participation Year the
amounts which he elected to defer in accordance with Section 2.1 as of the
effective date of deferral, in accordance with such rules and procedures as
shall be established by the Committee.
3.2 Notwithstanding any provisions herein to the contrary,
the Committee in its sole discretion may suspend any and all contributions
under the Plan for such period of time as it determines.
3.3 Notwithstanding anything herein to the contrary, no
additional amounts (including interest) shall be credited to any Participant's
Deferred Compensation Account on or after the date that such person became
employed by Smith Barney, as of the Closing Date or later, in connection with
the Smith Barney Transaction.
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ARTICLE IV
Deferred Compensation Accounts
4.1 The Committee shall establish and maintain a Deferred
Compensation Account for each Participant for each Participation Year
commencing on and after the Effective Date. Notwithstanding any of the
provisions of this ARTICLE IV, the subordination provisions contained herein in
ARTICLE VIII shall become effective as to any Deferred Compensation Account for
a Participation Year on the December 31 following commencement of that
Participation Year.
4.2 On and after the Closing Date, all amounts credited to
each Deferred Compensation Account of a Participant as of the Closing Date
shall continue to be credited to such account until such time as they are
distributed to the Participant.
4.3 Subject to Section 3.3 above, Interest shall be credited
on amounts credited to each Deferred Compensation Account as of the last day of
each calendar quarter from the effective date of deferral to the last day of
the calendar quarter immediately preceding the date on which such amounts are
distributed to the Participant at an annual rate equal to the average 30-day
U.S. Treasury Bill rate during such quarter and such interest shall be
compounded annually commencing with the first day of each Plan Year; provided,
however, that (a) if Section 6.2 is applicable, no interest shall be credited
to the Participant's Deferred Compensation Account after the last day of the
calendar quarter in which his Separation from Service occurred until such time
as payment is made, and (b) if Section 2.2(b) is applicable, no Interest shall
be credited to the Participant's Deferred Compensation Account for the
applicable Participation Year.
ARTICLE V
Vesting
5.1 Except as otherwise provided in Section 5.2, a
Participant shall at all times be fully vested in his Deferred Compensation
Account for any Participation Year.
5.2 Effective as of the Restatement Date, and notwithstanding
anything herein to the contrary, a Participant shall forfeit his Deferred
Compensation Account, including all earnings credited to such Deferred
Compensation Account, if the Participant is terminated for Cause; provided,
however, that in such event the Committee may decide, in its sole discretion,
whether the Participant shall continue to be vested in any portion of the
Deferred Compensation Account.
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ARTICLE VI
Payment of Deferred Compensation; Withdrawals
6.1 At the time an Eligible Employee elects to become a
Participant for any Participation Year, he shall also elect in writing to the
Committee, on a form provided by the Committee, to have his Deferred
Compensation Account for such year paid (a) in a lump sum as soon as
practicable following the second anniversary of the last day of the applicable
Participation Year or (b) as soon as practicable following the last day of the
calendar quarter coincident with or next following the date which is six months
following his Separation of Service as a result of his Retirement, Disability
of death, in a single lump sum or, in the event of a Separation of Service on
account of Retirement, Installments (as indicated on such election).
6.2 Notwithstanding the provisions of Section 6.1, if a
Participant's Separation from Service occurs other than by reason of
Retirement, Disability or death, payment of the amounts credited to his
Deferred Compensation Accounts for all Participation Years preceding the
current Participation Year shall be made in a lump sum as soon as practicable
after the last day of the calendar quarter in which the first anniversary of
his Separation from Service occurs and no Installment payments, if applicable,
shall be made during the one-year period prior to such date.
6.3 If a Participant fails to make a timely election in
accordance with procedures established by the Committee and on the form
provided by the Committee, a Participant shall have the amount credited to his
Deferred Compensation Account for each Participation Year paid to him in
accordance with clause (b) of Section 6.1.
6.4 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, distributions of a Participant's Deferred
Compensation Accounts shall commence as soon as practicable following the
commencement of distributions to the Participant under the Lehman Brothers
Holdings Inc. Retirement Plan, even if the Participant has made a previous
election to defer payment and even if the Participant has not otherwise
incurred a Retirement, Disability, death, or other Separation from Service,
with the form of payments being made in the manner elected by the Participant
in accordance with the provisions of Section 6.1; provided, however, that no
such distribution of an amount held in the Participant's Deferred Compensation
Account shall occur until the date which is one year following the last day of
the Plan Year in which such amount was credited to such Deferred Compensation
Account; further provided, however, that after the Closing Date, distributions
of a Participant's Deferred Compensation Account shall commence in accordance
with this Section 6.4 if distributions to the
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<PAGE> 11
Participant under the Primerica Retirement Plan commence, even if the
Participant has made a previous election to defer payment and even if the
Participant has not otherwise incurred a Retirement, Disability, death, or
other Separation from Service, with the form of payments being made in the
manner elected by the Participant in accordance with the provisions of Section
6.1.
6.5 Effective as of the Restatement Date, notwithstanding
anything herein to the contrary, any amounts payable hereunder may be retained
by the Company in the event the Participant owes the Company any funds at the
time such Participant is otherwise entitled to receive amounts credited to his
Deferred Compensation Account.
6.6 Plan payments shall not be included in the calculation of
Financial Consultant production levels or be utilized for any similar purpose,
and all such payments shall be considered cash compensation to the Participant
when paid, subject to all applicable federal, state and local income taxes and
withholding.
6.7 Amounts paid under the Plan shall not be eligible for
further deferral under the Plan.
6.8 If a Participant dies, his Beneficiary shall be entitled
to receive, as soon as administratively practicable after the date of his
death, the payment of his Deferred Compensation Account, with such payment
being made in the form elected by the Participant in accordance with the
provisions of Section 6.1, less any applicable federal, state and local income
taxes and withholding, if any.
6.9 No Interest or other earnings shall be paid on any amount
payable under the Plan for the period commencing on the last day of the
calendar quarter in which payment is required to be made and ending on the date
payment is actually made.
6.10 No payments shall be required or made if, in the opinion
of the Committee, such payment would not comply with the rules and regulations
of the NASD, the SEC, the CBT, any state securities regulatory authority, or
any other applicable law, rule or regulation, or the Participant is subject to
the provisions of Section 11.4.
6.11 Notwithstanding anything herein to the contrary, a
Participant may request and receive a hardship distribution, provided the
Participant is able to demonstrate, to the satisfaction of the Committee, that
he has suffered a Financial Hardship. A hardship distribution request must be
made on the form provided by the Committee and is subject to the rules
established by the Committee governing hardship distributions. The amount
distributed cannot exceed the lesser of (a) the Participant's Deferred
Compensation Account, or (b) the amount
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necessary to satisfy the Participant's Financial Hardship. No distribution may
be made prior to the time the Committee approves the distribution, and payment
is subject to the provisions of Section 8.3.
6.12 Any Participant who transfers to the employ of a
subsidiary or affiliate of the Company and who later incurs a Separation from
Service with such subsidiary or affiliate shall receive a distribution of his
Deferred Compensation Account, in accordance with the provisions of this
ARTICLE VI, upon a termination of employment with such subsidiary or affiliate.
6.13 Any payment made to a Participant or his Beneficiary or
estate pursuant to the terms of the Plan shall constitute a complete discharge
of the obligations of the Company and the Committee with respect thereto.
ARTICLE VII
Funding
7.1 All amounts credited under the Plan shall come solely
from the general assets of the Company.
7.2 All amounts credited to Participants' Deferred
Compensation Accounts shall, at all times, (a) be subordinated debt of the
Company, (b) be dealt with in all respects as capital of the Company, (c) be
subject to the risk of the Company's business, and (d) may be deposited in an
account or accounts in the Company's name in any bank or trust company.
ARTICLE VIII
Subordination Provisions
8.1 The Company's obligation to pay amounts credited to a
Participant's Deferred Compensation Account on the date such payment is
otherwise due and payable in accordance with the terms of the Plan (the "Fixed
Payment Date") shall be suspended and shall not mature for any period of time
during which after giving effect to such payment (together with (a) the payment
of any other obligation of the Company payable at or prior to such payment and
(b) the return of any Secured Demand Note as defined in the Rule as in effect
at the time such payment is to be made and the collateral therefor held by the
Company and returnable at or prior to such payment):
(i) If the Company is not operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the aggregate indebtedness
of the Company would exceed 1200 per centum of its
net capital (or its "adjusted net capital" as defined
in
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the regulations under the CEA) as those terms are
defined in the Rule as in effect at the time payment
is to be made or such lesser per centum as may be
made applicable to the Company from time to time by
the Exchange (or other domestic exchange, board of
trade, clearing association or similar organization
of which the Company is a member) or a domestic
governmental agency or body having appropriate
authority; or
(ii) if the Company is operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the net capital of the
Company (or its "adjusted net capital" as defined in
the regulations under the CEA) would be less than the
greater of (x) 5 per centum of aggregate debit items
computed in accordance with Exhibit A to Rule 15c3-3
under the Act or any successor rule as in effect at
the time payment is to be made, (y) if the Company is
registered as a futures commission merchant with the
CFTC, 6 per centum of the funds required to be
segregated pursuant to the CEA and the regulations
promulgated thereunder and the foreign futures or
foreign options secured amounts, less the market
value of commodity options purchased by option
customers on or subject to the rules of a contract
market or foreign board of trade; provided, however,
the deduction for each option customer shall be
limited to the amount of customer funds in such
option customer's account(s) and the foreign futures
and foreign options secured amounts (if greater), or
(z) such greater per centum as may be made applicable
to the Company from time to time by the Exchange (or
any other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market maker transactions in
options
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<PAGE> 14
listed on a national securities exchange or facility
of a national securities association, the amounts
required to be deducted and maintained as required by
the provisions of paragraphs (a)(6)(v), (a)(7)(iv) or
(c)(2)(x)(b)(l) of the Rule would exceed 1000 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule as in effect at the time
such payment is made or such lesser per centum as may
be made applicable to the Company by the Exchange (or
any other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority.
During any such suspension the Company shall, as promptly as
is consistent with the protection of its customers, reduce its business to a
condition whereby the amounts the payment of which has been suspended could be
paid (together with (c) the payment of any other obligation of the Company
payable at or prior to the payment of such amounts and (d) the return of any
Secured Demand Note and the collateral therefor held by the Company or
returnable at or prior to the payment of such amounts) without the Company's
net capital being below the applicable minimums set forth above in this Section
8.1 or its "adjusted net capital" being below the amount required as aforesaid,
at which time the Company shall pay the amounts credited to a Participant's
Deferred Compensation Account the payment of which has been suspended
(including Interest thereon calculated pursuant to the terms of the Plan, if
any) on not less than five (5) days' prior written notice to the Exchange and
the CBT. The first day on which under this ARTICLE VIII the Company has an
obligation to pay amounts is hereinafter referred to as the "payment date."
If, pursuant to the terms hereof, the Company's obligation to pay amounts
credited to a Participant's Deferred Compensation Account is suspended, the
Company recognizes and agrees that the Company may be summarily suspended by
the Exchange. The Company agrees that, if its obligation to pay amounts
credited to a Participant's Deferred Compensation Account is ever suspended for
a period of six (6) months, it will promptly take whatever steps are necessary
to effect a rapid and orderly complete liquidation of its business.
8.2 If payment is made of all or any part of the amounts
credited to a Participant's Deferred Compensation Account on the payment date
and if immediately after any such payment the Company's net capital is less
than the applicable minimums set forth above in Section 8.1, the Participant by
electing to participate agrees irrevocably, for himself, his beneficiaries,
heirs and assigns (whether or not the Participant had any knowledge or notice
of such fact at the time of any such payment) to repay to the Company, its
successors or assigns, the sum so
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<PAGE> 15
paid, to be held by the Company pursuant to the provisions hereof as if such
payment had never had been made; provided, however, that any suit for the
recovery of any such payment must be commenced within two (2) years of the date
of such payment.
8.3 No payment of all or any portion of amounts credited to
a Participant's Deferred Compensation Account shall be made prior to the Fixed
Payment Date (whether as a consequence of Financial Hardship or otherwise, any
such payment being herein called a "Prepayment") unless at least one year has
passed from the effective date of the deferral and the Company shall have
received the prior written permission of the Exchange after consultation with
the SEC if the Exchange deems such consultation appropriate and the prior
written permission of the CBT. Furthermore, no Prepayment shall be made if
after giving effect thereto (and to all other payments of principal of
outstanding subordination agreements of the Company, including the return of
any Secured Demand Note and the collateral therefor held by the Company, the
maturity or accelerated maturity of which are scheduled to occur within six (6)
months after the date such Prepayment is to occur, or on or prior to the date
on which the Participant has elected to receive payment of the amounts credited
to his Deferred Compensation Account disregarding such proposed payment,
whichever date is earlier) without reference to any projected profit or loss of
the Company:
(i) if the Company is not operating pursuant to the
alternative net capital requirements provided for in
paragraph (f) of the Rule, the aggregate indebtedness
of the Company would exceed 1000 per centum of its
net capital (or its "adjusted net capital" as defined
in the regulations under the CEA), as those terms are
defined in the Rule as in effect at the time
Prepayment is to be made; or such lesser per centum
as may be made applicable to the Company from time to
time by the Exchange (or any other domestic exchange,
board of trade, clearing association or similar
organization of which the Company is a member) or a
domestic governmental agency or body having
appropriate authority; or
(ii) if the Company is operating pursuant to such
alternative net capital requirement, its net capital
(or its "adjusted net capital" as defined in the
regulations under the CEA) would be less than the
greater of: (x) 5 per centum of aggregate debit items
as those terms are defined in Exhibit A to Rule
15c3-3 of the Act or any successor rule as in effect
at such time; (y) if the Company is registered as a
futures commission merchant with the CFTC, 6 per
centum of the funds required to be segregated
pursuant to the CEA and the regulations promulgated
thereunder and the foreign
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futures or foreign options secured amounts, less the
market value of commodity options purchased by option
customers on or subject to the rules of a contract
market or foreign board of trade; provided, however,
the deduction for each option customer shall be
limited to the amount of customer funds in such
option customer's account(s) and foreign futures and
foreign options secured amounts (if greater); or (z)
such greater per centum as may be made applicable to
the Company from time to time by the Exchange (or any
other domestic exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority; or
(iii) if the Company's net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule or any successor rule as
in effect at the time payment is to be made, would be
less than 120 per centum of any minimum dollar amount
required by the Rule (or the regulations under the
CEA as in effect at such time), or such greater
dollar amount as may be made applicable to the
Company by the Exchange (or any other domestic
exchange, board of trade, clearing association or
similar organization of which the Company is a
member) or a domestic governmental agency or body
having appropriate authority; or
(iv) if the Company guarantees, endorses, carries or
clears specialist or market transactions in options
listed on a national securities exchange or facility
of a national securities association, the amounts
required to be deducted and maintained as required by
the provisions of paragraphs (a)(6)(v), (a)(7)(iv) or
(c)(2)(x)(b)(l) of the Rule would exceed 1000 per
centum of its net capital (or its "adjusted net
capital" as defined in the regulations under the
CEA), as defined in the Rule as in effect at the time
such payment is made or such lesser per centum as may
be made applicable to the Company by the Exchange (or
any other exchange, board of trade, clearing
association or similar organization of which the
Company is a member) or a domestic governmental
agency or body having appropriate authority.
If Prepayment is made of all or any part of the amounts
credited to a Participant's Deferred Compensation Account on or prior to the
Fixed Payment Date, and if the Company's net capital is less than the amount
required to permit such payment pursuant to the previously cited provisions of
this Section 8.3, the Participant agrees irrevocably by electing to participate
in the
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<PAGE> 17
Plan (whether or not such Participant had any knowledge or notice of such fact
at the time of any such Prepayment) to repay the Company, its successors or
assigns, the sum so paid to be held by the Company pursuant to the provisions
hereof as if such Prepayment had never been made; provided, however, that any
suit for the recovery of any such Prepayment must be commenced within two (2)
years of the date of such Prepayment.
8.4 A Participant, by making an election to participate in
this Plan, irrevocably agrees that the obligations of the Company under the
Plan with respect to the payment of amounts credited to a Participant's
Deferred Compensation Account are and shall be subordinate in right of payment
and subject to the prior payment or provision for payment in full of all claims
of all other present and future creditors of the Company whose claims are not
similarly subordinated (claims under the Plan shall rank pari passu with claims
similarly subordinated) and to claims which are now or hereafter expressly
stated in the instruments creating such claims to be senior in right of payment
to claims arising under the Plan, arising out of any matter or event occurring
prior to the payment date of the amounts credited to that Participant's
Deferred Compensation Account under the Plan. In the event of the appointment
of a receiver or trustee of the Company or in the event of its insolvency,
liquidation pursuant to SIPA or otherwise, its bankruptcy, assignment for the
benefit of creditors, reorganization whether or not pursuant to bankruptcy
laws, or any other marshalling of the assets and liabilities of the Company, a
Participant shall not be entitled to participate or share, ratably or
otherwise, in the distribution of the assets of the Company until all claims of
all other present and future creditors of the Company, whose claims are senior
to claims arising under the Plan, have been fully satisfied, or provision has
been made therefor.
8.5 Notwithstanding anything herein to the contrary:
(a) a Participant shall not be entitled to receive any
payment in respect of amounts credited to his
Deferred Compensation Account or to participate in
the distribution of assets of the Company in respect
thereof if such payment or distribution would
constitute a violation of the express terms of any
Senior Subordinated Debt, as hereinafter defined (or
any agreement under or pursuant to which the same may
be outstanding);
(b) the right of a Participant to receive any payment in
respect of amounts credited to his Deferred
Compensation Account shall be subordinated to claims
of the holders of Senior Subordinated Debt so that,
in the case of any distribution of assets of the
Company in complete or partial liquidation,
reorganization,
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<PAGE> 18
arrangement or other marshalling of assets and
liabilities of the Company, no such distribution or
payment will be made with respect to amounts credited
to a Participant's Deferred Compensation Account
unless and until the principal of and interest on the
Senior Subordinated Debt are paid in full; and
(c) a Participant shall promptly return to the Company
any amounts (whether cash, securities or otherwise)
received from the Company if the payment by the
Company of such amounts constituted a violation of
the express terms of any Senior Subordinated Debt (or
any agreement under or pursuant to which the same may
be outstanding).
8.6 The term "Senior Subordinated Debt" as used herein shall
mean and include all indebtedness of the Company (other than the Company's
obligations under the Company's 13 1/8% Subordinated Note due March 15, 1994,
the Company's 10 3/4% and 15 1/4% Subordinated Notes due from June 30, 1994
through December 31, 2025, the Company's obligations under the Plan, the
Company's Asset Compensation Plan for Financial Consultants, the Company's
Deferred Compensation Plan for Branch Managers, the Company's Deferred
Compensation Plan for Financial Consultants, the Company's Recognition Award
Plans (including the Lehman Brothers Equity Unit and Bonus Plan), the Company's
E.F. Hutton Partnership Award Plan and those similar agreements with other
Participants each of which rank pari passu with the obligations of the Company
under the Plan) constituting part of its Net Capital (as defined in the Rule as
in effect from time to time), and shall include without limitation thereto the
indebtedness represented by the Company's obligations under the Company's 7
7/8% Senior Subordinated Notes Due August 15, 1993; the Company's 12 1/2%
Senior Subordinated Notes Due October 15, 1994; the Company's Floating Rate
Subordinated Note with American Express Company due April 1, 1994; the
Company's 8 3/4% Senior Subordinated Debentures Due March 1, 1996; the
Company's 10 3/4% Senior Subordinated Notes Due April 29, 1996; the Company's 9
1/2% Senior Subordinated Notes Due June 15, 1997; the Company's Senior
Subordinated Notes Due May 15, 1999; the Company's 9 7/8% Senior Subordinated
Notes Due October 15, 2000; the Company's 11 5/8% Senior Subordinated
Debentures Due May 15, 2005; the Company's 9 7/8% Senior Subordinated Note Due
October 1, 1993; the Company's 10 3/4% Senior Subordinated Notes due from June
30, 1994 through December 31, 2025 held by various subsidiaries and affiliates
of the Company; the Company's Floating Rate Senior Subordinated Notes due from
January 27, 1994 through September 30, 1994 held by an affiliate of the
Company; the Company's 6% Senior Subordinated Notes due December 30, 1994; the
Company's Floating Rate Senior Subordinated Notes due July 14, 1994; and the
Company's Floating Rate Senior Subordinated Notes due May 17, 1996 unless, in
each case, in the instrument evidencing or
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<PAGE> 19
creating the same, or in any agreement under or pursuant to which it shall be
outstanding, such indebtedness shall be declared not to be Senior Subordinated
Debt. Senior Subordinated Debt (and any agreement under or pursuant to which
the same may be outstanding) may be amended, the commitment under such
agreements may be increased, provisions thereof may be waived, time of payment
of the Senior Subordinated Debt may be extended and other indulgences granted
to the Company in respect thereof all from time to time without notice to or
assent of any Participant under the Plan.
8.7 Each Participant, by making an election to participate in
this Plan, irrevocably agrees and acknowledges that:
(a) such election is not being made in reliance upon the
standing of the Company as a member organization of
the Exchange or upon the Exchange's surveillance of
the Company's financial position or its compliance
with the constitution, rules and practices of the
Exchange;
(b) the Participant is not relying upon the Exchange to
provide any information concerning or relating to the
Company and the Exchange has no responsibility to
disclose to the Participant any information
concerning or relating to the Company which it may
now, or at any future time, have; and
(c) neither the Exchange, its Special Trust Fund, nor any
director, officer, trustee or employee of the
Exchange or said Trust Fund shall be liable to any
Participant with respect to this Plan or the payment
of amounts credited to a Participant's Deferred
Compensation Account.
8.8 Upon termination of the Company as a member of the
Exchange, the references herein to the Exchange shall be deemed to refer to the
Examining Authority. The term Examining Authority shall refer to such
regulatory body having responsibility for inspecting or examining the Company
for compliance with financial responsibility requirements under Section 9(c) of
SIPA and Section 17(d) of the Act. References herein to the Exchange or the
Examining Authority shall also be deemed to refer to the CBT and to any other
exchange, board of trade, clearing association or similar organization of which
the Company is a member and which requires such reference as a condition to
inclusion of the amounts credited to Deferred Compensation Accounts hereunder
in the Company's net capital as computed for the purposes of such organization.
8.9 References in the Plan to the Exchange or Examining
Authority shall also be deemed to refer to the organization(s) designated as
the self-regulatory organization(s) (also known as
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DSRO) of the Company pursuant to a plan filed with the CFTC pursuant to
Regulation 1.52 under the CEA to the extent such references are required as a
condition to inclusion of the amounts credited to Deferred Compensation
Accounts in the Plan in the Company's net capital as computed for purposes of
such organization(s).
8.10 All amounts credited to Deferred Compensation Accounts
shall be dealt with in all respects as capital of the Company, shall be subject
to the risks of its business, and may be deposited in an account or accounts in
the Company's name in any bank or trust company.
8.11 Notwithstanding any other provisions in this ARTICLE
VIII, all amounts which are from time to time credited to Participants'
Deferred Compensation Accounts shall be subject to the terms of subordination
set forth in this ARTICLE VIII.
ARTICLE IX
Administration
9.1 The complete authority to control and manage the
operation and administration of the Plan and the responsibility for carrying
out its provisions belongs to the Committee. The Committee shall consist of at
least three members appointed from time to time by the Board of Directors to
serve at the pleasure thereof. Any member of the Committee may resign by
delivering his written resignation to the Board of Directors.
9.2 The Committee shall from time to time establish rules
of administration and interpretation of the Plan. The determination of the
Committee as to any disputed questions shall be conclusive and binding on all
parties, including the Participant, his Beneficiary, the Company and the
Employer.
9.3 Any act which the Plan authorizes or requires the
Committee to do may be done by a majority of its members. The action of such
majority, expressed by a vote at a meeting or in writing without a meeting,
shall constitute the action of the Committee and shall have the same effect for
all purposes as if assented to by all members of the Committee.
9.4 The members of the Committee may authorize one or more of
their number to execute or deliver any instrument, make any payment or perform
any other act which the Plan authorizes or requires the Committee to do.
9.5 The Committee may employ counsel and other agents and may
procure such clerical, accounting, and other services as they may require in
carrying out the provisions of the Plan.
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<PAGE> 21
9.6 No member of the Committee shall receive any compensation
for his services as such. All expenses of administering the Plan, including
but not limited to, fees of accountants and counsel, shall be paid by the
Company.
9.7 The Company shall indemnify and save harmless each member
of the Committee against all expenses and liabilities arising out of membership
on the Committee, excepting only expenses and liabilities arising from his own
gross negligence or willful misconduct, as determined by the Board of
Directors.
ARTICLE X
Amendment and Termination
10.1 The Company, by action of the Committee, may at any time
or from time to time modify or amend any or all of the provisions of the Plan
or may at any time terminate the Plan; provided, however, that no action taken
shall adversely affect the rights of any Participant hereunder to amounts due
and payable to such Participant at the time such action is taken, unless the
Participant otherwise consents thereto.
ARTICLE XI
General Provisions
11.1 No Participant, Branch Manager, Financial Consultant,
Officer, Key Employee or employee of the Company or any Employer shall have any
right to any payment or benefit hereunder except to the extent provided in the
Plan.
11.2 The employment rights of any Participant shall not be
enlarged, guaranteed or affected by reason of any of the provisions of the
Plan.
11.3 Assignment, pledge or other encumbrance of any payments
or benefits under the Plan shall not be permitted or recognized and to the
extent permitted by law, no such payments or benefits shall be subject to legal
process or attachment for the payment of any claim of any person entitled to
receive the same.
11.4 The Company shall have the right to retain or to use any
amounts payable under the Plan to satisfy or otherwise offset amounts the
Participant owes to the Company as a result of his actions or in the event he
is terminated for Cause. Amounts payable under the Plan may also be used to
offset amounts the Company is required to pay a client or a regulatory agency
or any other person or entity as a result of the Participant's actions.
11.5 If the Committee determines that any person to whom a
payment is due hereunder is a minor or incompetent by reason of physical or
mental disability, the Committee shall have the power
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<PAGE> 22
to cause the payments then due to such person to be made to another for the
benefit of the minor or incompetent, without responsibility of the Company or
the Committee to see to the application of such payment, unless claim prior to
such payment is made therefor by a duly appointed legal representative.
Payments made pursuant to such power shall operate as a complete discharge of
the Company and the Committee.
11.6 The validity of the Plan or any of its provisions shall
be determined under, and it shall be construed and administered according to,
the laws of the state of New York.
11.7 Any controversy or dispute hereunder shall be resolved
by arbitration pursuant to the Constitution of the Exchange or the NASD.
11.8 Each Participant may designate, in writing and on a form
provided by the Committee, any person(s) or legal entity(ies), including his
estate, as his Beneficiary under the Plan; provided, however, that a
Participant may designate a trust as his Beneficiary only with the prior
written approval of the Committee. A Participant may at any time revoke his
designation of a Beneficiary or change his Beneficiary at any time prior to his
death by filing with the Committee the appropriate beneficiary designation
form. If no person or legal entity shall be designated by a Participant as his
Beneficiary or if no designated Beneficiary survives him, his Beneficiary shall
be his estate. To be effective, any designation or revocation of Beneficiary
must be on the appropriate form provided by the Committee and on file with the
Committee prior to the date of the Participant's death. The provisions of the
Plan shall be binding on the Participant, the Company, and their respective
heirs, executors, administrators, successors and assigns.
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<PAGE> 1
LEHMAN BROTHERS INC.
EXECUTIVE AND SELECT EMPLOYEES PLAN
(FOR TRANSFERRED PARTICIPANTS)
Effective September 25, 1985
And as Subsequently Amended Through July 31, 1993
<PAGE> 2
TABLE OF CONTENTS
Section Page
------- ----
1 - Definitions . . . . . . . . . . . . . . . . . . . . . 1
2 - Administration of Plan . . . . . . . . . . . . . . . . 3
3 - Participation . . . . . . . . . . . . . . . . . . . . 4
4 - Deferred Compensation Payments . . . . . . . . . . . . 5
5 - Payments Prior to Vesting on Effective Date . . . . . 6
6 - Termination . . . . . . . . . . . . . . . . . . . . . 7
7 - Miscellaneous Provisions . . . . . . . . . . . . . . . 7
8 - Beneficiary Designation . . . . . . . . . . . . . . . 8
9 - Subordination Provisions . . . . . . . . . . . . . . . 8
10 - Construction of Plan . . . . . . . . . . . . . . . . 9
11 - Assignment and Alienation of Benefits . . . . . . . . 9
12 - Governing Law . . . . . . . . . . . . . . . . . . . . 9
i
<PAGE> 3
Section 1. Definitions
1.1 As used in this Plan, the following terms shall have the
meanings hereinafter set forth:
"Beneficiary" means any person or entity designated by the
Participant to receive payments under the Plan after the Participant's death
determined in accordance with Section 8 and the Participant's Deferred
Compensation Agreement.
"Board of Directors" means the Board of Directors of Lehman.
"Closing Date" means the closing date of the Smith Barney Transaction.
"Committee" means the Employee Benefit Plans Committee of Lehman,
which administers the Plan in accordance with Section 2.
"Deferred Compensation Account" means the account maintained under the
Plan for each Participant.
"Deferred Compensation Agreement" means a contract entered into by each
Participant and Lehman which shall set forth all specific terms of the Plan
and which shall be an integral part of this Plan.
"Disabled" means the termination of a Participant's employment with the
Employer by reason of a total and permanent disability as defined in Exhibit C
of the Deferred Compensation Agreement. For purposes of applying the preceding
sentence with respect to any Participant, on and after the date that such
person becomes employed by Smith Barney (as of the Closing Date
<PAGE> 4
or later) in connection with the Smith Barney Transaction, the term "Employer"
shall mean Smith Barney.
"Effective Date" means September 25, 1985.
"Eligible Employee" means any person who, but for the establishment of
this Plan and the related changes to the Lehman Brothers Inc. Executive and
Select Employees Plan (the "Lehman Plan") would have been eligible to
participate under the Lehman Plan at any time prior to or including the Closing
Date, and who became employed by Smith Barney as of the Closing Date or
thereafter in connection with the Smith Barney Transaction.
"Employee" means any employee of Lehman or a subsidiary of Lehman.
"Employer" means: (i) Lehman and any subsidiary thereof which has
employees participating in the Plan, and (ii) where the text of the Plan
specifically so indicates, Smith Barney.
"Exchange" means the New York Stock Exchange, Inc.
"Lehman" means Lehman Brothers Inc.,a Delaware corporation, and its
successors and assigns.
"Participant" means an Eligible Employee who has elected to
participate in the Plan.
"Plan" means the Lehman Brothers Inc. Executive and Select Employees
Plan (for Transferred Participants) as embodied herein and as amended from time
to time.
"Retirement" means a Participant's retirement from employment with the
Employer or otherwise as determined by the Committee in accordance with Section
4 of the Plan. For purposes of the preceding sentence, on and after the date
that a Participant becomes employed by Smith Barney (as of the Closing
2
<PAGE> 5
Date or later) in connection with the Smith Barney Transaction, the term
"Employer" shall mean Smith Barney.
"Smith Barney" means Smith Barney, Harris Upham & Co. Incorporated
and Primerica Corporation and their successors and assigns.
"Smith Barney Transaction" means the sale of certain assets of
lehman to Smith Barney pursuant to the Asset Purchase Agreement dated as of
March 12, 1993 among Shearson Lehman brothers Inc., Shearson Lehman Brothers
Holdings Inc., Smith Barney and American Express Company.
1.2 The masculine pronoun shall be deemed to include the feminine,
and the singular number shall be deemed to include the plural unless a
different meaning is plainly required by the context.
Section 2. Administration of Plan
The Plan and each Deferred Compensation Agreement shall be
administered by the Committee which is made up of not less than three members
appointed by the Board of Directors of Lehman. The Committee shall have
authority to make rules and regulations for the administration of the Plan,
including the delegation of duties to other persons, and the Committee's
interpretations and decisions with regard thereto shall be final and conclusive
except that any controversy arising out of or relating to the subordination
provisions of Section 9, shall be submitted to and
3
<PAGE> 6
settled by arbitration pursuant to the constitution and rules of the Exchange.
Section 3. Participation
3.1 Eligible Employees may elect to participate in the Plan only at
the time or times such participation is offered to such Employees by the
Committee. It is intended that participation shall be offered only during a
limited period of time after the Effective Date; however, Lehman reserves the
right, in its absolute discretion, to offer participation to any Employee at
any time. Eligible Employees who have elected to participate in the Plan may
withdraw only in accordance with its terms, the terms of a Participant's
Deferred Compensation Agreement or any applicable law.
3.2 An Eligible Employee who elects to participate in the Plan
pursuant to an invitation by the Committee may do so by executing a Deferred
Compensation Agreement during the election period specified by the Committee.
The total amount which Participants may elect to defer under the Plan must be
an amount of not less than $20,000 and not more than $400,000, and all amounts
deferred must be in increments of at least $1,000. The deferrals may be made
from future compensation to be received from the Employer or from amounts
previously deferred under the terms of the Lehman Voluntary Deferred
Compensation Plan but only to the extent permitted under the Deferred
Compensation Agreement.
4
<PAGE> 7
Section 4. Deferred Compensation Payments
Subject to Sections 5, 6, 9 and a Participant's Deferred Compensation
Agreement, Lehman shall make payments to a Participant or a Participant's
Beneficiary under the Plan in accordance with one of the following Subsections.
(a) If a Participant is living on the date of his Retirement,
Lehman shall take deferred compensation payments to the
Participant or the Participant's Beneficiary in the event of the
Participant's death after commencement of payments, in
substantially equal annual installments over a fifteen year
period or such shorter period as may be determined by the
Committee. The amount of such installment payments shall be
determined solely in accordance with the Participant's Deferred
Compensation Agreement. Regardless of whether a Participant's
employment with the Employer and all affiliates and subsidiaries
has terminated, a Participant shall not be considered to be
retired under the Plan and the Deferred Compensation Agreement
until attainment of age 55 and consent of the Committee;
provided, however, that, for purposes of this sentence, on and
after the date that a Participant becomes employed by Smith
Barney (as of the Closing Date or later) in connection with the
Smith Barney Transaction, the term "Employer" shall mean Smith
Barney.
5
<PAGE> 8
(b) If a Participant dies prior to the date payments provided
for in Subsection (a) are to commence, Lehman shall make
deferred compensation payments to the Participant's Beneficiary
in fifteen equal annual installments or such fewer number of
annual installments as may be determined by the Committee. The
amount of such installment payments shall be determined solely in
accordance with the Participant's Deferred Compensation
Agreement.
(c) If a Participant becomes Disabled prior to Retirement,
Lehman shall make disability payments to such Participant in
an amount determined solely in accordance with such Participant's
Deferred Compensation Agreement. Disability payments shall
continue until the earlier of such Participant's death or the
date payments under Subsection (a) are to commence but no later
than age 65.
Section 5. Payments Prior to Vesting on Effective Date
If a Participant dies or becomes Disabled prior to the Effective Date
of the Plan, or if prior to September 25, 1990, a Participant ceases to be an
Employee of the Employer or an affiliate for any reason other than death,
Disability or Retirement, all deferrals of compensation under the Plan and the
Deferred Compensation Agreement shall cease and Lehman shall pay to the
Participant or the Participant's Beneficiary, as the case may be, the amount of
compensation theretofore deferred
6
<PAGE> 9
under the Plan plus interest credited at an annual rate equal to the lesser of
5% or the weekly 90-day Treasury Bill auction rate (on a discounted basis)
averaged over a 12-month period ending on the date of payment. Such interest
shall be compounded annually on a calendar year basis and shall be credited
with respect to the average daily balance in the Deferred Compensation Account
each calendar year. Alternatively, Lehman may, in its absolute discretion,
pay to such Participant the amount contributed to his Deferred Compensation
Account plus interest credited at a higher rate as set forth in such
Participant's Deferred Compensation Agreement.
Section 6. Termination
The Committee has the right to terminate the Plan if the Committee
also terminates all the Deferred Compensation Agreements which form a part of
this Plan. Termination shall be by written notice to the Participants and in
the event of termination, Lehman shall pay to each Participant or each
Participant's Beneficiary the amount of compensation theretofore deferred plus
interest credited in accordance with paragraph 4 of the Participant's Deferred
Compensation Agreement.
Section 7. Miscellaneous Provisions
The Plan and all Participants hereunder are subject to certain
miscellaneous provisions pursuant to paragraph 5 of the Deferred Compensation
Agreement which provisions are incorporated herein by reference. On or after
the Closing Date, the terms "Lehman" and "Employer" in the Deferred
Compensation Agreement
7
<PAGE> 10
shall mean Smith Barney to and only to the extent necessary to provide that
payment of a Deferred Compensation Account in accordance with the terms of the
Deferred Compensation Agreement as amended and then in effect shall not occur
solely on account of employment with Smith Barney by a Participant due to the
Smith Barney Transaction.
Section 8. Beneficiary Designation
Participants may designate a Beneficiary or Beneficiaries entitled to
receive any of the payments to be made by Lehman hereunder if the Participant
dies. Such designation shall be made pursuant to and in accordance with
paragraph 6 of the Deferred Compensation Agreement.
Section 9. Subordination Provisions
Lehman's obligations to pay amounts credited to a Participant's
Deferred Compensation Account under the Deferred Compensation Agreement and the
Plan shall be suspended and shall not mature for any period of time during
which the suspension of payment provisions of paragraph 9 of the Deferred
Compensation Agreement is in effect. In addition, all other provisions of said
paragraph 9 are incorporated in this Plan by reference.
Section 10. Construction of Plan
In the event there are any discrepancies or inconsistencies between
this Plan and any Deferred Compensation Agreement, the Deferred Compensation
Agreement shall control.
8
<PAGE> 11
Section 11. Assignment and Alienation of Benefits
Any benefits payable under the Plan and the Deferred Compensation
Agreements may not be assigned, alienated or hypothecated and, to the extent
permitted by law, no such benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive the
same.
Section 12. Governing Law
The Plan and all Deferred Compensation Agreements forming a part
thereof shall be governed and construed in accordance with the laws of the
State of New York except to the extent pre-empted by any other applicable laws.
9
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the inclusion in the Registration Statement on Form S-1 of Lehman Brothers
Holdings Inc. and the related prospectuses of our report dated February 3, 1994,
except for Note 2 as to which the date is April 4, 1994.
Our audits also included the financial statement schedules of Lehman
Brothers Holdings Inc. and Subsidiaries listed in Item 16(b). These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Ernst & Young
New York, New York
April 28, 1994
<PAGE> 1
EXHIBIT 23.4
CONSENT OF LAZARD FRERES & CO.
We hereby consent to the use in this Registration Statement of our opinion,
dated April 29, 1994, appearing in the Prospectus which is a part of this
Registration Statement on Form S-1, and to all references to our firm under the
Opinion of Financial Advisors section in such joint Prospectus. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
Lazard Freres & Co.
New York, New York
April 29, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF JAMES D. WOLFENSOHN INCORPORATED
We hereby consent to the use in this Registration Statement of our opinion,
dated April 29, 1994, appearing in the Prospectus which is a part of this
Registration Statement on Form S-1, and to all references to our firm under the
Opinion of Financial Advisors section in such joint Prospectus. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
James D. Wolfensohn Incorporated
New York, New York
April 29, 1994
