PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 30, 1995)
$1,366,100,000
LEHMAN BROTHERS HOLDINGS INC.
MEDIUM-TERM NOTES, SERIES E
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
-------------------
Lehman Brothers Holdings Inc. (the "Company") may offer from time to time
its medium-term notes which are issuable in one or more series and may be
offered and sold either in the United States or outside the United States or
both simultaneously. The Medium-Term Notes, Series E (the "Notes") offered by
this Prospectus Supplement are offered in the United States in an aggregate
principal amount of up to $1,366,100,000 (or (i) the equivalent thereof in
foreign currencies or composite currencies, including the European Currency Unit
("ECU") (each, a "Foreign Currency"), or (ii) such greater amount, if Notes are
issued at an original issue discount, as shall result in aggregate gross
proceeds to the Company of $1,366,100,000), subject to reduction as a result of
the sale under certain circumstances of other Debt Securities. The foregoing
limit, however, may be increased by the Company if in the future it determines
that it may wish to sell additional Notes. Each Note will mature on a day that
is nine months or more from its Issue Date, as selected by the initial purchaser
and agreed to by the Company. Unless otherwise set forth in an accompanying
Pricing Supplement (a "Pricing Supplement") to this Prospectus Supplement, the
Notes will not be redeemable at the option of the Company or repayable at the
option of the Holder prior to their Stated Maturity.
Each Note will be denominated in U.S. dollars or in units of a Foreign
Currency (the "Specified Currency") as specified in the applicable Pricing
Supplement. See "Important Currency Information" and "Currency Risks." Unless
otherwise specified in the applicable Pricing Supplement, Notes denominated in
U.S. dollars will be issued only in denominations of $1,000 or any amount in
excess thereof which is an integral multiple of $1,000. If the Notes are to be
denominated in a Foreign Currency, the authorized denominations and currency
exchange rate information will be set forth in the applicable Pricing
Supplement. The principal amount payable at Maturity and/or any interest or
premium on a Note may be determined by reference to the relationship between two
or more currencies, to the price of one or more specified securities or
commodities or to one or more securities or commodities exchange indices or
other indices or by other similar methods (an "Indexed Note"), as described in
the applicable Pricing Supplement. An Indexed Note, the principal amount payable
at Maturity and/or the interest rate of which is determined by reference to the
relationship between two currencies, two composite currencies or a currency and
a composite currency, is referred to herein as a Currency Indexed Note. See
"Description of Notes--Currency Indexed Notes" and "--Other Indexed Notes and
Certain Terms Applicable to All Indexed Notes."
Each Note will be represented by either a global security (a "Global
Security") registered in the name of a nominee of The Depository Trust Company,
as Depository (each such Note represented by a Global Security being referred to
herein as a "Book-Entry Note"), or a certificate issued in definitive form (a
"Certificated Note"), as set forth in the applicable Pricing Supplement.
Beneficial interests in Book-Entry Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants.
(cover continued on following page)
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT
HERETO OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE><CAPTION>
============================================================================================================
PRICE TO AGENT'S PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note... 100% .125% - .625% 99.375% - 99.875%
- ------------------------------------------------------------------------------------------------------------
Total...... $1,366,100,000(4) $1,707,625 - $8,538,125 $1,357,561,875 - $1,364,392,375
============================================================================================================
</TABLE>
(1) Unless otherwise indicated in a Pricing Supplement, Notes will be issued at
100% of their principal amount.
(2) Unless otherwise indicated in a Pricing Supplement, the Company will pay
Lehman Brothers Inc. ("Lehman Brothers"), as agent (the "Agent"), a
commission ranging from .125% to .625% of the principal amount of any Note,
depending on its Stated Maturity, sold through the Agent, except that the
commission payable by the Company to the Agent with respect to Notes with
maturities of greater than 30 years will be negotiated at the time the
Company issues such Notes. The Company may also sell Notes to the Agent as
principal for resale to investors and other purchasers at varying prices
related to prevailing market prices at the time of resale to be determined
by the Agent. Unless otherwise specified in the applicable Pricing
Supplement, any Note sold to the Agent as principal will be purchased by the
Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to an agency sale of a Note of
identical maturity, and may be resold by the Agent. The Company may also
sell Notes directly to investors on its own behalf, in which case no
commission will be payable. The Company has agreed to indemnify the Agent
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
(3) Before deducting other expenses payable by the Company estimated at $25,000.
(4) Including the U.S. dollar equivalent with respect to any Notes denominated
in foreign or composite currencies.
-------------------
The Notes are offered on a continuing basis by the Company through the
Agent, which has agreed to use reasonable best efforts to solicit purchases of
the Notes. The Notes will not be listed on any securities exchange, and there
can be no assurance that the Notes offered by this Prospectus Supplement will be
sold or that there will be a secondary market for the Notes. The Company
reserves the right to withdraw, cancel or modify the offer made hereby without
notice. The Company or the Agent may reject any offer to purchase Notes in whole
or in part. See "Plan of Distribution of Notes".
This Prospectus Supplement and the accompanying Prospectus may also be used
by Lehman Brothers Inc., a subsidiary of the Company, in connection with offers
and sales of the Notes related to marketmaking transactions, by and through
Lehman Brothers, at negotiated prices related to prevailing market prices at the
time of sale or otherwise. Lehman Brothers may act as principal or agent in such
transactions.
-------------------
LEHMAN BROTHERS
February 23, 1996
<PAGE>
(cover continued from preceding page)
Terms not otherwise provided in this Prospectus Supplement or in the
accompanying Prospectus will be established for each Note by the Company prior
to the date of issuance of such Note (the "Issue Date") and will be indicated in
an accompanying Pricing Supplement. The Pricing Supplement relating to each Note
will describe the following terms, as applicable: (1) the Specified Currency
with respect to such Note (and, if such Specified Currency is a Foreign Currency
(a "Foreign Specified Currency"), certain other terms relating to such Note);
(2) whether such Note is a Fixed Rate Note, a Floating Rate Note, an Amortizing
Note or an Original Issue Discount Note; (3) whether such Note is an Indexed
Note, and if so the special terms thereof; (4) the price (expressed as a
percentage of the aggregate initial public offering price thereof) at which such
Note will be issued to the public; (5) the Issue Date of such Note; (6) the
Stated Maturity of such Note; (7) if such Note is a Fixed Rate Note, the rate
per annum at which such Note will bear interest, if any; (8) if such Note is a
Floating Rate Note, the interest rate formula, the Initial Interest Rate, the
Interest Reset Dates, the Interest Payment Dates, the Index Maturity, the
maximum interest rate and the minimum interest rate, if any, the Spread or
Spread Multiplier, if any, Calculation Dates, Regular Record Dates and any other
terms relating to the Calculation Agent or to the particular method of
calculating the interest rate for such Note; (9) if such Note is an Amortizing
Note, the repayment information in respect thereof; (10) whether such Note is a
Renewable Note, and if so the special terms thereof; (11) whether the interest
rate on such Note may be reset upon the occurrence of certain events or at the
option of the Company; (12) whether such Note may be redeemed at the option of
the Company, or repaid at the option of the Holder, prior to its Stated
Maturity, and if so, the provisions relating to such redemption or repayment;
(13) whether such Note will be issued initially as a Book-Entry Note or a
Certificated Note; (14) certain special federal income tax consequences of the
purchase, ownership and disposition of certain Notes, if any; and (15) any other
terms of such Note not inconsistent with the provisions of the Indenture.
Interest rates and interest rate formulas are subject to change by the
Company, but no such change will affect the interest rate on or interest rate
formula for any Note theretofore issued or which the Company has agreed to sell,
except as described herein under "Subsequent Interest Periods" and "Extension of
Maturity." Unless otherwise indicated in the applicable Pricing Supplement, the
Notes will bear interest at (i) a fixed rate or (ii) a floating rate or rates
determined by reference to the Commercial Paper Rate, the Federal Funds
Effective Rate, the CD Rate, LIBOR, the Prime Rate, the Treasury Rate or such
other interest rate formula as may be designated in an accompanying Pricing
Supplement, as adjusted by the Spread or Spread Multiplier, if any, applicable
to such Notes. Certain Notes issued at a discount from the principal amount
payable at Maturity thereof may provide that Holders of such Notes will not
receive periodic payments of interest. See "Description of Notes-- Original
Issue Discount Notes."
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable each February 15 and August 15 and at Maturity.
Interest on Floating Rate Notes will be payable on the dates indicated therein
and in the applicable Pricing Supplement. See "Description of Notes--Interest
and Interest Rates."
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<PAGE>
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements and to the extent inconsistent therewith replaces the
description of the general terms of the Debt Securities set forth under the
heading "Description of Debt Securities" in the accompanying Prospectus. For a
description of the rights attaching to different series of Debt Securities under
the Indenture, see "Description of Debt Securities" in the Prospectus. The Notes
constitute "Senior Debt" as defined in the accompanying Prospectus.
Certain capitalized terms used herein have the meanings ascribed thereto in
the accompanying Prospectus. Reference is also made to the Glossary for certain
defined terms used herein and the locations of other defined terms used herein.
Currency amounts in this Prospectus Supplement, the accompanying Prospectus
and any Pricing Supplement are stated in United States dollars ("$", "dollars",
"U.S. dollars" or "U.S.$"), unless otherwise indicated.
GENERAL
The Notes constitute a single series of Debt Securities for purposes of the
Indenture under which they are to be issued and are limited to an aggregate
principal amount of $6,267,500,000 (or (i) the equivalent thereof in Foreign
Currencies or (ii) such greater amount, if Notes are issued at an original issue
discount, as shall result in aggregate gross proceeds to the Company of
$6,267,500,000), of which $1,366,100,000 are available for issue as of the
date of this Prospectus Supplement, subject to reduction as a result of the
sale under certain circumstances of other Debt Securities. The foregoing
limit, however, may be increased by the Company if in the future it determines
that it may wish to sell additional Notes. The Company may from time to time
sell additional series of Debt Securities (as defined in the accompanying
Prospectus), including additional series of medium-term notes. See "Plan of
Distribution of Notes."
The Notes will be offered on a continuing basis and will mature on a day
nine months or more from their Issue Date, as specified in an applicable Pricing
Supplement. The Notes, other than Amortizing Notes, will not be subject to any
sinking fund nor will the Notes be redeemable at the option of the Company or
repayable at the option of the Holder prior to their Stated Maturity, unless
otherwise provided in an applicable Pricing Supplement.
Unless otherwise specified for Notes denominated in a Foreign Currency or as
otherwise specified in an applicable Pricing Supplement, the Notes will be
issuable only in fully registered form in denominations of $1,000 and integral
multiples of $1,000 in excess thereof. If any of the Notes are to be denominated
in a Foreign Currency, or if the principal of and premium, if any, and any
interest on any of the Notes is to be payable at the option of the Holder or the
Company in a currency, including a currency unit, other than that in which such
Note is denominated, the applicable Pricing Supplement will provide additional
information, including applicable exchange rate information, pertaining to the
terms of such Notes and other matters of interest to the holders thereof.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. Except as set forth in the accompanying Prospectus under
"Description of Debt Securities--Global Securities" or in the applicable Pricing
Supplement, Book-Entry Notes will not be issuable in definitive form. Unless
otherwise specified in the applicable Pricing Supplement, Indexed Notes and Dual
Currency Notes will only be issued as Certificated Notes. See "Book-Entry
Notes." Certificated Notes may be presented for registration of transfer or
exchange at the Corporate Trust Office.
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<PAGE>
PAYMENT CURRENCY
Unless otherwise specified in the applicable Pricing Supplement, and except
as otherwise described herein with respect to Currency Indexed Notes and Dual
Currency Notes, the Notes will be denominated in U.S. dollars and payments of
principal, premium, if any, and interest will be made in U.S. dollars. The
principal of, premium, if any, and interest on each Note denominated in a
Foreign Currency is payable by the Company in U.S. dollars based on the
equivalent of that Foreign Currency converted into U.S. dollars. If a Note is
denominated in a Foreign Currency, the Company will (unless otherwise specified
in the applicable Pricing Supplement) appoint an agent (the "Exchange Rate
Agent") to determine the exchange rate for converting all payments in respect of
such Note into U.S. dollars in the manner described in the following paragraph.
Unless otherwise specified in the applicable Pricing Supplement, Lehman Brothers
Inc., or an affiliate, will act as the Exchange Rate Agent. Notwithstanding the
foregoing, the Holder of a Note denominated in a Foreign Currency may (if the
applicable Pricing Supplement and Note so indicate) elect to receive all such
payments in the Foreign Currency by delivery of a written request to the Trustee
(or to any duly appointed Paying Agent) at the Corporate Trust Office not later
than 10 calendar days prior to the applicable payment date, and such election
will remain in effect for such Holder until revoked by written notice to the
Trustee (or to any such Paying Agent) at the Corporate Trust Office received not
later than 10 calendar days prior to the applicable payment date; provided,
however, no such election or revocation may be made with respect to payments on
any Note with respect to which (i) an Event of Default (as defined in the
accompanying Prospectus) has occurred, (ii) the Company has exercised any
discharge or defeasance options or (iii) the Company has given a notice of
redemption. In the event any Holder makes any such election pursuant to the
preceding sentence, such election will not be effective on any transferee of
such Holder and such transferee shall be paid in U.S. dollars unless such
transferee makes an election pursuant to the preceding sentence; provided,
however, that, unless otherwise specified in the applicable Pricing Supplement,
such election, if in effect while funds are on deposit with the Trustee to
satisfy and discharge such Note in accordance with the provisions of the
Indenture, will be effective on any transferee of such Holder. Unless otherwise
specified in the applicable Pricing Supplement, payment of principal of,
premium, if any, and interest on Notes to be made in a Foreign Specified
Currency will be made to an account maintained by the Holder of such Notes at a
bank in the country which issues such Foreign Specified Currency (or, if such
Foreign Specified Currency is a composite currency, at a bank outside the United
States that accepts deposits in such Foreign Specified Currency).
Unless otherwise specified in the applicable Pricing Supplement, the amount
of U.S. dollars payable in respect of a Note denominated in a Foreign Currency
will be determined by the Exchange Rate Agent based on the indicative quotation
in The City of New York selected by the Exchange Rate Agent at approximately
11:00 A.M., New York City time, on the second Business Day preceding the
applicable payment date that yields the least number of U.S. dollars upon
conversion of such Foreign Currency. Unless otherwise specified in the
applicable Pricing Supplement, such selection shall be made from among the
quotations appearing on the bank composite or multi-contributor pages of the
Reuters Monitor Foreign Exchange Service or, if not available, the Telerate
Monitor Foreign Exchange Service. If such quotations are unavailable from either
such foreign exchange service, such selection shall (unless otherwise specified
in the applicable Pricing Supplement) be made from the quotations received by
the Exchange Rate Agent from no more than three nor less than two recognized
foreign exchange dealers in The City of New York selected by the Exchange Rate
Agent and approved by the Company (one of which may be the Exchange Rate Agent)
for the purchase by the quoting dealer, for settlement on such payment date, of
the aggregate amount of such Foreign Currency payable on such payment date in
respect of all Notes denominated in such Foreign Currency and for which the
applicable dealer commits to execute a contract. If no such bid quotations are
available, payments will be made in the Foreign Currency.
Unless otherwise specified in the applicable Pricing Supplement, if payment
on a Note is required to be made in a Foreign Specified Currency and such
currency is unavailable to the Company for
S-4
<PAGE>
making payments thereof due to the imposition of exchange controls or other
circumstances beyond the Company's control, or is no longer used by the
government of the country which issued such currency or for the settlement of
transactions by public institutions of or within the international banking
community, then the Company will be entitled to make payments with respect to
such Note in U.S. dollars until such Foreign Currency is again available or so
used. The amount so payable on any date in such Foreign Currency shall be
converted into U.S. dollars at a rate determined by the Exchange Rate Agent on
the basis of the noon buying rate in The City of New York for cable transfers in
the Foreign Currency as certified for customs purposes by the Federal Reserve
Bank of New York (the "Market Exchange Rate") for such Foreign Currency on the
second Business Day prior to such payment date, or on such other basis as shall
be specified in the applicable Pricing Supplement. In the event such Market
Exchange Rate is not then available, the Company will be entitled to make
payments in U.S. dollars (i) if such Foreign Currency is not a composite
currency, on the basis of the most recently available Market Exchange Rate for
such Foreign Currency or (ii) if such Foreign Currency is a composite currency,
including, without limitation, the ECU, in an amount determined by the Exchange
Rate Agent to be the sum of the results obtained by multiplying the number of
units of each component currency of such composite currency, as of the most
recent date on which such composite currency was used, by the Market Exchange
Rate for such component currency on the second Business Day prior to such
payment date (or if such Market Exchange Rate is not then available, by the most
recently available Market Exchange Rate for such component currency, or as
otherwise specified in the applicable Pricing Supplement). Any payment in
respect of such Note made under such circumstances in U.S. dollars will not
constitute an Event of Default under the Indenture.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that original component currency as a
component shall be replaced by the amounts of such two or more currencies having
an aggregate value on the date of division equal to the amount of the former
component currency immediately before such division.
In the event of an official redenomination of the Specified Currency, the
Denominated Currency, the Indexed Currency or the Optional Payment Currency
(including without limitation, an official redenomination of any such currency
that is a composite currency), the obligations of the Company to make payments
in or with reference to such currency shall, in all cases, be deemed immediately
following such redenomination to be obligations to make payments in or with
reference to that amount of redenominated currency representing the amount of
such currency immediately before such redenomination. Except to the extent
Indexed Notes provide for the adjustment of the amount of principal or interest
payable in respect of such Notes pursuant to application of the formulas
described under "Currency Indexed Notes," or any other formula provided for in
the applicable Pricing Supplement, Notes will not provide for any adjustment to
any amount payable under such Notes as a result of (a) any change in the value
of the Specified Currency thereof relative to any other currency due solely to
fluctuations in exchange rates or (b) any redenomination of any component
currency of any composite currency (unless such composite currency is itself
officially redenominated).
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion (except to the extent expressly provided herein that
any determination is subject to the approval of the Company). In the absence of
manifest error, such determinations shall be conclusive for all purposes and
binding on holders of the Notes and the Exchange Rate Agent shall have no
liability therefor.
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<PAGE>
All currency exchange costs will be borne by the holders of the applicable
Notes by deduction from the payments made thereon.
PAYMENT OF PRINCIPAL AND INTEREST
Interest, if any, on the Notes will be payable on each Interest Payment Date
and at Maturity. Principal of and premium, if any, on the Notes will be payable
at Maturity.
Unless otherwise specified in the applicable Pricing Supplement, the
interest payable on any Interest Payment Date will, as provided in the
Indenture, be paid to each person in whose name a Note (or one or more
predecessor Notes) is registered at the close of business on the Regular Record
Date (whether or not a Business Day) next preceding such Interest Payment Date;
provided that, notwithstanding any provision of the Indenture to the contrary,
interest payable on any date of Maturity shall be payable to the Person to whom
principal shall be payable; and provided, further, that, unless otherwise
specified in the applicable Pricing Supplement, in the case of a Note initially
issued between a Regular Record Date and the Interest Payment Date relating to
such Regular Record Date, interest for the period beginning on the Issue Date
and ending on such Interest Payment Date shall be paid on the Interest Payment
Date following the next succeeding Regular Record Date to the Holder on such
next succeeding Regular Record Date.
Unless otherwise specified in the applicable Pricing Supplement and except
as stated below, all interest payments with respect to Certificated Notes and
all principal payments with respect to Amortizing Notes which are Certificated
Notes (in each case other than interest and, in the case of Amortizing Notes,
principal payable at Maturity), will be made by wire transfer or by check;
provided that a Holder of $10,000,000 or more in aggregate principal amount of
Certificated Notes of like tenor and term (or a Holder of the equivalent thereof
in a Foreign Currency) shall be entitled to receive such interest (and, in the
case of Amortizing Notes, principal payments) in immediately available funds,
but only if complete and appropriate instructions have been received in writing
by the Trustee (or any duly appointed Paying Agent) on or prior to the
applicable Regular Record Date. Simultaneously with the election by any Holder
of a Note to receive payments in a Foreign Currency as provided under "Payment
Currency" above, such Holder may, if so entitled as described above, elect to
receive such payments in immediately available funds by providing complete and
appropriate instructions to the Trustee (or any duly appointed Paying Agent),
and all payments of principal of, premium, if any, and interest on such Note
will be made in immediately available funds to an account at a bank outside the
United States or as otherwise specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, payments of
principal, premium, if any, and interest payable at Maturity with respect to
Certificated Notes will be made in immediately available funds (unless otherwise
specified in the applicable Pricing Supplement, payable to an account at a bank
outside the United States if payable in a Foreign Currency) upon surrender of
the Note at the Corporate Trust Office, provided that the Note is presented to
the Trustee (or any duly appointed Paying Agent) in time for the Trustee (or any
such Paying Agent) to make such payments in such funds in accordance with its
normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest on a Book-Entry Note, and principal of Amortizing Notes that are
Book-Entry Notes (in each case, other than at Maturity), will be made in
same-day funds in accordance with existing arrangements between the Trustee (or
any duly appointed Paying Agent) and the Depository. Unless otherwise specified
in the applicable Pricing Supplement, any principal, premium and/or interest
payable at Maturity of a Book-Entry Note will be paid by the Trustee (or any
such Paying Agent) by wire transfer in immediately available funds to an account
specified by the Depository (which account, unless otherwise provided in the
applicable Pricing Supplement, will be at a bank located outside the United
States if payable in a
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<PAGE>
Foreign Currency). The Depository will allocate payments received by it to each
Book-Entry Note and make payments to the holders thereof in accordance with its
existing operating procedures. Neither the Company nor the Trustee (nor any such
Paying Agent) shall have any responsibility or liability for such payments by
the Depository.
In the event that any Interest Payment Date and/or Maturity date of any
Fixed Rate Note is not a Business Day, principal, premium and/or interest
payable at such date will be paid upon the next succeeding Business Day with the
same effect as if paid on such Interest Payment Date or such Maturity date, as
the case may be, and no additional interest shall accrue as a result of such
delayed payments. In the event that any Interest Payment Date and/or Maturity
date of any Floating Rate Note is not a Business Day, principal, premium and/or
interest payable at such date will be paid upon the next succeeding Business Day
with the same effect as if such Business Day were such Interest Payment Date
and/or Maturity date, and no interest shall accrue for the period from and after
such Interest Payment Date and/or Maturity date to such next succeeding Business
Day, except that in the case of a LIBOR Note, if such next succeeding Business
Day falls in the next calendar month, such Interest Payment Date and/or Maturity
date shall be the preceding day that is a Business Day with respect to such
Note.
The Company will pay any administrative costs imposed by banks in connection
with making payments in immediately available funds, but any tax, assessment or
governmental charge imposed upon payments, including, without limitation, any
withholding tax, will be borne by the holders of the Notes in respect of which
such payments are made.
INTEREST AND INTEREST RATES
Each Note will bear interest from its Issue Date at the annual rate, or at a
rate determined pursuant to an interest rate formula, stated therein and in the
applicable Pricing Supplement, until the principal thereof is paid or made
available for payment, except as described below under "Subsequent Interest
Periods" and "Extension of Maturity."
Interest rates and interest rate formulas are subject to change by the
Company from time to time but no such change will affect any Note theretofore
issued or which the Company has agreed to sell, except as described below under
"Subsequent Interest Periods" and "Extension of Maturity." Unless otherwise
indicated in the applicable Pricing Supplement, the Interest Payment Dates and
the Regular Record Dates for Fixed Rate Notes shall be as described below under
"Fixed Rate Notes." The Interest Payment Dates for Floating Rate Notes shall be
as indicated in the applicable Pricing Supplement, and unless otherwise
specified in the applicable Pricing Supplement, each Regular Record Date for a
Floating Rate Note will be the fifteenth day (whether or not a Business Day)
next preceding each Interest Payment Date.
Each Note will bear interest at either (a) a per annum fixed rate, in which
case such Note will be a "Fixed Rate Note," or (b) a floating rate determined by
reference to an interest rate formula which may be adjusted by a Spread or
Spread Multiplier, if any, in which case such Note will be a "Floating Rate
Note." Any Floating Rate Note may also have either or both of the following: (i)
a maximum numerical interest rate limitation, or ceiling, on the rate of
interest which may accrue during any interest period; and (ii) a minimum
numerical interest rate limitation, or floor, on the rate of interest which may
accrue during any interest period. The applicable Pricing Supplement will
designate one of the following interest rate bases as applicable to each
Floating Rate Note: (a) the Commercial Paper Rate in which case such Note will
be a "Commercial Paper Rate Note," (b) the Federal Funds Effective Rate in which
case such Note will be a "Federal Funds Effective Rate Note," (c) the CD Rate in
which case such Note will be a "CD Rate Note," (d) LIBOR in which case such Note
will be a "LIBOR Note," (e) the Prime Rate in which case such Note will be a
"Prime Rate Note," (f) the Treasury Rate in
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<PAGE>
which case such Note will be a "Treasury Rate Note" or (g) such other interest
rate formula as is set forth in such Pricing Supplement.
The interest rate on the Notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States law
of general application. Under present New York law, the maximum rate of
interest, with certain exceptions, is 25% per annum (calculated, in each case,
on a simple interest basis). This limit does not apply to loans of $2,500,000 or
more.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Issue Date at the annual
rate stated on the face thereof. Unless otherwise indicated in the applicable
Pricing Supplement, the Interest Payment Dates for the Fixed Rate Notes (other
than Amortizing Notes) will be February 15 and August 15 of each year and the
Regular Record Dates will be February 1 and August 1 of each year. Unless
otherwise indicated in the applicable Pricing Supplement, interest on Fixed Rate
Notes will be computed and paid on the basis of a 360-day year of twelve 30-day
months.
Unless otherwise specified in the applicable Pricing Supplement, principal
of and interest on each Amortizing Note will be payable either quarterly on each
February 15, May 15, August 15 and November 15, or semi-annually on each
February 15 and August 15, as set forth in the applicable Pricing Supplement,
and at Maturity. Payments with respect to Amortizing Notes will be applied first
to interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in respect
of each Amortizing Note will be set forth in the applicable Pricing Supplement.
FLOATING RATE NOTES
Except for the period from the Issue Date to the first Interest Reset Date
set forth in the applicable Pricing Supplement, the interest rate on each
Floating Rate Note will be equal to either (i) the interest rate calculated by
reference to the specified interest rate formula (as specified in the applicable
Pricing Supplement) plus or minus the Spread, if any, or (ii) the interest rate
calculated by reference to the specified interest rate formula multiplied by the
Spread Multiplier, if any. The applicable Pricing Supplement will specify the
interest rate basis and the Spread or Spread Multiplier, if any, and the maximum
or minimum interest rate limitation, if any, applicable to each Floating Rate
Note. In addition, such Pricing Supplement may contain particulars as to the
Calculation Agent, Calculation Dates, Index Maturity, Initial Interest Rate,
Interest Determination Dates, Interest Payment Dates, Regular Record Dates and
Interest Reset Dates with respect to such Note.
Except as provided below or as set forth in an applicable Pricing
Supplement, interest on Floating Rate Notes will be payable in the case of
Floating Rate Notes with a daily, weekly or monthly Interest Reset Date on the
third Wednesday of each month or on the third Wednesday of March, June,
September and December of each year, as specified in the applicable Pricing
Supplement; in the case of Floating Rate Notes with a quarterly Interest Reset
Date, on the third Wednesday of the four months of each year specified in the
applicable Pricing Supplement; in the case of Floating Rate Notes with a
semi-annual Interest Reset Date, on the third Wednesday of the two months of
each year specified in the applicable Pricing Supplement; and in the case of
Floating Rate Notes with an annual Interest Reset Date, on the third Wednesday
of the one month of each year specified in the applicable Pricing Supplement.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each an "Interest Reset Date"),
as specified in the applicable Pricing Supplement. The Interest Reset Date will
be, in the case of Floating Rate Notes which reset daily, each
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Business Day; in the case of Floating Rate Notes (other than Treasury Rate
Notes) which reset weekly, the Wednesday of each week; in the case of Treasury
Rate Notes which reset weekly, the Tuesday of each week; in the case of Floating
Rate Notes which reset monthly, the third Wednesday of each month; in the case
of Floating Rate Notes which reset quarterly, the third Wednesday of the four
months of each year specified in the applicable Pricing Supplement; in the case
of Floating Rate Notes which reset semi-annually, the third Wednesday of the two
months of each year specified in the applicable Pricing Supplement; and in the
case of Floating Rate Notes which reset annually, the third Wednesday of the one
month of each year specified in the applicable Pricing Supplement; provided,
however, that (i) the interest rate in effect from the Issue Date to the first
Interest Reset Date with respect to a Floating Rate Note will be the Initial
Interest Rate (as set forth in the applicable Pricing Supplement) and (ii) the
interest rate in effect for the ten days immediately prior to Maturity will be
that in effect on the tenth day preceding such Maturity. If any Interest Reset
Date for any Floating Rate Note would otherwise be a day that is not a Business
Day for such Floating Rate Note (or in the case of a LIBOR Note, a day that is
not a London Banking Day), the Interest Reset Date for such Floating Rate Note
shall be postponed to the next day that is a Business Day (or in the case of a
LIBOR Note, to the next day that is a London Banking Day) for such Floating Rate
Note, except that in the case of a LIBOR Note, if such London Banking Day is in
the next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding London Banking Day. If an auction date for Treasury bills
shall fall on any Interest Reset Date for a Treasury Rate Note, then such
Interest Reset Date shall instead be the first Business Day immediately
following such auction date.
Unless otherwise specified in the applicable Pricing Supplement, the
Interest Determination Date pertaining to an Interest Reset Date will be (a)
such Interest Reset Date for a Prime Rate Note (the "Prime Interest
Determination Date") and (b) the Business Day preceding such Interest Reset Date
for a Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), a Federal Funds Effective Rate Note (the "Federal Funds Interest
Determination Date") or a CD Rate Note (the "CD Interest Determination Date").
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to an Interest Reset Date for a LIBOR Note (the
"LIBOR Interest Determination Date") will be the second London Banking Day
preceding such Interest Reset Date. Unless otherwise specified in the applicable
Pricing Supplement, the Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note (the "Treasury Interest Determination Date")
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills of the applicable Index Maturity would normally be auctioned.
Treasury bills are usually sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is usually held on the
following Tuesday, except that such auction may be held on the preceding Friday.
If, as the result of a legal holiday, an auction is so held on the preceding
Friday, such Friday will be the Treasury Interest Determination Date pertaining
to the Interest Reset Date occurring in the next succeeding week.
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will mature on an Interest Payment Date. Unless otherwise specified
in the applicable Pricing Supplement, the interest payable on each Interest
Payment Date or at Maturity for Floating Rate Notes will be the amount of
interest accrued from and including the Issue Date or from and including the
last Interest Payment Date to which interest has been paid, as the case may be,
to, but excluding, such Interest Payment Date or the date of Maturity, as the
case may be; provided, however, that in the case of a Floating Rate Note on
which interest is reset daily or weekly, interest payable on each Interest
Payment Date will be the amount of interest accrued from and including the Issue
Date or from and excluding the last date to which interest has been paid, as the
case may be, to, and including, the Regular Record Date immediately preceding
such Interest Payment Date, except that at Maturity the interest payable will
include interest accrued to, but excluding, the date of Maturity. Accrued
interest from the Issue Date or from the last date to which interest has been
paid is calculated by multiplying the face amount of a Note by an accrued
interest factor. This accrued interest factor is computed by adding the interest
factors calculated for each day from the Issue Date or from the last date to
which interest has been paid,
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to the date for which accrued interest is being calculated. The interest factor
for each such day is computed by dividing the interest rate applicable to such
date by 360, in the case of Commercial Paper Rate Notes, Federal Funds Effective
Rate Notes, CD Rate Notes, LIBOR Notes and Prime Rate Notes, or by the actual
number of days in the year, in the case of Treasury Rate Notes. The interest
rate applicable to any day that is an Interest Reset Date is the interest rate
as determined, in accordance with the procedures hereinafter set forth, with
respect to the Interest Determination Date pertaining to such Interest Reset
Date. The interest rate applicable to any other day is the interest rate for the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation of the rate of interest on a Floating
Rate Note will be rounded, if necessary, to the nearest one hundred-thousandth
of a percent (.0000001), with five one-millionths of a percentage point rounded
upward, and all currency amounts used in or resulting from such calculation on
Floating Rate Notes will be rounded to the nearest one-hundredth of a unit (with
five one-thousandths of a unit being rounded upwards).
The Calculation Agent will, upon the request of the Holder of any Floating
Rate Note, provide the interest rate then in effect and, if determined, the
interest rate which will become effective as a result of a determination made on
the most recent Interest Determination Date with respect to such Note. For
purposes of calculating the rate of interest payable on Floating Rate Notes, the
Company will enter into an agreement with the Calculation Agent.
COMMERCIAL PAPER RATE NOTES
A Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any) specified in the Commercial Paper Rate Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (calculated as described below) of the rate on that
date for commercial paper having the applicable Index Maturity as such rate is
published in H.15(519) under the heading "Commercial Paper." If such rate is not
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such Commercial Paper Interest Determination Date, then the Commercial Paper
Rate shall be the Money Market Yield of the rate on such Commercial Paper
Interest Determination Date for commercial paper having the applicable Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on such Calculation Date, then the
Commercial Paper Rate for such Commercial Paper Interest Determination Date
shall be calculated by the Calculation Agent and shall be the Money Market Yield
of the arithmetic mean of the offered rates as of 11:00 A.M., New York City
time, on such Commercial Paper Interest Determination Date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent after consultation with the Company for commercial paper having the
applicable Index Maturity, placed for industrial issuers whose bond rating is
"AA", or the equivalent, from a nationally recognized securities rating agency;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Commercial Paper Rate
for the applicable period will be the Commercial Paper Rate in effect on such
Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D x 360
Money Market Yield = 360 - (D x M) x 100
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where "D" refers to the per annum rate for the commercial paper, quoted on a
bank discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS EFFECTIVE RATE NOTES
A Federal Funds Effective Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Effective Rate and the Spread or
Spread Multiplier, if any) specified in the Federal Funds Effective Rate Note
and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Effective Rate" means, with respect to any Federal Funds Interest
Determination Date, the rate on that day for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)" or, if not so published
by 9:00 A.M., New York City time, on the Calculation Date pertaining to such
Federal Funds Interest Determination Date, the Federal Funds Effective Rate will
be the rate on such Federal Funds Interest Determination Date as published in
Composite Quotations under the heading "Federal Funds/Effective Rate." If such
rate is not yet published in either H.15(519) or Composite Quotations by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Federal
Funds Interest Determination Date, then the Federal Funds Effective Rate for
such Federal Funds Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates as of 11:00 A.M.,
New York City time, on such Federal Funds Interest Determination Date for the
last transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in The City of New York selected by the Calculation
Agent after consultation with the Company; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Effective Rate for the applicable
period will be the Federal Funds Effective Rate in effect on such Federal Funds
Interest Determination Date.
CD RATE NOTES
A CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any) specified
in the CD Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the applicable Index Maturity as
published in H.15(519) under the heading "CDs (Secondary Market)" or, if not so
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such CD Interest Determination Date, the CD Rate will be the rate on such CD
Interest Determination Date for negotiable certificates of deposit of the
applicable Index Maturity as published in Composite Quotations under the heading
"Certificates of Deposit." If such rate is not yet published in either H.15(519)
or Composite Quotations by 3:00 P.M., New York City time, on such Calculation
Date, then the CD Rate for such CD Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of the opening of business, New York City
time, on such CD Interest Determination Date, of three leading nonbank dealers
in negotiable U.S. dollar certificates of deposit in The City of New York
selected by the Calculation Agent after consultation with the Company for
negotiable certificates of deposit of major United States money center banks of
the highest credit standing (in the market for negotiable certificates of
deposit) with a remaining maturity closest to the applicable Index Maturity in a
denomination of $5,000,000; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the CD Rate for the applicable period will be the CD Rate in effect on
such CD Interest Determination Date.
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LIBOR NOTES
A LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) specified in the
LIBOR Note and in the applicable Pricing Supplement.
With respect to LIBOR Notes indexed to the offered rate for U.S. dollar or
Foreign Currency deposits, unless otherwise indicated in the applicable Pricing
Supplement, "LIBOR" means the rate determined by the Calculation Agent as
follows:
(a) With respect to a LIBOR Interest Determination Date, LIBOR will be, as
specified in the applicable Pricing Supplement, either (i) the arithmetic mean
of the offered rates for deposits in U.S. dollars for the period (commencing on
the Interest Reset Date) of the applicable Index Maturity which appear on the
Reuters Screen LIBO Page at approximately 11:00 A.M., London time, on such LIBOR
Interest Determination Date, if at least two such offered rates appear on the
Reuters Screen LIBO Page ("LIBOR Reuters"), or (ii) the offered rate for
deposits in U.S. dollars or the applicable Foreign Currency specified in the
applicable Pricing Supplement for the period (commencing on the Interest Reset
Date) of the applicable Index Maturity which appears on the Telerate Page 3740
or the Telerate Page 3750, as applicable, at approximately 11:00 A.M., London
time, on such LIBOR Interest Determination Date ("LIBOR Telerate"). If neither
LIBOR Reuters nor LIBOR Telerate is specified in the applicable Pricing
Supplement, LIBOR will be determined as if LIBOR Telerate had been specified.
(b) With respect to a LIBOR Interest Determination Date on which fewer than
two offered rates appear on the Reuters Screen LIBO Page as specified in (a)(i)
above, or on which no rate appears on the Telerate Page 3740 or the Telerate
Page 3750, as applicable, as specified in (a)(ii) above, as applicable, the
Calculation Agent will request the principal London office of each of four major
banks in the London interbank market, as selected by the Calculation Agent after
consultation with the Company, to provide the Calculation Agent with its offered
quotation for deposits in the applicable currency for the period (commencing on
the Interest Reset Date) of the applicable Index Maturity to prime banks in the
London interbank market at approximately 11:00 A.M., London time, on such LIBOR
Interest Determination Date and in a principal amount equal to an amount of not
less than $1,000,000 (or the equivalent thereof in the applicable currency if
such currency is a Foreign Currency) that is representative of a single
transaction in such market at such time. If at least two such quotations are
provided, LIBOR in respect of such LIBOR Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two such quotations are
provided, LIBOR in respect of such LIBOR Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City
time, on such LIBOR Interest Determination Date by three major banks in The City
of New York selected by the Calculation Agent after consultation with the
Company for loans in the applicable currency to leading European banks, for the
period (commencing on the Interest Reset Date) of the applicable Index Maturity
and in a principal amount equal to an amount of not less than $1,000,000 (or the
equivalent thereof in the applicable currency if such currency is a Foreign
Currency) that is representative of a single transaction in such market at such
time, provided, however, that if the banks in The City of New York selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR for the applicable period will be LIBOR as in effect on such
LIBOR Interest Determination Date.
PRIME RATE NOTES
A Prime Rate Note will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any)
specified in the Prime Rate Note and in the applicable Pricing Supplement.
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Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Prime Interest Determination Date, the rate on
that day as published in H.15(519) under the heading "Bank Prime Loan" or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Prime Interest Determination Date, the Prime Rate will be
determined by the Calculation Agent and will be the arithmetic mean of the rates
of interest publicly announced by each bank named on the Reuters Screen NYMF
Page as such bank's prime rate or base lending rate as in effect for such Prime
Interest Determination Date. If fewer than four such rates but more than one
such rate appear on the Reuters Screen NYMF Page for such Prime Interest
Determination Date, the Prime Rate will be determined by the Calculation Agent
and will be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Prime Interest Determination Date by four major money center banks in The
City of New York selected by the Calculation Agent after consultation with the
Company. If fewer than two such rates appear on the Reuters Screen NYMF Page,
the Prime Rate will be calculated by the Calculation Agent and will be the
arithmetic mean of the prime rates in effect for such Prime Interest
Determination Date as furnished in The City of New York by at least three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any state thereof, in each case having total equity
capital of at least $500,000,000 and being subject to supervision or examination
by federal or state authority, selected by the Calculation Agent after
consultation with the Company to provide such rate or rates; provided, however,
that if the banks or trust companies selected as aforesaid are not quoting as
mentioned in this sentence, the Prime Rate for the applicable period will be the
Prime Rate in effect on such Prime Interest Determination Date.
TREASURY RATE NOTES
A Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
specified in the Treasury Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Treasury Interest Determination Date, the rate
for the auction held on such Treasury Interest Determination Date of direct
obligations of the United States ("Treasury bills") having the applicable Index
Maturity as published in H.15(519) under the heading "U.S. Government
Securities--Treasury bills--auction average (investment)" or, if not so
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such Treasury Interest Determination Date, the auction average rate
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the Treasury
Department. In the event that the results of the auction of Treasury bills
having the applicable Index Maturity are not published or reported as provided
above by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Treasury Interest Determination Date, then the Treasury
Rate shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City time,
on such Treasury Interest Determination Date, of three leading primary United
States government securities dealers selected by the Calculation Agent after
consultation with the Company for the issue of Treasury bills with a remaining
maturity closest to the applicable Index Maturity; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate for the applicable period will be
the Treasury Rate in effect on such Treasury Interest Determination Date.
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CURRENCY INDEXED NOTES
GENERAL
The Company may from time to time offer Notes the principal amount payable
at Maturity and/or the interest rate of which is determined by reference to the
rate of exchange between the currency or composite currency in which such Notes
(the "Currency Indexed Notes") are denominated (the "Denominated Currency") and
the other currency or composite currency specified as the Indexed Currency (the
"Indexed Currency") in the applicable Pricing Supplement, or as determined in
such other manner as may be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Holders of
Currency Indexed Notes will be entitled to receive (i) an amount exceeding the
stated face amount of the principal (the "Face Amount") of, and/or interest
calculated at the stated rate of interest on, their Currency Indexed Notes if,
at Maturity or upon the relevant Interest Payment Date, as the case may be, the
rate at which the Denominated Currency can be exchanged for the Indexed Currency
exceeds the rate of such exchange designated as the Base Exchange Rate,
expressed in units of the Indexed Currency per one unit of the Denominated
Currency, in the applicable Pricing Supplement (the "Base Exchange Rate") or
(ii) an amount less than such Face Amount and/or interest calculated at such
stated interest rate if, at Maturity or upon the relevant Interest Payment Date,
as the case may be, the rate at which the Denominated Currency can be exchanged
for the Indexed Currency is less than such Base Exchange Rate, in each case
determined as described below under "Payment of Principal and Interest."
Information as to the relative historical value (which information is not
necessarily indicative of relative future value) of the applicable Denominated
Currency against the applicable Indexed Currency, any exchange controls
applicable to such Denominated Currency or Indexed Currency and certain tax
consequences to Holders of Currency Indexed Notes will be set forth in the
applicable Pricing Supplement.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, the payment
of principal at Maturity and interest on each Interest Payment Date (until the
principal thereof is paid or made available for payment) will be payable in the
Denominated Currency (except as otherwise described under "Payment Currency") in
amounts calculated in the manner described below.
Unless otherwise specified in the applicable Pricing Supplement, principal
at Maturity, if indexed, will be payable in an amount equal to the Face Amount
of the Currency Indexed Note, plus or minus an amount determined by reference to
the difference between the Base Exchange Rate specified in the applicable
Pricing Supplement and the rate at which the Denominated Currency can be
exchanged for the Indexed Currency on the second Exchange Rate Day (the
"Determination Date") prior to the Maturity date of such Currency Indexed Note,
as determined by the determination agent specified in the applicable Pricing
Supplement (the "Determination Agent"). Such rate of exchange shall be based
upon the arithmetic mean of the open market spot offer quotations for the
Indexed Currency (spot bid quotations for the Denominated Currency) obtained by
the Determination Agent from the Reference Dealers in The City of New York at
approximately 11:00 A.M., New York City time, on the Determination Date, for an
amount of Indexed Currency equal to the aggregate Face Amount of such Currency
Indexed Notes multiplied by the Base Exchange Rate, with settlement on the
Maturity date to be in the Denominated Currency (such rate of exchange, as so
determined and expressed in units of the Indexed Currency per one unit of the
Denominated Currency, is hereafter referred to as the "Spot Rate"). If such
quotations from the Reference Dealers are not available on the Determination
Date due to circumstances beyond the control of the Company or the Determination
Agent, the Spot Rate will be determined on the basis of the most recently
available quotations from the Reference Dealers. As used herein, the term
"Reference Dealers" shall mean the three banks or firms specified as such in the
applicable Pricing Supplement, or if any of them shall be unwilling or unable to
provide the requested
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quotations, such other major money center bank or banks in The City of New York
selected by the Company, in consultation with the Determination Agent, to act as
Reference Dealer or Dealers in replacement therefor. The principal amount of and
interest on the Currency Indexed Notes determined by the Determination Agent to
be payable will be payable to the Holders thereof in the manner set forth herein
and in the applicable Pricing Supplement. In the absence of manifest error, the
determination by the Determination Agent of the Spot Rate and of the amount of
principal and interest payable in respect of Currency Indexed Notes shall be
final and binding on the Company and the Holders of such Currency Indexed Notes.
Unless otherwise specified in the applicable Pricing Supplement, on the
basis of the aforesaid determination by the Determination Agent and the formulas
and limitations set forth below, (i) if the Base Exchange Rate equals the Spot
Rate for any Currency Indexed Note, then the principal amount of such Currency
Indexed Note payable at Maturity would be equal to the Face Amount of such
Currency Indexed Note; (ii) if the Spot Rate exceeds the Base Exchange Rate
(i.e., the Denominated Currency has appreciated against the Indexed Currency
during the term of the Currency Indexed Note), then the principal amount so
payable would be greater than the Face Amount of such Currency Indexed Note;
(iii) if the Spot Rate is less than the Base Exchange Rate (i.e., the
Denominated Currency has depreciated against the Indexed Currency during the
term of the Currency Indexed Note) but is greater than one-half of the Base
Exchange Rate, then the principal amount so payable would be less than the Face
Amount of such Currency Indexed Note; and (iv) if the Spot Rate is less than or
equal to one-half of the Base Exchange Rate, then the Spot Rate will be deemed
to be one-half of the Base Exchange Rate and no principal amount of the Currency
Indexed Note would be payable at Maturity.
With respect to the payment of interest on each Interest Payment Date, if
indexed, the amount will be the Face Amount multiplied by the relevant interest
rate, indexed as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
formulas to be used by the Determination Agent to determine the principal amount
of a Currency Indexed Note payable at Maturity and the interest payable on each
Interest Payment Date will be as follows:
As to principal, if the Spot Rate equals or exceeds the Base Exchange Rate,
the principal amount of a Currency Indexed Note payable at Maturity shall equal:
Spot Rate - Base Exchange Rate
------------------------------
Face Amount + (Face Amount x Spot Rate );
and if the Base Exchange Rate exceeds the Spot Rate, the principal amount of a
Currency Indexed Note payable at Maturity (which shall, in no event, be less
than zero) shall equal:
Base Exchange Rate - Spot Rate
------------------------------
Face Amount - (Face Amount x Spot Rate ).
As to interest, the amount of interest payable on any Interest Payment Date
on a Currency Indexed Note shall equal:
Spot Rate
------------------
Face Amount x Stated Interest Rate x Base Exchange Rate.
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Unless otherwise specified in the applicable Pricing Supplement, in the
event of any redemption or repayment of a Currency Indexed Note prior to its
Stated Maturity, the phrases "Maturity date" and "at Maturity" used above would
refer to the redemption or repayment date of such Currency Indexed Note.
OTHER INDEXED NOTES AND CERTAIN TERMS APPLICABLE TO ALL INDEXED NOTES
The Notes may be issued as Indexed Notes, other than Currency Indexed Notes,
the principal amount payable at Maturity and/or the interest rate of which may
be determined by reference to the relationship between two or more currencies,
to the price of one or more specified securities or commodities, to one or more
securities or commodities exchange indices or other indices or by other similar
methods or formulas (each an "applicable Index"). The Pricing Supplement
relating to such an Indexed Note will describe, as applicable, the method by
which the amount of interest payable on any Interest Payment Date and the amount
of principal payable at Maturity in respect of such Indexed Note will be
determined, certain special tax consequences of the purchase, ownership or
disposition of such Indexed Notes, certain risks associated with an investment
in such Indexed Notes and other information relating to such Indexed Notes.
Unless otherwise specified in the applicable Pricing Supplement, the maximum
principal amount payable at Maturity in respect of any Indexed Note will be an
amount equal to twice the face amount thereof and the minimum principal amount
so payable would be zero.
Unless otherwise specified in the applicable Pricing Supplement, (a) for the
purpose of determining whether Holders of the requisite principal amount of Debt
Securities outstanding under the Indenture have made a demand or given a notice
or waiver or taken any other action, the outstanding principal amount of Indexed
Notes will be deemed to be the face amount thereof and (b) if the payment of
principal of and interest on any Indexed Note is accelerated in accordance with
the provisions described under "Description of Debt Securities--Events of
Default" in the Prospectus, then the Company shall pay to the Holder of such
Indexed Note on the date of acceleration the principal amount determined by
reference to the formula by which the principal amount of such Indexed Note
would be determined on the Stated Maturity date thereof, as if the date of
acceleration were the Stated Maturity date.
An investment in Indexed Notes entails significant risks, including wide
fluctuations in market value as well as in the amounts of payments due
thereunder, that are not associated with a similar investment in a conventional
debt security. Such risks depend on a number of factors including supply and
demand for the particular commodity and economic and political events over which
the Company has no control. Fluctuations in the price of any particular security
or commodity, in the rates of exchange between particular currencies or in
particular indices that have occurred in the past are not necessarily
indicative, however, of fluctuations in the price or rates of exchange that may
occur during the term of any Indexed Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in Indexed Notes. Indexed Notes are not an appropriate
investment for investors who are unsophisticated with respect to securities,
commodities and/or foreign currency transactions.
DUAL CURRENCY NOTES
GENERAL
The Company may from time to time offer Notes (the "Dual Currency Notes") as
to which the Company has a one time option, exercisable on any one of the dates
specified in the applicable Pricing Supplement (each an "Option Election Date")
in whole, but not in part, with respect to all Dual Currency Notes issued on the
same day and having the same terms (a "Tranche"), of thereafter making
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all payments of principal, premium, if any, and interest (which payments would
otherwise be made in the Specified Currency of such Notes) in the optional
currency specified in the applicable Pricing Supplement (the "Optional Payment
Currency"). Information as to the relative value of the Specified Currency
compared to the Optional Payment Currency will be set forth in the applicable
Pricing Supplement.
The Pricing Supplement for each issuance of Dual Currency Notes will
specify, among other things, the Specified Currency and Optional Payment
Currency of such issuance and the Designated Exchange Rate for such issuance,
which will be a fixed exchange rate used for converting amounts denominated in
the Specified Currency into amounts denominated in the Optional Payment
Currency. The Pricing Supplement will also specify the Option Election Dates and
Interest Payment Dates for the related issuance of Dual Currency Notes. Each
Option Election Date will be a certain number of days before an Interest Payment
Date or the Stated Maturity date, as set forth in the applicable Pricing
Supplement, and will be the date on which the Company may select whether to make
all scheduled payments due thereafter in the Optional Payment Currency rather
than in the Specified Currency.
If the Company makes such an election, the amount payable in the Optional
Payment Currency shall be determined using the exchange rate specified in the
applicable Pricing Supplement (the "Designated Exchange Rate"). If such election
is made, notice of such election shall be mailed in accordance with the terms of
the applicable Tranche of Dual Currency Notes within five Business Days of the
Option Election Date and shall state (i) the first date, whether an Interest
Payment Date and/or the Stated Maturity date, on which scheduled payments in the
Optional Payment Currency will be made and (ii) the Designated Exchange Rate.
Any such notice by the Company, once given, may not be withdrawn. The equivalent
value in the Specified Currency of payments made after such an election may be
less, at the then current exchange rate, than if the Company had made such
payment in the Specified Currency.
For further information regarding certain tax consequences to Holders of
Dual Currency Notes, see "Certain United States Federal Income Tax
Consequences--Dual Currency Notes."
PAYMENT DUE UPON EARLY MATURITY
Unless otherwise specified in the applicable Pricing Supplement,
notwithstanding any prior election made by the Company, if a Note is a Dual
Currency Note, the amount payable on such Note in the event of any optional
redemption by the Company, any repayment at the option of the Holder, any
acceleration of the Maturity of such Note or other prepayment of such Note prior
to the Stated Maturity of such Note shall be an amount equal to the Face Amount
thereof plus accrued interest to but excluding the date of Maturity minus the
Total Option Value multiplied by a fraction, the numerator of which is the Face
Amount of such Dual Currency Note and the denominator of which is the aggregate
Face Amount of all Dual Currency Notes of the same Tranche, provided, however,
that if such Dual Currency Note is also an Original Issue Discount Note, the
aggregate Face Amount of all Dual Currency Notes of the same Tranche upon
acceleration will be deemed to be the principal amount of an original issue
discount note payable upon acceleration as described below under "Original Issue
Discount Notes." Notwithstanding any prior election made by the Company, such
payment shall be made in the Specified Currency unless otherwise provided in the
applicable Pricing Supplement.
In no event will payment of principal of any Dual Currency Note upon
acceleration be less than zero.
All determinations with respect to Dual Currency Notes made by the Exchange
Rate Agent or the Option Value Calculation Agent shall be at their sole
discretion (except to the extent it is expressly provided that any determination
is subject to approval by the Company) and, in the absence of manifest
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error, shall be conclusive for all purposes and binding on the Holder thereof,
and neither the Exchange Rate Agent nor the Option Value Calculation Agent shall
have any liability therefor.
AMORTIZING NOTES
The Company may from time to time offer Fixed Rate Notes for which payments
combining principal and interest are made in installments over the life of the
Notes ("Amortizing Notes"). Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of a
360-day year of twelve 30-day months. Payments with respect to Amortizing Notes
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. Further information concerning
additional terms and conditions of any issue of Amortizing Notes will be
provided in the applicable Pricing Supplement. A table setting forth repayment
information in respect of each Amortizing Note will be included in the
applicable Pricing Supplement and set forth on such Notes.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may from time to time offer Original Issue Discount Notes. The
applicable Pricing Supplement to certain Original Issue Discount Notes may
provide that Holders of such Notes will not receive periodic payments of
interest.
Notwithstanding anything in this Prospectus Supplement to the contrary,
unless otherwise specified in the applicable Pricing Supplement, if a Note is an
Original Issue Discount Note, the amount payable on such Note in the event of
Maturity prior to its Stated Maturity shall be the Amortized Face Amount of such
Note as of the date of Maturity. The "Amortized Face Amount" of an Original
Issue Discount Note shall be the amount equal to (i) the issue price set forth
in the applicable Pricing Supplement plus (ii) that portion of the difference
between the issue price and the principal amount of such Note that has accrued
at the yield to maturity set forth in the Pricing Supplement (computed in
accordance with generally accepted United States bond yield computation
principles) by such date of Maturity, but in no event shall the Amortized Face
Amount of an Original Issue Discount Note exceed its principal amount.
OTHER PROVISIONS
Any provisions with respect to the determination of an interest rate basis,
the specification of interest rate basis, calculation of the interest rate
applicable to, or the principal payable at Maturity on, any Note, its Interest
Payment Dates or any other matter relating thereto may be modified by the terms
as specified under "Other Provisions" on the face of such Note, or in an
addendum relating thereto if so specified on the face thereof, and in the
applicable Pricing Supplement.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same terms may be represented
by a single Global Security. Each Global Security representing Book-Entry Notes
will be deposited with, or on behalf of, The Depository Trust Company, New York,
New York (the "Depository"), and registered in the name of a nominee of the
Depository. The Depository currently only accepts Notes denominated in U.S.
dollars.
So long as the Depository or its nominee is the registered owner of any
Global Security, the Depository or its nominee, as the case may be, will be
considered the sole owner or Holder of the Book-Entry Note or Notes represented
by such Global Security for all purposes under the Indenture.
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The Depository has advised the Company and the Agent as follows: The
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of section 17A of the
Securities Exchange Act of 1934, as amended. The Depository was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
Agent), banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. See
"Description of Debt Securities--Global Securities" in the accompanying
Prospectus.
REDEMPTION AND REPAYMENT
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will not be redeemable prior to their Stated Maturity. If so specified in an
applicable Pricing Supplement with respect to a Note or Notes, such Note or
Notes will be redeemable on or after the date or dates set forth in such Pricing
Supplement, either in whole or from time to time in part, at the option of the
Company, at a redemption price equal to 100% of the principal amount to be
redeemed or at such other price or prices set forth in such Pricing Supplement,
together with interest accrued thereon to the date of redemption, on notice
given not more than 60 nor less than 30 days prior to the date of redemption. If
less than all of the Notes with like tenor and terms are to be redeemed, the
Notes to be redeemed shall be selected by the Trustee by such method as the
Trustee shall deem fair and appropriate. The Notes, other than Amortizing Notes,
will not be subject to any sinking fund, unless otherwise specified in an
applicable Pricing Supplement.
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will not be repayable prior to their Stated Maturity. If so specified in an
applicable Pricing Supplement with respect to a Note or Notes, such Note or
Notes will be repayable at the option of the Holder on a date or dates specified
prior to their Stated Maturity at a price or prices set forth in the applicable
Pricing Supplement, together with accrued interest to the date of repayment.
In order for a Note to be repaid, the Paying Agent must receive at least 30
days but not more than 45 days prior to the repayment date (i) the Note with the
form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (ii) a telegram, telex, facsimile transmission or letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the Holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid with the form entitled "Option to Elect
Repayment" on the reverse of the Note duly completed will be received by the
Paying Agent not later than five Business Days after the date of such telegram,
telex, facsimile transmission or letter and such Note and form duly completed
are received by the Paying Agent by such fifth Business Day. Exercise of the
repayment option by the Holder of a Note shall be irrevocable. The repayment
option may be exercised by the Holder of a Note for less than the entire
principal amount of the Note provided that the principal amount of the Note
remaining outstanding after repayment is an authorized denomination. Upon any
partial repayment of a Note, such Note will be cancelled and a new Note or Notes
for the remaining principal amount shall be issued in the name of the Holder of
the partially repaid Note.
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If a Note is represented by a Global Security, the Depository's nominee will
be the Holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depository's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depository of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Note in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to the Depository.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes purchased by the Company may, at its discretion, be held,
resold or surrendered to the Trustee for cancellation.
SUBSEQUENT INTEREST PERIODS
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to reset the interest rate, in
the case of a Fixed Rate Note, or to reset the Spread or Spread Multiplier, in
the case of a Floating Rate Note, and, if so, the date or dates on which such
interest rate or such Spread or Spread Multiplier, as the case may be, may be
reset (each an "Optional Reset Date"). If the Company has such option with
respect to any Note, the following procedures shall apply, unless modified as
set forth in the applicable Pricing Supplement.
The Company may exercise such an option with respect to a Note by notifying
the Trustee in writing of such exercise at least 45 but not more than 60 days
prior to an Optional Reset Date for such Note. Not later than five Business Days
after receipt thereof, the Trustee will mail to the Holder of such Note a notice
(the "Reset Notice"), first class, postage prepaid, setting forth (i) the
election of the Company to reset the interest rate, in the case of a Fixed Rate
Note, or the Spread or Spread Multiplier, in the case of a Floating Rate Note,
(ii) such new interest rate or such new Spread or Spread Multiplier, as the case
may be, and (iii) the provisions, if any, for redemption during the period from
such Optional Reset Date to the next Optional Reset Date or, if there is no such
next Optional Reset Date, to the Stated Maturity of such Note (each such period
a "Subsequent Interest Period"), including the date or dates on which or the
period or periods during which and the price or prices at which such redemption
may occur during such Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to an Optional
Reset Date for a Note, the Company may, at its option, revoke the interest rate,
in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in the
case of a Floating Rate Note, provided for in the Reset Notice and establish a
higher interest rate or higher Spread or Spread Multiplier, as the case may be,
for the Subsequent Interest Period commencing on such Optional Reset Date by
causing the Trustee to mail notice of such higher interest rate or higher Spread
or Spread Multiplier, as the case may be, first class, postage prepaid, to the
Holder of such Note. Such notice shall be irrevocable and shall be mailed by the
Trustee within five Business Days after receipt thereof. All Notes with respect
to which the interest rate or Spread or Spread Multiplier is reset on an
Optional Reset Date will bear such higher interest rate, in the case of a Fixed
Rate Note, or higher Spread or Spread Multiplier, in the case of a Floating Rate
Note, whether or not tendered for repayment.
If the Company resets the interest rate or the Spread or Spread Multiplier
of a Note, the Holder of such Note will have the option to elect repayment of
such Note, or any portion thereof, by the Company on an Optional Reset Date at a
price equal to the principal amount thereof to be repaid plus any accrued
interest to such Optional Reset Date. In order for a Note to be so repaid on an
Optional Reset Date, the Holder thereof must follow the procedures set forth
above under "Redemption and Repayment" for optional repayment except that the
period for delivery of such Note or notification to the Trustee shall
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be at least 25 but not more than 35 days prior to such Optional Reset Date and
except that a Holder who has tendered a Note for repayment pursuant to a Reset
Notice may, by written notice to the Trustee, revoke any such tender for
repayment until the close of business on the tenth day prior to such Optional
Reset Date; provided, however, that if such day is not a Business Day, then such
notice may be given on the next succeeding Business Day.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to extend the Stated Maturity
of such Note, and, if so, the number of periods of from one to five whole years
(each an "Extension Period") for which the Maturity of such Note is extendible
and the date beyond which such Maturity may not be extended (the "Final
Maturity"). If the Company has such option with respect to any Note, the
following procedures shall apply, unless modified as set forth in the applicable
Pricing Supplement.
The Company may exercise such an option with respect to a Note by notifying
the Trustee of such exercise at least 45 but not more than 60 days prior to the
Stated Maturity of such Note in effect prior to the exercise of such option (the
"Original Stated Maturity"). Not later than five Business Days after receipt
thereof, the Trustee will mail to the Holder of such Note a notice (the
"Extension Notice"), first class, postage prepaid setting forth (i) the election
of the Company to extend the Stated Maturity of such Note, (ii) the new Stated
Maturity, (iii) in the case of a Fixed Rate Note, the interest rate applicable
to the Extension Period or, in the case of a Floating Rate Note, the Spread or
Spread Multiplier applicable to the Extension Period, and (iv) the provisions,
if any, for redemption during the Extension Period, including the date on which
or the period or periods during which and the price at which such redemption may
occur during the Extension Period. Upon the mailing by the Trustee of an
Extension Notice to the Holder of a Note, the Stated Maturity of such Note shall
be extended automatically, and, except as modified by the Extension Notice and
as described in the next paragraph, such Note will have the same terms as prior
to the mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the Original
Stated Maturity for a Note, the Company may, at its option, revoke the interest
rate, in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in
the case of a Floating Rate Note, provided for in the Extension Notice and
establish a higher interest rate or a higher Spread or Spread Multiplier, as the
case may be, for the Extension Period by causing the Trustee to mail notice of
such higher interest rate or higher Spread or Spread Multiplier, as the case may
be, first class, postage prepaid, to the Holder of such Note. Such notice shall
be irrevocable and shall be mailed by the Trustee within three Business Days
after receipt thereof. All Notes with respect to which the Stated Maturity is
extended will bear such higher interest rate, in the case of a Fixed Rate Note,
or higher Spread or Spread Multiplier, in the case of a Floating Rate Note, for
the Extension Period, whether or not tendered for repayment.
If the Company extends the Stated Maturity of a Note, the Holder of such
Note will have the option to elect repayment by the Company of such Note, or of
any portion thereof, on the Original Stated Maturity at a price equal to the
principal amount thereof to be repaid plus any accrued interest to such date. In
order for a Note to be so repaid on the Original Stated Maturity, the Holder
thereof must follow the procedures set forth above under "Redemption and
Repayment" for optional repayment, except that the period for delivery of such
Note or notification to the Trustee shall be at least 25 but not more than 35
days prior to the Original Stated Maturity and except that a Holder who has
tendered a Note for repayment pursuant to an Extension Notice may, by written
notice to the Trustee, revoke any such tender for repayment until the close of
business on the tenth day prior to the Original Stated Maturity; provided,
however, that if such day is not a Business Day, then such notice may be given
on the next succeeding Business Day.
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RENEWABLE NOTES
The Company may from time to time offer Notes which will mature on an
Interest Payment Date specified in the applicable Pricing Supplement occurring
in or prior to the twelfth month following the Issue Date of such Notes (the
"Initial Maturity Date") unless the maturity of all or any portion of any such
Note (a "Renewable Note") is extended in accordance with the procedures
described below.
On the Interest Payment Date occurring in the sixth month (unless a
different interval (the "Special Election Interval") is specified in the
applicable Pricing Supplement) prior to the Initial Maturity Date of a Renewable
Note (the "Initial Maturity Extension Date") and on the Interest Payment Date
occurring in each sixth month (or the last month of each Special Election
Interval) after such Initial Maturity Extension Date (each, together with the
Initial Maturity Extension Date, a "Maturity Extension Date"), the Maturity of
such Renewable Note will be extended to the Interest Payment Date occurring in
the twelfth month (or, if a Special Election Interval is specified in the
applicable Pricing Supplement, the last month in a period equal to twice the
Special Election Interval) after such Maturity Extension Date, unless the Holder
of such Renewable Note elects to terminate the automatic extension of the
Maturity of such Renewable Note or any portion thereof as described below. If a
Holder elects to terminate the automatic extension of the Maturity of any
portion of the principal amount of a Renewable Note during the specified period
prior to any Maturity Extension Date, such portion will become due and payable
on the Interest Payment Date occurring in the sixth month (or the last month in
the Special Election Interval) after such Maturity Extension Date (the "Extended
Maturity Date").
A Holder of a Renewable Note may elect to terminate the automatic extension
of the Maturity of such Renewable Note, or if so specified in the applicable
Pricing Supplement, any portion thereof, by delivering a notice to such effect
to the Trustee (or any duly appointed Paying Agent) at the Corporate Trust
Office not less than 15 nor more than 30 days prior to such Maturity Extension
Date (unless another period is specified in the applicable Pricing Supplement as
the "Special Election Period"). Such election will be irrevocable and will be
binding upon each subsequent Holder of such Renewable Note. An election to
terminate the automatic extension of the Maturity of a Renewable Note may be
exercised with respect to less than the entire principal amount of such
Renewable Note only if so specified in the applicable Pricing Supplement and
only in such principal amount, or any integral multiple in excess thereof, as is
specified in the applicable Pricing Supplement. Notwithstanding the foregoing,
the maturity of the Renewable Notes may not be extended beyond the Stated
Maturity date specified for such Renewable Notes in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, any such
election to terminate will be effective only if such Renewable Note, with the
"Option to Elect Termination of Automatic Extension" included therein duly
executed, is presented to the Trustee (or any duly appointed Paying Agent)
simultaneously with notice of such election (or, in the event notice of such
election, together with a guarantee of delivery within five Business Days, is
transmitted on behalf of a Holder from a member of a national securities
exchange, the NASD or a commercial bank or trust company in the United States,
within five Business Days of the date of such notice). With respect to a
Renewable Note that is a Certificated Note, as soon as practicable following
receipt of such Renewable Note the Trustee (or any duly appointed Paying Agent)
shall issue in exchange therefor in the name of such Holder (i) a Note, in a
principal amount equal to the principal amount of such exchanged Renewable Note
for which the election to terminate the automatic extension of maturity was
exercised, with terms identical to those specified on such Renewable Note
(except for the Issue Date and the Initial Interest Rate and except that such
Note shall have a fixed, non-extendable Stated Maturity on the Extended Maturity
Date) and (ii) if such election is made with respect to less than the full
principal amount of such Holder's Renewable Note, a replacement Renewable Note,
in a principal amount equal to the principal amount of such exchanged Renewable
Note for which no election was made, with terms identical to such exchanged
Renewable Note.
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COMBINATION OF PROVISIONS
If so specified in the applicable Pricing Supplement, any Note may be
subject to all of the provisions, or any combination of the provisions,
described above under "Redemption and Repayment," "Subsequent Interest Periods,"
"Extension of Maturity" and "Renewable Notes."
IMPORTANT CURRENCY INFORMATION
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for each Note in the Specified Currency for such Note.
Currently, there are limited facilities in the United States for conversion of
U.S. dollars into Foreign Currencies and vice versa, and most banks do not
currently offer non-U.S. dollar denominated checking or savings account
facilities in the United States. However, if requested by a prospective
purchaser of Notes denominated in a Foreign Currency, the Agent will arrange for
the conversion of U.S. dollars into such Foreign Currency to enable the
purchaser to pay for such Notes. Such requests must be made on or before the
fifth Business Day preceding the date of delivery of the Notes, or by such other
date as may be determined by the Agent. Each such conversion will be made by the
Agent on such terms and subject to such conditions, limitations and charges as
the Agent may from time to time establish in accordance with its regular foreign
exchange practice. All costs of exchange will be borne by the purchaser of such
Notes.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in, or the payment of which is
to be made in or determined with reference to, a Foreign Currency entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks generally depend on factors
over which the Company has no control and include, without limitation, the
possibility of significant changes in rates of exchange between the U.S. dollar
and the Foreign Currency. Currency exchange rates are determined by, among other
factors: changing supply and demand for a particular currency; trade, fiscal,
monetary, foreign investment and exchange control programs and policies of
governments; U.S. and foreign political and economic events and policies, rates
of inflation or interest rates; restrictions on U.S. or foreign exchanges or
markets; changes in balances of payment and trade; and currency devaluations and
regulations. In recent years, rates of exchange between U.S. dollars and certain
foreign currencies have been highly volatile and such volatility may be expected
to continue in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Note.
Depreciation of the Foreign Currency in which a Note is denominated against
the U.S. dollar would result in a decrease in the effective yield of such Note
below its coupon rate and, in certain circumstances, could result in a loss to
the investor on a U.S. dollar basis. Similarly, depreciation of the Denominated
Currency with respect to an Indexed Note against the applicable Index would
result in the principal amount payable with respect to such Note at the date of
Maturity being less than the Face Amount of such Note which, in turn, would
decrease the effective yield of such Note below its applicable interest rate and
could also result in a loss to the investor.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Foreign Currency for making payments with respect to a Note denominated in
such currency. There can be no assurances that exchange controls will not
restrict or prohibit payments of principal or interest in any currency or
currency unit. Even if there are no actual exchange controls, it is possible
that on an Interest Payment Date with respect to, or at the Maturity of, any
particular Note, the Foreign Currency for such Note would not be
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available to the Company to make payments of interest and principal then due. In
that event, the Company will make such payments in the manner described under
"Description of Notes--Payment Currency." In the event of an official
redenomination of the Specified Currency (including without limitation, an
official redenomination of a Specified Currency that is a composite currency)
the obligations of the Company with respect to payments on Notes denominated in
such currency shall be deemed, in all cases, immediately following such
redenomination to provide for the payment of that amount of redenominated
currency specified in the applicable Pricing Supplement representing the amount
of such obligations immediately before such redenomination. See "Description of
Notes-- Payment Currency."
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT AND ANY
PRICING SUPPLEMENT WILL NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES
DENOMINATED IN, OR THE PAYMENT OF WHICH IS TO BE MADE IN OR IS RELATED TO THE
VALUE OF, A CURRENCY (INCLUDING ANY COMPOSITE CURRENCY) OTHER THAN U.S. DOLLARS,
AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS OF
SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE DATE
OF ANY PRICING SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN SUCH NOTES, WHICH ARE NOT AN
APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers of Notes who are residents of the United States, and the
Company disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase or holding of, or receipt of payments of principal,
premium or interest in respect of, Notes. Such persons should consult their own
counsel with regard to such matters.
Pricing Supplements relating to Notes denominated in a Foreign Currency will
contain information concerning historical exchange rates for such Foreign
Currency against the U.S. dollar, a description of the currency and any exchange
controls as of the date of the applicable Pricing Supplement affecting such
currency.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than U.S. dollars.
Under New York law, any judgment with respect to a Note denominated in a Foreign
Specified Currency will be rendered in such Foreign Currency and converted into
U.S. dollars at a rate of exchange prevailing on the date of entry of the
judgment or decree. In the event an action based on Notes denominated in a
Foreign Currency were commenced in a court in the United States outside New
York, the currency of judgment and/or applicable exchange rate may differ. The
Indenture provides that if it is necessary for the purpose of obtaining a
judgment in any court to convert any currency into any other currency, such
conversion shall be made at a rate of exchange prevailing on the date the
Company makes payment to any person in satisfaction of the judgment. If pursuant
to any judgment conversion is to be made on a date other than the payment date,
the Indenture provides that the Company shall pay any additional amounts
necessary to indemnify such person for any change between the rate of exchange
prevailing on the payment date and the rate of exchange prevailing on such other
date.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Notes as of the date hereof. Except where
noted, it deals only with Notes held as capital assets by United States Holders
and does not deal with special situations, such as those of dealers in
securities, financial institutions, life insurance companies or United States
Holders whose "functional currency" is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986 (the "Code") and regulations, rulings and judicial decisions thereunder as
of the date hereof, and such authorities may be repealed, revoked or modified so
as to result in federal income tax consequences different from those discussed
below. For a discussion of certain United States federal income tax consequences
of the ownership of Notes to Non-United States Holders see "United States
Taxation" in the accompanying Prospectus and the final paragraph of this
section. Persons considering the purchase, ownership or disposition of Notes
should consult their own tax advisors concerning the federal income tax
consequences in light of their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
UNITED STATES HOLDERS
As used herein, a "United States Holder" of a Note means a holder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
PAYMENTS OF INTEREST
Except as set forth below, interest on a Note will generally be taxable to a
United States Holder as ordinary income from domestic sources at the time it is
paid or accrued in accordance with the United States Holder's method of
accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
The following is a summary of the principal United States federal income tax
consequences of the ownership of Original Issue Discount Notes (as defined
below) by United States Holders. Additional rules applicable to Original Issue
Discount Notes which are denominated in or determined by reference to a Foreign
Currency are described under "Foreign Currency Notes" below. This summary is
based upon Treasury regulations which were published on February 2, 1994 (the
"OID Regulations"). The following discussion addresses only Notes providing for
fixed payments and Notes that bear qualified stated interest, as defined below.
A Note with an "issue price" that is less than its stated redemption price
at Maturity (the sum of all payments to be made on the Note other than
"qualified stated interest", as defined below) will be issued with original
issue discount if such difference is at least 0.25 percent of the stated
redemption price at Maturity multiplied by the number of complete years to
Maturity. Notes issued with "original issue discount" ("OID") will be referred
to as "Original Issue Discount Notes". Notice will be given in the applicable
Pricing Supplement when the Company determines that a particular Note will be an
Original Issue Discount Note.
Under the OID Regulations, the "issue price" of each Note in a particular
offering will be the first price at which a substantial amount of that
particular offering is sold. "Qualified stated interest" with respect to a Fixed
Rate Note is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between
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payments. Notes other than Fixed Rate Notes will also be treated as bearing
qualified stated interest if they qualify as "variable rate debt instruments".
A Note will be treated as a "variable rate debt instrument" for purposes of
the OID regulations if the Note is issued for an amount that does not exceed the
total of principal payments unconditionally payable by more than an amount equal
to the lesser of (i) 0.015 multiplied by the product of the total principal
unconditionally payable and the number of complete years to maturity from the
issue date; or (ii) 15 percent of the total principal payments unconditionally
payable. In addition, to be a variable rate debt instrument, the Note must bear
stated interest at (i) one or more qualified floating rates, (ii) a single fixed
rate and one or more qualified floating rates, (iii) a single objective rate or
(iv) a single fixed rate and a single objective rate that is a "qualified
inverse floating rate". In general, a qualified floating rate is a rate the
variations in the value of which can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which the Note is denominated. An objective rate is a rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on one or more of: (i) qualified floating rates, (ii) rates that
would be qualified floating rates for a debt obligation denominated in a
different currency or (iii) the yield or change in the price of one or more
items of actively traded personal property, other than the stock or debt of the
issuer or a related party. A "qualified inverse floating rate" is a rate that is
equal to a fixed rate minus a qualified floating rate and the variations in
which can reasonably be expected to inversely reflect contemporaneous variations
in the cost of newly borrowed funds, disregarding certain restrictions on such
rate such as caps, floors or governors. Unless a Pricing Supplement so
indicates, Notes will be issued with qualified stated interest.
In the case of a Note issued with de minimis OID (i.e., discount that is not
OID because it is less than 0.25 percent of the stated redemption price at
Maturity multiplied by the number of complete years to Maturity), the United
States Holder generally must include such de minimis OID in income as stated
principal payments on the Note are made, including the de minimis OID in
proportion to the amount of principal paid. Any amount of de minimis OID that
has not been included in income prior to sale, exchange or retirement of a Note
shall be treated as capital gain.
The OID Regulations provide that Notes that may be redeemed in whole or in
part prior to their Stated Maturity shall be treated from the time of issuance
as having a Maturity date for federal income tax purposes on such redemption
date if such redemption would result in a lower yield to Maturity in the case of
a redemption at the issuer's option or a higher yield to Maturity in the case of
a redemption at the holder's option. Notice will be given in the applicable
Pricing Supplement when the Company determines that a particular Note will be
deemed to have a Maturity date for federal income tax purposes prior to its
Stated Maturity.
United States Holders of Original Issue Discount Notes with a Maturity upon
issuance of more than one year must, in general, include OID in income in
advance of the receipt of some or all of the related cash payments. The amount
of OID includible in income by the initial United States Holder of an Original
Issue Discount Note is the sum of the "daily portions" of OID with respect to
the Note for each day during the taxable year or portion of the taxable year in
which such United States Holder held such Note ("accrued OID"). The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the OID allocable to that accrual period. The "accrual period"
for an Original Issue Discount Note may be of any length and may vary in length
over the term of the Note, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs on the first
day or the final day of an accrual period. In general, the computation of OID is
simplest if accrual periods correspond to the intervals between payment dates
provided by the terms of a Note. The amount of OID allocable to any accrual
period is an amount equal to the excess, if any, of (a) the product of the
Note's adjusted issue price at the beginning of such accrual period and its
yield to Maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of any qualified stated interest allocable
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to the accrual period. In determining OID allocable to an accrual period, if an
interval between payments of qualified stated interest contains more than one
accrual period, the amount of qualified stated interest payable at the end of
the interval (including any qualified stated interest that is payable on the
first day of the accrual period immediately following the interval) is allocated
on a pro rata basis to each accrual period in the interval and the adjusted
issue price at the beginning of each accrual period in the interval must be
increased by the amount of any qualified stated interest that has accrued prior
to the first day of the accrual period but is not payable until the end of the
interval. OID allocable to a final accrual period is the difference between the
amount payable at maturity (other than a payment of qualified stated interest)
and the adjusted issue price at the beginning of the final accrual period. If
all accrual periods are of equal length, except for either an initial shorter
accrual period or an initial and a final shorter accrual period, the amount of
OID allocable to the initial accrual period may be computed under any reasonable
method. The "adjusted issue price" of a Note at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period (determined without regard to the amortization of any acquisition
or bond premium, as described below) and reduced by any prior payments, or any
payments made on the first day of the accrual period, with respect to such Note
that were not qualified stated interest. Under these rules, a United States
Holder will have to include in income increasingly greater amounts of OID in
successive accrual periods. The Company is required to provide information
returns stating the amount of OID accrued on Notes held of record by persons
other than corporations and other exempt holders.
In the case of certain variable rate debt instruments that are issued with
OID and that bear interest at a single qualified floating rate or a qualified
inverse floating rate, the accrual of OID is to be determined by assuming that
the rate is fixed upon issuance at the initial value of the interest rate. In
the case of certain variable rate debt instruments that are issued with OID and
that bear an objective interest rate (other than a qualified inverse floating
rate), the accrual of OID is calculated by assuming that the Note bears interest
at a fixed rate that reflects the yield that is reasonably expected for the
Note. The method for determining OID on Notes that do not bear interest at a
qualified floating rate, at a qualified inverse floating rate or at an objective
rate will be provided in the applicable Pricing Supplement for such Note.
United States Holders may elect to treat all interest on any Note as OID and
calculate the amount includible in gross income under the constant yield method
described above. For the purposes of this election, interest includes stated
interest, acquisition discount, OID, de minimis OID, market discount, de minimis
market discount and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium. If a United States Holder makes this election
for a Note with market discount or amortizable bond premium, the election is
treated as an election under the market discount or amortizable bond premium
provisions, described above, and the electing United States Holder will be
required to amortize bond premium or include market discount in income currently
for all of the holder's other debt instruments with market discount or
amortizable bond premium. The election is to be made for the taxable year in
which the United States Holder acquired the Note, and may not be revoked without
the consent of the Internal Revenue Service (the "IRS"). United States Holders
should consult with their own tax advisers about this election.
In the case of Original Issue Discount Notes having a term of one year or
less ("Short-Term Original Issue Discount Notes"), under the OID Regulations all
payments (including all stated interest) will be included in the stated
redemption price at Maturity and, thus, United States Holders will generally be
taxable on the discount in lieu of stated interest. The discount will be equal
to the excess of the stated redemption price at Maturity over the issue price of
a Short-Term Original Issue Discount Note, unless the United States Holder
elects to compute this discount using tax basis instead of issue price. In
general, an individual and certain other cash method United States Holders of a
Short-Term Original Issue Discount Note are not required to include accrued
discount in their income currently unless they elect to do so. United States
Holders who report income for federal income tax purposes on the accrual method
and certain other United States Holders are required to accrue discount
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on such Short-Term Original Issue Discount Notes (as ordinary income) on a
straight-line basis, unless an election is made to accrue the discount according
to a constant yield method based on daily compounding. In the case of a United
States Holder who is not required, and does not elect, to include discount in
income currently, any gain realized on the sale, exchange or retirement of the
Short-Term Original Issue Discount Note will be ordinary income to the extent of
the discount accrued through the date of sale, exchange or retirement. In
addition, United States Holders who do not elect to currently include accrued
discount in income may be required to defer deductions for a portion of the
United States Holder's interest expense with respect to any indebtedness
incurred or continued to purchase or carry such Notes.
MARKET DISCOUNT
If a United States Holder purchases a Note for an amount that is less than
its "revised issue price" (defined as the sum of the issue price of the Note (as
defined above) and the aggregate amount of the OID includible, if any, without
regard to the rules for acquisition premium discussed below, in the gross income
of all previous holders of the Note), the amount of the difference will be
treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the market discount which has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. In addition, the United States
Holder may be required to defer, until the maturity of the Note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder of a Note may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies, and may not be revoked without the consent of the
IRS.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder who purchases a Note for an amount that is greater
than its adjusted issue price but equal to or less than the sum of all amounts
payable on the Note after the purchase date other than payments of qualified
stated interest will be considered to have purchased such Note at an
"acquisition premium". Under the acquisition premium rules, the amount of OID
which such holder must include in its gross income with respect to such Note for
any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
A United States Holder who purchases a Note for an amount in excess of the
sum of all amounts payable on the Note after the purchase date other than
qualified stated interest will be considered to have purchased the Note at a
"premium" and will not be required to include any OID in income. A United States
Holder generally may elect to amortize the premium over the remaining term of
the Note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the United States Holder's interest income from the
Note. Bond premium on a Note held by a United States Holder that does not make
such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Note. The election to amortize premium on a
constant yield method once made applies to all debt obligations held or
subsequently acquired by the electing United States
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Holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A United States Holder's tax basis in a Note will, in general, be the United
States Holder's cost therefor, increased by OID, market discount, or any
discount with respect to a Short-Term Original Issue Discount Note, previously
included in income by the United States Holder and reduced by any amortized
premium and any cash payments on the Note other than qualified stated interest.
Upon the sale, exchange or retirement of a Note (which might arise in the event
of a satisfaction and discharge-- see "Tax Consequences of Satisfaction and
Discharge" in the accompanying Prospectus), a United States Holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement and the adjusted tax basis of the Note. Except
as described above with respect to certain Short-Term Original Issue Discount
Notes or with respect to market discount and except with respect to gain or loss
attributable to changes in exchange rates as described below with respect to
certain Foreign Currency Notes, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held for more than one year. Under current law, net
capital gains of individuals are, under certain circumstances, taxed at lower
rates than items of ordinary income. The deductibility of capital losses is
subject to limitations.
EXTENDIBLE AND RESET NOTES
If so specified in an applicable Pricing Supplement relating to a Note, the
Company may have the option (i) to reset the interest rate, in the case of a
Fixed Rate Note, or to reset the Spread or Spread Multiplier, in the case of a
Floating Rate Note, and/or (ii) to extend the Maturity of a Note. See
"Description of Notes--Subsequent Interest Periods" and "--Extension of
Maturity." The tax effect on a United States Holder of Notes with respect to
which such an option has been exercised who does not elect to have the Company
repay such Notes on the applicable Optional Reset Date or Original Stated
Maturity is unclear under current law and will depend, in part, on the terms
established for such Notes by the Company pursuant to the exercise of such
option (the "Revised Terms"). Pursuant to Proposed Regulations issued on
December 1, 1992, under section 1001 of the Code (the "Proposed 1001
Regulations"), an alteration of a legal right or obligation under a debt
instrument will not result in a modification of such debt instrument if the
alteration occurs through one party's exercise or waiver of a right by operation
of the original terms of such debt instrument, provided the exercise or waiver
is unilateral. However, the exercise of a right that creates a right in the
other party to alter or terminate the instrument, or to put the instrument to a
third party, is not unilateral and consequently constitutes a modification.
The terms of the Notes may provide that the holders thereof may elect to
have Notes redeemed rather than accept the interest rate reset or the extension
of maturity. If, under the terms of a Note, a holder has such a right of
election, the Company's exercise of an option described in the preceding
paragraph would not be unilateral, and would therefore constitute a
modification. In the event of a modification that is "significant", the holder
is treated for federal income tax purposes as having exchanged such Notes (the
"Old Notes") for new Notes with Revised Terms (the "New Notes"). Under the
Proposed 1001 Regulations, "significant" modifications include, in general,
certain changes in yield, certain changes in the timing, amounts or type of
payments and certain changes in the obligor, security or nature of the
instrument. If the holder is treated as having exchanged Old Notes for New
Notes, such exchange may be treated as either a taxable exchange or a tax-free
recapitalization.
If the exercise of the option by the Company is not treated as an exchange
of Old Notes for New Notes, no gain or loss will be recognized by a United
States Holder as a result thereof. If the exercise of the option is treated as a
taxable exchange of Old Notes for New Notes, a United States Holder would
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recognize gain or loss equal to the difference between the amount realized and
the holder's tax basis in the Old Notes. Under proposed regulations issued by
the Treasury under section 1001 of the Code on December 21, 1992, the amount
realized is the issue price of the New Notes. For a cash basis taxpayer, the
amount realized is the fair market value of the New Notes and for an accrual
basis taxpayer, the amount realized is the issue price of the New Notes. If the
exercise of the option is treated as a tax-free recapitalization, no loss would
be recognized by a United States Holder as a result thereof and gain, if any,
would be recognized to the extent of the fair market value of the excess, if
any, of the principal amount of securities received over the principal amount of
securities surrendered. In this regard, the meaning of the term "principal
amount" is not clear. Such term could be interpreted to mean "issue price" with
respect to securities that are received and "adjusted issue price" with respect
to securities that are surrendered. Legislation to that effect has been
introduced in the past. It is not possible to determine whether such legislation
will be enacted and, if enacted, whether it would apply to recapitalizations
occurring prior to the date of enactment.
There is no guaranty that the final Treasury Regulations will not differ
materially from the Proposed 1001 Regulations. Accordingly, the ultimate federal
income tax treatment of Extendible or Reset Notes may differ from that described
above.
RENEWABLE NOTES
A Note may be issued wherein the initial Maturity of the Note is
automatically extended beyond its Maturity date. Such extensions will take place
at periodic intervals leading up to the date specified as the Maturity date for
the Renewable Note unless the United States Holder thereof elects to terminate
the automatic extension of the Maturity of the Renewable Note. See "Description
of Notes-- Renewable Notes."
While it is not entirely clear, such a Renewable Note should be considered
as having a Maturity date that corresponds to its Stated Maturity date. In
addition, the holder of the Renewable Note should be treated as holding a series
of put options to sell the Renewable Note to the Company at the price and on the
dates that correspond to the procedures that must be followed in order for the
United States Holder to terminate the automatic Maturity extensions. Under the
OID Regulations, such a put option (i.e., the right to elect out of automatic
Maturity extensions) will be presumed to be exercised if, by utilizing the put
date (i.e., the date prior to the Stated Maturity date on which a United States
Holder could receive payment for its Renewable Note) as the Maturity date and
the put price (the principal amount of the Renewable Note) as the stated
redemption price at Maturity, the yield on the Renewable Note to the Holder will
be higher than its yield to the Stated Maturity date. Because the amount payable
to a United States Holder of a Renewable Note will be the principal amount of
such Renewable Note, a United States Holder's right to terminate automatic
Maturity extensions should not be presumed to be exercised unless such Renewable
Note was issued at discount. If an election to terminate the automatic extension
of a Renewable Note was presumed to be exercised and, in fact, is not exercised,
then the Renewable Note should generally be treated as if it were exchanged for
a new Note with an issue price equal to the put price for the old Note. While
not entirely clear, such event should be treated as a deemed exchange only for
purposes of applying the OID rules, discussed above. In addition, because a
United States Holder of a Renewable Note that elects to terminate automatic
Maturity extension will receive a non-renewable Note with a Maturity of six
months from the Maturity Extension Date next succeeding such election in
exchange for such Holder's Renewable Note, the exercise of such election and
receipt of such non-renewable Note could be treated as an exchange for federal
income tax purposes with the tax consequences set forth under "Extendible and
Reset Notes", immediately above. United States Holders of Renewable Notes are
advised to consult with their own tax advisors regarding the United States
federal income tax consequences of the holding and disposition of such Renewable
Notes, including the election to terminate the automatic Maturity extension
thereof.
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FOREIGN CURRENCY NOTES
The following is a summary of the principal United States federal income tax
consequences to a United States Holder of the ownership of a Note denominated in
a Foreign Currency (a "Foreign Currency Note"). Persons considering the purchase
of Foreign Currency Notes should consult their own tax advisors with regard to
the application of the United States federal income tax laws to their particular
situations, as well as any consequences arising under the laws of any other
taxing jurisdiction.
If interest payments are made in a Foreign Currency to a United States
Holder who is not required to accrue such interest prior to its receipt, such
holder will be required to include in income the U.S. dollar value of the amount
received (determined by translating the Foreign Currency received at the "spot
rate" for such Foreign Currency on the date such payment is received),
regardless of whether the payment is in fact converted into U.S. dollars. No
exchange gain or loss is recognized with respect to the receipt of such payment.
A United States Holder who is required to accrue interest on a Foreign
Currency Note prior to receipt of such interest will be required to include in
income for each taxable year the U.S. dollar value of the interest that has
accrued during such year, determined by translating such interest at the average
rate of exchange for the period or periods during which such interest accrued.
The average rate of exchange for an interest accrual period is the simple
average of the exchange rates for each business day of such period (or such
other average that is reasonably derived and consistently applied by the
holder). An accrual basis United States Holder may elect to translate interest
income at the spot rate on the last day of the accrual period (or last day of
the taxable year in the case of an accrual period that straddles the holder's
taxable year) or on the date the interest payment is received if such date is
within five days of the end of the accrual period. Upon receipt of an interest
payment on such Note, such holder will recognize ordinary income or loss in an
amount equal to the difference between the U.S. dollar value of such payment
(determined by translating any Foreign Currency received at the spot rate for
such Foreign Currency on the date received) and the U.S. dollar value of the
interest income that such holder has previously included in income with respect
to such payment. Any such gain or loss generally will not be treated as interest
income or expense, except to the extent provided in Treasury Regulations or
administrative pronouncements of the IRS.
OID on a Note that is also a Foreign Currency Note will be determined for
any accrual period in the applicable Foreign Currency and then translated into
U.S. dollars in the same manner as interest income accrued by a United States
Holder on the accrual basis, as described above. Likewise, a United States
Holder will recognize exchange gain or loss when the OID is paid to the extent
of the difference between the U.S. dollar value of the accrued OID (determined
in the same manner as for accrued interest) and the U.S. dollar value of such
payment (determined by translating any Foreign Currency received at the spot
rate for such Foreign Currency on the date of payment). For this purpose, all
receipts on a Note will be viewed first as the receipt of any periodic interest
payments called for under the terms of the Note, second as receipts of
previously accrued OID (to the extent thereof), with payments considered made
for the earliest accrual periods first, and thereafter as the receipt of
principal.
The amount of market discount on Foreign Currency Notes includible in income
will generally be determined by translating the market discount determined in
the Foreign Currency into U.S. dollars at the spot rate on the date the Foreign
Currency Note is retired or otherwise disposed of. If the United States Holder
has elected to accrue market discount currently, then the amount which accrues
is determined in the Foreign Currency and then translated into U.S. dollars on
the basis of the average exchange rate in effect during such accrual period. A
United States Holder will recognize exchange gain or loss with respect to market
discount which is accrued currently using the approach applicable to the accrual
of interest income as discussed above.
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Amortizable premium on a Foreign Currency Note will, if a United States
Holder so elects, reduce the amount of foreign currency interest income on such
Note. Such electing United States Holder is required to recognize exchange gain
or loss attributable to movements in exchange rates between the time premium is
paid to acquire a Foreign Currency Note and the time it offsets interest income
by treating the amount of premium amortized as a return of principal.
A United States Holder's tax basis in a Foreign Currency Note will be the
U.S. dollar value of the Foreign Currency amount paid for such Foreign Currency
Note determined at the time of such purchase. A United States Holder who
purchases a Note with previously owned Foreign Currency will recognize exchange
gain or loss at the time of purchase attributable to the difference at the time
of purchase, if any, between his tax basis in such Foreign Currency and the fair
market value of the Note in U.S. dollars on the date of purchase. Such gain or
loss will be ordinary income or loss.
For purposes of determining the amount of any gain or loss recognized by a
United States Holder on the sale, exchange or retirement of a Foreign Currency
Note, the amount realized upon such sale, exchange or retirement will be the
U.S. dollar value of the amount realized in Foreign Currency (other than amounts
attributable to accrued but unpaid interest not previously included in the
holder's income), determined at the time of the sale, exchange or retirement.
A United States Holder will recognize exchange gain or loss attributable to
the movement in exchange rates in the U.S. dollar value of the Foreign Currency
amount paid for such Foreign Currency Note between the time of purchase and the
time of disposition (including the sale, exchange or retirement) of a Foreign
Currency Note. Such gain or loss will be treated as ordinary income or loss. The
realization of such gain or loss will be limited to the amount of overall gain
or loss realized on the disposition of a Foreign Currency Note. Under proposed
Treasury Regulations issued on March 17, 1992, if a Foreign Currency Note is
denominated in one of certain hyperinflationary currencies, generally (i)
exchange gain or loss would be realized with respect to movements in the
exchange rate between the beginning and end of each taxable year (or such
shorter period) that such Note was held and (ii) such exchange gain or loss
would be treated as an addition or offset, respectively, to the accrued interest
income on (and an adjustment to the holder's tax basis in) the Foreign Currency
Note.
A United States Holder's tax basis in Foreign Currency received as interest
on (or OID with respect to), or received on the sale or retirement of, a Foreign
Currency Note will be the U.S. dollar value thereof at the spot rate at the time
the holder received such Foreign Currency. Any gain or loss recognized by a
United States Holder on a sale, exchange or other disposition of Foreign
Currency will be ordinary income or loss and will not be treated as interest
income or expense, except to the extent provided in Treasury Regulations or
administrative pronouncements of the IRS.
DUAL CURRENCY NOTES
If so specified in an applicable Pricing Supplement relating to a Foreign
Currency Note, the Company may have the option to make all payments of principal
and interest scheduled after the exercise of such option in the Optional Payment
Currency (i.e., a currency other than the Specified Currency). In general,
payments under Dual Currency Notes will be taxed pursuant to the rules regarding
interest, OID, premium and foreign currency transactions discussed above.
However, a United States Holder of a Dual Currency Note with respect to which
the Company's option has been exercised may be considered to have exchanged a
Note denominated in the Specified Currency for a Note denominated in the
Optional Payment Currency. Depending on the terms of the deemed exchange and the
value of the currencies involved, a United States Holder may be required to
recognize gain or loss, if any, equal to the difference between the holder's
basis in the Note denominated in the Specified Currency and the value of the
Note denominated in the Optional Payment Currency.
The Treasury has not published any regulations or rulings that provide
guidance with respect to the Dual Currency Notes. The IRS could, however,
promulgate rules under section 988 of the Code
S-32
<PAGE>
(dealing with transactions in foreign currency) that could affect the tax
consequences described above, and such rules could be applied retroactively.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Notes and to the
proceeds of sale of a Note made to United States Holders other than certain
exempt recipients (such as corporations). A 31 percent backup withholding tax
will apply to such payments if the United States Holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income.
NON-UNITED STATES HOLDERS
Under certain recent tax legislation, "contingent interest" paid to
Non-United States Holders is subject to United States withholding tax. In
general, interest is contingent for this purpose if the amount of the interest
is determined by reference to receipts, sales, cash flow, income or profits of
the issuer or any related person, by reference to any change in value of the
issuer's (or any related person's) property or by reference to any dividend or
similar payment made by the issuer or a related person. In addition, the IRS may
identify by regulation other types of contingent interest. Consequently, the
discussion of withholding under "United States Taxation" in the accompanying
Prospectus does not apply to contingent interest payments. In addition, such
discussion does not address the United States tax consequences of purchasing and
owning Index Notes or any other Notes that might be deemed to be contingent
principal debt instruments. United States tax consequences applicable to the
purchase, ownership and disposition of Notes bearing contingent interest,
contingent principal or Index Notes will be discussed in an applicable Pricing
Supplement.
PLAN OF DISTRIBUTION OF NOTES
Under the terms of an Agency Agreement, dated October 4, 1993, as amended,
(the "Agency Agreement"), the Notes are offered on a continuing basis by the
Company through Lehman Brothers Inc. ("Lehman Brothers"), as Agent, which has
agreed to use its reasonable best efforts to solicit offers to purchase the
Notes. The Company will pay the Agent a commission of from .125% to .625% of the
principal amount of each Note, depending on its Maturity, sold through the
Agent. The Company will have the sole right to accept offers to purchase Notes
and may reject any such offer in whole or in part. The Agent shall have the
right, in its discretion reasonably exercised, without notice to the Company, to
reject any offer to purchase Notes received by it, in whole or in part. The
Company also may sell Notes to the Agent, acting as principal, at a discount to
be agreed upon at the time of sale, for resale to one or more investors at
varying prices related to prevailing market prices at the time of such resale,
as determined by the Agent. The Company has also reserved the right to sell
Notes directly on its own behalf or to or through one or more underwriters or
additional agents.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of each Note will be required to be made in the Specified
Currency of such Note.
The Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
indemnify the Agent against and contribute toward certain liabilities, including
liabilities under the Act. The Company has agreed to reimburse the Agent for
certain expenses, including fees and disbursements of counsel to the Agent.
The Agent may sell Notes to or through dealers who may resell to investors.
The Agent may pay all or part of its discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the Act.
S-33
<PAGE>
The Company has been advised by the Agent that it may from time to time
purchase and sell Notes in the secondary market, but that it is not obligated to
do so. No assurance can be given that there will be a secondary market for the
Notes.
In addition to offering Notes through the Agent as described herein, Debt
Securities which are medium-term notes and may have terms substantially similar
to the terms of the Notes offered hereby (but which constitute one or more
separate series of Debt Securities for purposes of the Indenture) may in the
future be offered, concurrently with the offering of the Notes, on a continuing
basis outside the United States by the Company pursuant to a separate
distribution agreement the terms of which will be substantially similar to the
terms of the Agency Agreement, except that such separate agreement will contain
selling restrictions. Any Debt Securities sold pursuant to such separate
agreement, or sold by the Company to the Agent for resale as contemplated by
such separate agreement, will reduce the principal amount of Notes which may be
offered by this Prospectus Supplement and the Prospectus. Other debt securities
issued by the Company or an affiliate of the Company and guaranteed by the
Company and which may have terms substantially similar to the terms of the Notes
offered hereby may in the future be offered on a continuing basis outside the
United States.
This Prospectus Supplement, together with the accompanying Prospectus, may
also be used by Lehman Brothers in connection with offers and sales of the Notes
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
This offering, and all members of the NASD participating in this offering,
will comply with the applicable requirements of Schedule E of the By-Laws of the
NASD.
GLOSSARY
Set forth below are definitions of some of the terms used in this Prospectus
Supplement and not defined in the related Prospectus.
"Business Day" means with respect to any Note, unless otherwise specified in
the applicable Pricing Supplement, any day, other than a Saturday or Sunday,
that meets each of the following applicable requirements: such day is (a) not a
day on which banking institutions in the Borough of Manhattan, The City of New
York are authorized or required by law, regulation or executive order to close;
(b) if the Note is denominated in a Foreign Currency other than the ECU, (x) not
a day on which banking institutions are authorized or required by law or
regulation to close in the principal financial center of the country issuing the
Foreign Currency and (y) a day on which banking institutions in such principal
financial center are carrying out transactions in such Foreign Currency; (c) if
the Note is denominated in ECU, (x) not a day on which banking institutions are
authorized or required by law or regulation to close in Luxembourg and (y) an
ECU clearing day, as determined by the ECU Banking Association in Paris; and (d)
if such Note is a LIBOR Note, a London Banking Day.
"Calculation Agent" means the agent appointed by the Company to calculate
interest rates for Floating Rate Notes. Unless otherwise provided in a Pricing
Supplement, the Calculation Agent will be Citibank, N.A.
"Calculation Date" means the date, if any, on which the Calculation Agent is
to calculate an interest rate for a Floating Rate Note, which shall be the tenth
calendar day after the related Interest Determination Date for such Note or if
such day is not a Business Day, the next succeeding Business Day, unless
otherwise specified in such Note and the related Pricing Supplement.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 P.M. Quotations for U.S. Government Securities," or any
successor publication, published by the Federal Reserve Bank of New York.
S-34
<PAGE>
"Corporate Trust Office" means the office of the Trustee at 111 Wall Street,
5th Floor, New York, New York 10043, or such other office of the Trustee or of
any duly appointed Paying Agent as may be specified in the applicable Pricing
Supplement.
"Exchange Rate Day" means any day which is a Business Day in The City of New
York, and if such term is used with reference to a Denominated Currency or
Indexed Currency that is a Foreign Currency, in the principal financial center
of the country of such Denominated Currency or Indexed Currency.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"Indenture" means the Indenture, dated as of September 1, 1987 between the
Company and the Trustee, as supplemented and amended by Supplemental Indentures
dated as of November 25, 1987, as of November 27, 1990, as of September 13, 1991
and as of October 4, 1993.
"Index Maturity" means the period of time designated as the representative
maturity of the commercial paper, the certificates of deposit, the U.S. dollar
deposits or the Treasury bills, respectively, by reference to transactions in
which the Commercial Paper Rate, the CD Rate, LIBOR and the Treasury Rate,
respectively, or any other interest rate index in effect from time to time with
respect to a Note, are to be calculated as set forth in a Note bearing interest
at one of those rates and the related Pricing Supplement.
"Initial Interest Rate" means the rate at which a Floating Rate Note will
bear interest from the Issue Date to the first Interest Reset Date, as set forth
in the Note and the related Pricing Supplement.
"Interest Determination Date" means the date as of which the interest rate
for a Floating Rate Note is to be calculated, to be effective as of the
following Interest Reset Date and calculated on the related Calculation Date
(except in the case of LIBOR and Prime Rate, which are calculated on the
Interest Determination Date) as described under the heading "Floating Rate
Notes" or as otherwise set forth in a Floating Rate Note and the related Pricing
Supplement.
"Interest Payment Date" means the date on which payments of interest on a
Note (other than payments on Maturity) are to be made, which will be on February
15 and August 15 of each year in the case of Fixed Rate Notes and will be the
dates described under the heading "Floating Rate Notes" in the case of Floating
Rate Notes, unless otherwise specified in the Note and the related Pricing
Supplement.
"London Banking Day" means any day on which dealings in deposits in the
Specified Currency are transacted in the London interbank market.
"Maturity" means the date on which the principal of a Note becomes due and
payable, whether at the Stated Maturity or by declaration of acceleration or
otherwise.
"Non-United States Holder" means any holder of a Note other than a United
States Holder.
"Option Value" means, with respect to an Interest Payment Date or Stated
Maturity date, the amount calculated by the Option Value Calculation Agent to be
the arithmetic average of the prices quoted on the date of calculation by three
reference banks (which banks shall be selected by the Option Value Calculation
Agent and shall be reasonably acceptable to the Company) for the right on the
Option Election Date immediately preceding such Interest Payment Date or Stated
Maturity date to purchase for value on such Interest Payment Date or Stated
Maturity date from such reference banks (A) the aggregate amount of the
Specified Currency due on such Interest Payment Date or Stated Maturity date
with respect to all of the Dual Currency Notes of the same Tranche in exchange
for
S-35
<PAGE>
(B) the amount of the Optional Payment Currency that would be received if the
amount in clause (A) were converted into the Optional Payment Currency at the
Designated Exchange Rate.
"Option Value Calculation Agent" means, with respect to any Dual Currency
Note, the option value calculation agent designated in the applicable Pricing
Supplement.
"Original Issue Discount Note" means any Note issued with OID.
"Regular Record Date" means the date on which a Note must be held in order
for the holder to receive an interest payment on the next Interest Payment Date.
Unless otherwise specified in a Note and the related Pricing Supplement, the
Regular Record Dates for Fixed Rate Notes shall be the February 1 and August 1
next preceding such Interest Payment Date, and, in the case of Floating Rate
Notes, shall be the fifteenth day prior to the Interest Payment Date.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuters Monitor Money Rates Service, or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank offered
rates of major banks.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on
the Reuters Monitor Money Rates Service, or such other page as may replace the
NYMF page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks.
"Security Register" means the register maintained at the Corporate Trust
Office of the Trustee.
"Spread" means the constant amount, if any, to be added to the Commercial
Paper Rate, the Federal Funds Effective Rate, the CD Rate, LIBOR, the Prime
Rate, the Treasury Rate or any other interest rate index in effect from time to
time with respect to a Note, which amount will be set forth in such Note and the
related Pricing Supplement.
"Spread Multiplier" means the constant amount by which the Commercial Paper
Rate, the Federal Funds Effective Rate, the CD Rate, LIBOR, the Prime Rate, the
Treasury Rate or any other interest rate index in effect from time to time with
respect to a Note is to be multiplied, which amount will be set forth in such
Note and the related Pricing Supplement.
"Stated Maturity" means the date specified in a Note as the date on which
principal of such Note is due and payable.
"Telerate Page 3740" means the display designated as page "3740" on the
Telerate Service, or such other page as may replace the 3740 page on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for deposits in Australian Dollars, French Francs, Canadian Dollars,
Italian Lira, Spanish Pesetas and Dutch Guilders.
"Telerate Page 3750" means the display designated as page "3750" on the
Telerate Service, or such other page as may replace the 3750 page on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for deposits in U.S. Dollars, British Pounds Sterling, German Deutsche
Marks, Swiss Francs, Japanese Yen and ECU.
"Total Option Value" means, with respect to any Dual Currency Note on any
date, an amount (calculated, as of such date, by the Option Value Calculation
Agent) equal to the sum of the Option Values (calculated as of such date by the
Option Value Calculation Agent) for all Interest Payment Dates occurring after
the date of calculation up to and including the Stated Maturity date.
"Treasury Department" means the United States Department of the Treasury.
S-36
<PAGE>
"Treasury Regulations" means final, temporary or proposed Treasury
Department regulations.
"Trustee" means Citibank, N.A.
In addition, definitions for the following terms are set forth in this
Prospectus Supplement at the pages indicated:
LOCATION
DEFINED TERM OF DEFINITION
------------ -------------
accrued OID.................................................... S-23
Act............................................................ S-29
Agency Agreement............................................... S-29
Agent.......................................................... S-1
Amortized Face Amount.......................................... S-15
Amortizing Notes............................................... S-15
applicable Index............................................... S-13
Base Exchange Rate............................................. S-12
Book-Entry Note................................................ S-1
CD Interest Determination Date................................. S-7
CD Rate........................................................ S-9
CD Rate Note................................................... S-6
Certificated Note.............................................. S-1
Code........................................................... S-22
Commercial Paper Interest Determination Date................... S-7
Commercial Paper Rate.......................................... S-8
Commercial Paper Rate Note..................................... S-6
Company........................................................ S-1
Currency Indexed Notes......................................... S-12
Denominated Currency........................................... S-12
Depository..................................................... S-16
Designated Exchange Rate....................................... S-14
Determination Agent............................................ S-12
Determination Date............................................. S-12
Dual Currency Notes............................................ S-14
ECU............................................................ S-1
Election Interval.............................................. S-19
Exchange Rate Agent............................................ S-3
Extended Maturity Date......................................... S-19
Extension Notice............................................... S-18
Extension Period............................................... S-18
Face Amount.................................................... S-12
Federal Funds Effective Rate................................... S-9
Federal Funds Effective Rate Note.............................. S-6
Federal Funds Interest Determination Date...................... S-7
Final Maturity................................................. S-18
Fixed Rate Note................................................ S-6
Floating Rate Note............................................. S-6
Foreign Currency............................................... S-1
Foreign Currency Note.......................................... S-26
Foreign Specified Currency..................................... S-1
Global Security................................................ S-1
Indexed Currency............................................... S-12
Indexed Note................................................... S-1
S-37
<PAGE>
LOCATION
DEFINED TERM OF DEFINITION
------------ -------------
Initial Maturity Date.......................................... S-19
Initial Maturity Extension Date................................ S-19
Interest Reset Date............................................ S-7
IRS............................................................ S-23
Issue Date..................................................... S-1
LIBOR.......................................................... S-10
LIBOR Interest Determination Date.............................. S-7
LIBOR Note..................................................... S-6
LIBOR Reuters.................................................. S-10
LIBOR Telerate................................................. S-10
Market Exchange Rate........................................... S-3
Maturity Extension Date........................................ S-19
NASD........................................................... S-17
New Notes...................................................... S-25
Notes.......................................................... S-1
OID............................................................ S-22
Old Notes...................................................... S-25
Option Election Date........................................... S-14
Optional Payment Currency...................................... S-33
Optional Reset Date............................................ S-17
Original Stated Maturity....................................... S-18
Pricing Supplement............................................. S-1
Prime Interest Determination Date.............................. S-7
Prime Rate..................................................... S-11
Prime Rate Note................................................ S-6
Proposed Regulations........................................... S-22
Proposed 1001 Regulations...................................... S-25
Reference Dealers.............................................. S-12
Renewable Note................................................. S-19
Reset Notice................................................... S-17
Revised Terms.................................................. S-25
Short-Term Original Issue Discount Notes....................... S-24
Special Election Period........................................ S-19
Specified Currency............................................. S-1
Spot Rate...................................................... S-12
Subsequent Interest Period..................................... S-17
Tranche........................................................ S-14
Treasury bills................................................. S-11
Treasury Interest Determination Date........................... S-7
Treasury Rate.................................................. S-11
Treasury Rate Note............................................. S-6
United States Holder........................................... S-22
S-38
<PAGE>
PROSPECTUS
LEHMAN BROTHERS HOLDINGS INC.
DEBT SECURITIES
PREFERRED STOCK
-------------------
Lehman Brothers Holdings Inc. ("Holdings") may offer from time to time (i)
unsecured debt securities (the "Debt Securities") consisting of debentures,
notes and/or other evidences of indebtedness in one or more series at an
aggregate initial public offering price not to exceed U.S. $4,196,600,000 (or
the equivalent thereof if any of the Debt Securities are denominated in a
foreign currency or currency unit), or (ii) shares of preferred stock, par value
$1.00 per share (the "Offered Preferred Stock" and, together with the Debt
Securities, the "Securities"), in one or more series at an aggregate initial
offering price not to exceed U.S.$3,000,000,000, or, subject to such
limitations, any combination of the foregoing, in each case at prices and on
terms to be determined at the time of sale.
Specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an applicable Prospectus Supplement
("Prospectus Supplement"), together with the terms of the offering of the
Securities, the initial offering price, the net proceeds to the Company from the
sale thereof and any listing on a securities exchange. The Prospectus Supplement
will also set forth, among other matters, the following with respect to the
particular Securities: (i) in the case of Debt Securities, the title, priority,
aggregate principal amount, the currency or currency unit for which the Debt
Securities may be purchased, the currency or currency unit in which the
principal and interest, if any, is payable, the rate (or method of calculation)
and time of payment of interest, if any, authorized denominations, maturity, any
redemption or sinking fund provisions and any conversion or exchange rights and
(ii) in the case of Offered Preferred Stock, the designation, number of shares,
liquidation preference, dividend rate (or method of calculation thereof), dates
on which dividends shall be payable and dates from which dividends shall accrue,
any redemption or sinking fund provisions and any conversion or exchange rights.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
The Securities will be sold either through underwriters, dealers or agents,
or directly by Holdings. The applicable Prospectus Supplement sets forth the
names of any underwriters or agents (which may include Lehman Brothers Inc., a
subsidiary of Holdings ("Lehman Brothers")) involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the proposed
amounts or number of shares, if any, to be purchased by underwriters and the
compensation, if any, of such underwriters or agents.
This Prospectus together with the applicable Prospectus Supplement may also
be used by Lehman Brothers in connection with offers and sales of Securities
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
-------------------
October 30, 1995
<PAGE>
AVAILABLE INFORMATION
Holdings is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"SEC"). Such reports and information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison
Street, Chicago, Illinois 60661-2511; and copies of such material can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates. Holdings' Common Stock is listed on the New York Stock
Exchange, Inc. (the "Exchange") and the Pacific Stock Exchange Inc. (the "PSE").
Holdings' 8 3/4% Notes Due 2002 and Holdings Medium-Term Note, Series E, Due
September 20, 1996 are listed on the Exchange. Holdings' $55 Million Serial Zero
Coupon Senior Notes Due May 16, 1998, FT-SE Eurotrack 200 Index Call Warrants
expiring June 4, 1996, 7 1/4% Oracle Yield Enhanced Equity Linked Debt
Securities SM due 1996, 6 1/2% Amgen Yield Enhanced Equity Linked Debt
Securities Due 1997, Japanese Yen Bear Warrants Expiring March 5, 1996, Global
Telecommunications Stock Upside Note Securities SM Due 2000, 9 1/8% Micron Yield
Enhanced Equity Linked Debt Securities Due 1997, AMEX Hong Kong 30 Index Call
Warrants and Regional Bank Stock Upside Note Securities SM Due 1996 are listed
on the American Stock Exchange, Inc. (the "ASE"). Reports and other information
concerning Holdings may also be inspected at the offices of the Exchange at 20
Broad Street, New York, New York 10005, at the offices of the ASE, 86 Trinity
Place, New York, New York 10006 and at the offices of the PSE, 301 Pine Street,
San Francisco, California 94104.
Holdings has filed with the SEC registration statements on Form S-3 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statements") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not contain all of the information set forth in the
Registration Statements, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statements.
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by Holdings with the SEC pursuant
to the Exchange Act are hereby incorporated by reference in this Prospectus:
(1) Holdings' Transition Report on Form 10-K for the eleven months ended
November 30, 1994.
(2) Holdings' Quarterly Reports on Form 10-Q for the fiscal quarters
ended February 28, 1995, May 31, 1995 and August 31, 1995.
(3) Holdings' Current Reports on Form 8-K dated January 6, 1995, March
24, 1995, June 28, 1995 and September 21, 1995.
Each document filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered by an applicable
Prospectus Supplement shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statements and this Prospectus to the extent that a statement contained herein,
in an applicable Prospectus Supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statements or this Prospectus.
Holdings will provide without charge to each person, including any
beneficial owner of any of the Securities, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Mary Jo Capko,
the Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial
Center, 27th Floor, New York, New York 10285 (telephone (212) 526-0660).
2
<PAGE>
THE COMPANY
Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries,
hereinafter referred to as the "Company" unless the context otherwise requires)
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, Tokyo,
Hong Kong and Singapore are complemented by offices in additional locations in
the United States, Europe, the Middle East, Latin and South America.
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 marker in all major equity
and fixed income products in both the domestic and international markets. The
Company is a member of all principal securities and commodities exchanges in the
United States, as well as the National Association of Securities Dealers, Inc.
("NASD"), 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.
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) 526-7000).
USE OF PROCEEDS
Except as otherwise may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, Holdings intends to apply the net proceeds from
the sale of the Securities for general corporate purposes.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for each of the four years in the period ended December 31, 1993, the
eleven months ended November 30, 1994 and the nine months ended August 31, 1995:
ELEVEN MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
- ------------------------------- NOVEMBER 30, AUGUST 31,
1990 1991 1992 1993 1994 1995
- ----- ---- ---- ---- ------------- -----------
[S] [C] [C] [C] [C] [C]
* 1.03 * 1.00 1.03 1.03
Earnings were inadequate to cover fixed charges and would have had to
increase approximately $766 million in 1990 and $247 million in 1992 in order to
cover the deficiencies for the respective periods.
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends of the Company for each of the four years
in the period ended December 31, 1993, the eleven months ended November 30, 1994
and the nine months ended August 31, 1995:
ELEVEN MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
- ------------------------------- NOVEMBER 30, AUGUST 31,
1990 1991 1992 1993 1994 1995
- ----- ---- ---- ---- ------------- -----------
[S] [C] [C] [C] [C] [C]
* 1.02 * * 1.02 1.03
- ------------
* Earnings were inadequate to cover fixed charges and would have had to increase
approximately $814 million in 1990, $295 million in 1992 and $27 million in
1993 in order to cover the deficiencies for the respective periods.
In computing the ratio of earnings to combined fixed charges and preferred
stock dividends, "earnings" consist of earnings from continuing operations
before income taxes and fixed charges. "Fixed charges" consist principally of
interest expense and one-third of office rentals and one-fifth of equipment
rentals, which are deemed to be representative of the interest factor.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either Senior Debt (as defined below) or
Subordinated Debt (as defined below) of Holdings. The Debt Securities
constituting Senior Debt will be issued under an indenture, dated as of
September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented
and amended by Supplemental Indentures dated as of November 25, 1987, as of
November 27, 1990, as of September 13, 1991, as of October 4, 1993 and as of
August 1, 1995 (the "Senior Indenture"), and the Debt Securities constituting
Subordinated Debt will be issued under an indenture between Holdings and
Chemical Bank, Trustee (the "Subordinated Indenture"). The Senior Indenture and
the Subordinated Indenture are hereinafter collectively referred to as the
"Indentures" and, individually, as an "Indenture". Each Indenture will
incorporate by reference certain Standard Multiple-Series Indenture Provisions,
filed with the SEC on July 30, 1987 and as amended and refiled with the SEC on
November 16, 1987. This Prospectus contains descriptions of all material
provisions of the Indentures. The summary of such provisions of the Indentures
does not purport to be complete; copies of such Indentures are filed as exhibits
to the Registration Statements of which this Prospectus is a part. All articles
and sections of the applicable Indenture, and all capitalized terms set forth
below, have the meanings specified in the applicable Indenture.
GENERAL
Neither Indenture limits the amount of debentures, notes or other evidences
of indebtedness which may be issued thereunder. Each Indenture provides that
Debt Securities may be issued from time to time in one or more series. Since
Holdings, as a holding company, does not have any significant assets other than
the equity securities of its subsidiaries, its cash flow and consequent ability
to service its debt, including the Debt Securities, are dependent upon the
earnings of its subsidiaries and the distribution of those earnings to Holdings,
or upon loans or other payments of funds by those subsidiaries to Holdings.
Holdings' subsidiaries, including Lehman Brothers, are separate and distinct
legal entities and will have no obligation, contingent or otherwise, to pay any
interest or principal on the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. Dividends, loans and
other payments by Lehman Brothers are restricted by net capital and other rules
of various regulatory bodies. See "Capital Requirements." The payment of
dividends by Holdings' subsidiaries is contingent upon the earnings of those
subsidiaries and is subject to various business considerations in addition to
net capital requirements and contractual restrictions. Except as described under
"Limitations on Liens" and "Consolidation, Merger and Sale of Assets", neither
Indenture affords holders of Debt Securities protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or other similar
transaction involving the Company that may adversely affect holders of Debt
Securities.
Since the Debt Securities will be obligations of a holding company, the
ability of holders of the Debt Securities to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Debt Securities being offered
thereby: (1) the title of such Debt Securities and whether such Debt Securities
will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) whether the Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, and if Bearer
Securities are issued, whether Bearer Securities may be exchanged for Registered
Securities and the circumstances and places for such exchange, if permitted; (4)
whether the Debt Securities are to be issued in whole or in part in the form of
one or more temporary or permanent global Debt Securities ("Global Securities")
in registered or bearer form and, if so, the identity of the depositary, if any,
for such Global Security or Securities; (5) the date or dates (or manner of
determining the same) on which such Debt Securities will mature; (6) the rate or
rates (or manner of determining the same) at which such Debt Securities will
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bear interest, if any, and the date or dates from which such interest will
accrue; (7) the dates (or manner of determining the same) on which such interest
will be payable and the Regular Record Dates for such Interest Payment Dates for
Debt Securities which are Registered Securities, and the extent to which, or the
manner in which, any interest payable on a temporary or permanent global Debt
Security on an Interest Payment Date will be paid if other than in the manner
described under "Global Securities" below; (8) any mandatory or optional sinking
fund or analogous provisions; (9) each office or agency where, subject to the
terms of the applicable Indenture as described below under "Payment and Paying
Agents", the principal of and premium, if any, and interest, if any, on the Debt
Securities will be payable and each office or agency where, subject to the terms
of the applicable Indenture as described below under "Denominations,
Registration and Transfer," the Debt Securities may be presented for
registration of transfer or exchange; (10) the date, if any, after which, and
the price or prices in the currency or currency unit in which, such Debt
Securities are payable pursuant to any optional or mandatory redemption
provision; (11) any provisions for payment of additional amounts for taxes and
any provision for redemption, in the event Holdings must comply with reporting
requirements in respect of a Debt Security or must pay such additional amounts
in respect of any Debt Security; (12) the terms and conditions, if any, upon
which the Debt Securities of such series may be repayable prior to maturity at
the option of the holder thereof (which option may be conditional) and the price
or prices in the currency or currency unit in which such Debt Securities are
payable; (13) the denominations in which any Debt Securities which are
Registered Securities will be issuable if other than denominations of $1,000 and
any integral multiple thereof, and the denomination or denominations in which
any Debt Securities which are Bearer Securities will be issuable if other than
the denomination of $5,000; (14) the currency, currencies or currency units for
which such Debt Securities may be purchased and the currency, currencies or
currency units in which the principal of and interest, if any, on such Debt
Securities may be payable; (15) any index used to determine the amount of
payments of principal of and premium, if any, and interest, if any, on such Debt
Securities; (16) the terms and conditions, if any, pursuant to which such Debt
Securities may be converted or exchanged for other securities of Holdings or any
other person; (17) the terms and conditions, if any, pursuant to which the
principal of and premium, if any, and interest, if any, on such Debt Securities
are payable at the election of Holdings or the holder thereof, in securities or
other property; and (18) other terms of the Debt Securities.
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of or interest, if any, on any series of Debt
Securities is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Debt Securities and such currencies or currency
units will be set forth in an applicable Prospectus Supplement relating thereto.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series are
described under "United States Taxation" and may be further described in an
applicable Prospectus Supplement.
SENIOR DEBT
The Debt Securities constituting part of the senior debt of Holdings (the
"Senior Debt") will rank equally with all other unsecured debt of Holdings
except Subordinated Debt.
SUBORDINATED DEBT
The Debt Securities constituting part of the subordinated debt of Holdings
(the "Subordinated Debt") will be subordinate and junior in the right of
payment, to the extent and in the manner set forth in the Subordinated
Indenture, to all present or future Senior Debt. "Senior Debt" is defined to
mean
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(a) any indebtedness for money borrowed or evidenced by bonds, notes, debentures
or similar instruments, (b) indebtedness under capitalized leases, (c) any
indebtedness representing the deferred and unpaid purchase price of any property
or business, and (d) all deferrals, renewals, extensions and refundings of any
such indebtedness or obligation; except that the following does not constitute
Senior Debt: (i) indebtedness evidenced by the Subordinated Debt, (ii)
indebtedness which is expressly made equal in right of payment with the
Subordinated Debt or subordinate and subject in right of payment to the
Subordinated Debt, (iii) indebtedness for goods or materials purchased in the
ordinary course of business or for services obtained in the ordinary course of
business or indebtedness consisting of trade payables or (iv) indebtedness which
is subordinated to any obligation of Holdings of the type specified in clauses
(a) through (d) above. The effect of clause (iv) is that Holdings may not issue,
assume or guaranty any indebtedness for money borrowed which is junior to the
Senior Debt and senior to the Subordinated Debt. (Subordinated Indenture Section
1401). The Prospectus Supplement related to a particular series of Subordinated
Debt will set forth the amount of Senior Debt then outstanding. The Subordinated
Indenture does not limit the amount of Senior Debt or other indebtedness that
may be issued.
Upon the failure to pay the principal or premium, if any, on Senior Debt
when due or upon the maturity of any Senior Debt by lapse of time, acceleration
or otherwise, all principal thereof, interest thereon, if any, and other amounts
due in connection therewith shall first be paid in full, before any payment is
made on account of the principal, premium, if any, or interest, if any, on the
Subordinated Debt or to acquire any of the Subordinated Debt or on account of
the redemption, sinking fund or analogous provisions in the Subordinated
Indenture. (Subordinated Indenture Section 1402). Upon any distribution of
assets of Holdings pursuant to any dissolution, winding up, liquidation or
reorganization of Holdings, payment of the principal, premium, if any, and
interest, if any, on the Subordinated Debt will be subordinated, to the extent
and in the manner set forth in the Subordinated Indenture, to the prior payment
in full of all Senior Debt. (Subordinated Indenture Section 1403). By reason of
such subordination, in the event of insolvency, creditors of Holdings who are
holders of Senior Debt may recover more ratably than the holders of Subordinated
Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Debt Securities will be issuable as Registered Securities without
coupons and in denominations of $1,000 or any integral multiple thereof, unless
an applicable Prospectus Supplement provides with respect to a series of Debt
Securities that such series of Debt Securities will be issued in whole or in
part as Bearer Securities and/or in different denominations. Debt Securities of
a series may be issuable in whole or in part in the form of one or more Global
Securities, as described below under "Global Securities." One or more Global
Securities will be issued in a denomination or aggregate denominations equal to
the aggregate principal amount of Debt Securities of the series to be
represented by such Global Security or Securities. If so provided with respect
to a series of Debt Securities, Debt Securities of such series will be issuable
solely as Bearer Securities with coupons attached or as both Registered
Securities and Bearer Securities. (Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold) no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the applicable Indenture, to the effect that such Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is owned by or on behalf of a United States
person, that such United States person (i) acquired and holds the Bearer
Security through a foreign branch of a United States financial institution, (ii)
is a foreign branch of a United
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States financial institution purchasing for its own account or resale (and in
either case, (i) or (ii), such financial institution agrees to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations thereunder) or (iii) is a
financial institution purchasing for resale during the restricted period only to
non-United States persons outside the United States. (Sections 303, 304). See
"Global Securities--Bearer Debt Securities" and "Limitations on Issuance of
Bearer Securities."
Registered Securities of any series (other than a Global Security) will be
exchangeable for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. In
addition, if Debt Securities of any series are issuable as both Registered
Securities and as Bearer Securities, at the option of the Holder upon request
confirmed in writing, and subject to the terms of the applicable Indenture,
definitive Bearer Securities (with all unmatured coupons, except as provided
below, and all matured coupons in default) of such series will be exchangeable
into definitive Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. Any definitive
Bearer Security surrendered in exchange for a definitive Registered Security
between a Regular Record Date or a Special Record Date and the relevant date for
payment of interest shall be surrendered without the coupon relating to such
date for payment of interest and interest will not be payable in respect of the
definitive Registered Security issued in exchange for such definitive Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the terms of the applicable Indenture. (Section 305). Except as
provided in an applicable Prospectus Supplement, Bearer Securities will not be
issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by Holdings for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in each Indenture. Such transfer or exchange
will be effected upon the Security Registrar or such transfer agent, as the case
may be, being satisfied with the documents of title and identity of the person
making the request. Holdings has appointed each Trustee as Security Registrar
under the applicable Indenture. (Section 305). If a Prospectus Supplement refers
to any transfer agents (in addition to the Security Registrar) initially
designated by Holdings with respect to any series of Debt Securities, Holdings
may at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts, except that,
if Debt Securities of a series are issuable only as Registered Securities,
Holdings will be required to maintain a transfer agent in each Place of Payment
for such series and, if Debt Securities of a series are issuable as Bearer
Securities, Holdings will be required to maintain (in addition to the Security
Registrar) a transfer agent in a Place of Payment for such series located
outside the United States. Holdings may at any time designate additional
transfer agents with respect to any series of Debt Securities. (Section 1002).
In the event of any redemption in part, Holdings shall not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on (A) if Debt Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of redemption
and (B) if Debt Securities of the series are issuable as Bearer Securities, the
day of the first publication of the relevant notice of redemption or, if Debt
Securities of the series are also issuable as Registered Securities and there is
no publication, the mailing of the relevant notice of redemption; (ii) register
the transfer of or exchange any Registered Security, or portion thereof, called
for redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption. (Section 305).
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PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Bearer Securities will
be payable, subject to any applicable laws and regulations, at the offices of
such Paying Agents outside the United States as Holdings may designate from time
to time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. (Sections
307 and 1002). Unless otherwise indicated in an applicable Prospectus
Supplement, payment of interest on Bearer Securities on any Interest Payment
Date will be made only against surrender of the coupon relating to such Interest
Payment Date. (Section 1001). No payment of interest on a Bearer Security will
be made unless on the earlier of the date of the first such payment by Holdings
or the delivery by Holdings of the Bearer Security in definitive form (including
interests in a permanent Global Security) (the "Certification Date"), a written
certificate in the form and to the effect described under "Denominations,
Registration and Transfer" is provided to Holdings. No payment with respect to
any Bearer Security will be made at any office or agency of Holdings in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States.
Notwithstanding the foregoing, payment of principal of (and premium, if any) and
interest on Bearer Securities denominated and payable in U.S. dollars will be
made at the office of Holdings' Paying Agent in the Borough of Manhattan, The
City of New York if, and only if, payment of the full amount thereof in U.S.
dollars at all offices or agencies outside the United States is illegal or
effectively precluded by exchange controls or other similar restrictions.
(Section 1002).
Unless otherwise indicated in an applicable Prospectus Supplement, as
contemplated under "Description of Securities--General", payment of principal of
(and premium, if any) and any interest on Registered Securities (other than a
Global Security) will be made in U.S. dollars at the office of such Paying Agent
or Paying Agents as Holdings may designate from time to time, except that at the
option of Holdings payment of any interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 307,
1002). Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on Registered Securities will be made to
the Person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest payment. (Section 307).
The principal office of each Trustee under the applicable Indenture in The
City of New York will be designated as Holdings' sole Paying Agent for payments
with respect to Debt Securities which are issuable solely as Registered
Securities and as Holdings' Paying Agent in the Borough of Manhattan, The City
of New York, for payments with respect to Debt Securities (subject to the
limitations described above in the case of Bearer Securities) which may be
issuable as Bearer Securities. Any Paying Agents outside the United States and
any other Paying Agents in the United States initially designated by Holdings
for the Debt Securities will be named in an applicable Prospectus Supplement.
Holdings may at any time designate additional Paying Agents or rescind the
designation of any Paying Agents or approve a change in the office through which
any Paying Agent acts, except that, if Debt Securities of a series are issuable
only as Registered Securities, Holdings will be required to maintain a Paying
Agent in each Place of Payment for such series, and if Debt Securities of a
series may be issuable as Bearer Securities, Holdings will be required to
maintain (i) a Paying Agent in the Borough of Manhattan, The City of New York
for payments with respect to any Registered Securities of the series (and for
payments with respect to Bearer Securities of the series in the circumstances
described above, but not otherwise), and (ii) a Paying Agent in a Place of
Payment located outside the United States where Debt Securities of such series
and any coupons appertaining thereto may be presented and surrendered for
payment; provided that if the Debt Securities of such series are listed on The
Luxembourg Stock Exchange (the "Stock Exchange") or any other stock exchange
located outside the United States and such stock exchange shall so require,
Holdings will maintain a Paying Agent in
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Luxembourg or any other required city located outside the United States, as the
case may be, for the Debt Securities of such series. (Section 1002).
All moneys paid by Holdings to a Paying Agent for the payment of principal
of (and premium, if any) or interest on any Debt Security which remain unclaimed
at the end of two years after such principal, premium or interest shall have
become due and payable will be repaid to Holdings and the Holder of such Debt
Security or any coupon will thereafter look only to Holdings for payment
thereof. (Section 1003).
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with or on behalf
of a depository (a "Depository") identified in the Prospectus Supplement
relating to such series. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depository arrangements.
Debt Securities which are to be represented by a Global Security in
registered form to be deposited with or on behalf of a Depository will be
registered in the name of such Depository or its nominee. Upon the issuance of a
Global Security in registered form, the Depository for such Global Security will
credit the respective principal amounts of the Debt Securities represented by
such Global Security to the accounts of institutions that have accounts with
such depository or its nominee ("participants"). The accounts to be credited
shall be designated by the underwriters or agents of such Debt Securities or by
Holdings, if such Debt Securities are offered and sold directly by Holdings.
Ownership of beneficial interests in such Global Securities will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests by participants in such Global Securities will be shown
on, and the transfer of that ownership interest will be effected only through,
records maintained by the Depository or its nominee for such Global Security.
Ownership of beneficial interests in Global Securities by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depository for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Global Security for all purposes under
the Indenture governing such Debt Securities. Except as set forth below, owners
of beneficial interests in such Global Securities will not be entitled to have
Debt Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Payment of principal of, premium, if any, and any interest on Debt
Securities registered in the name of or held by a Depository or its nominee will
be made to the Depository or its nominee, as the case may be, as the registered
owner or the holder of the Global Security. None of the Company, the Trustee,
any Paying Agent or the Security Registrar for such Debt Securities will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. (Section 308).
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The Company expects that the Depository for a permanent Global Security in
registered form, upon receipt of any payment of principal, premium or interest
in respect of a permanent Global Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of such Depository. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants.
A Global Security in registered form may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such depository
or by a nominee of such depository to such depository or another nominee of such
depository or by such depository or any such nominee to a successor of such
depository or a nominee of such successor. If a Depository for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as depository and a successor depository is not appointed by the
Company within 90 days, the Company will issue Debt Securities in definitive
registered form in exchange for all of the Global Securities representing such
Debt Securities. In addition, the Company may at any time and in its sole
discretion determine not to have any Debt Securities in registered form
represented by one or more Global Securities and, in such event, will issue Debt
Securities in definitive form in exchange for all of the Global Securities
representing such Debt Securities. (Section 305). Further, if the Company so
specifies with respect to the Debt Securities of a series in registered form, an
owner of a beneficial interest in a Global Security representing Debt Securities
of such series may, on terms acceptable to the Company and the Depository for
such Global Security, receive Registered Debt Securities of such series in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Security will be entitled to physical delivery in definitive form of
Registered Securities of the series represented by such Global Security equal in
principal amount to such beneficial interest and to have such Debt Securities
registered in its name. (Section 305). Debt Securities of such series so issued
in definitive form will be issued (a) as Registered Securities in denominations,
unless otherwise specified by the Company, of $1,000 and integral multiples
thereof if the Debt Securities of such series are issuable as Registered
Securities, (b) as Bearer Securities in the denomination, unless otherwise
specified by the Company, of $5,000 if the Debt Securities of such series are
issuable as Bearer Securities or (c) as either Registered or Bearer Securities
if the Debt Securities of such series are issuable in either form. See, however,
"Limitations on Issuance of Bearer Securities" below for a description of
certain restrictions on the issuance of a Bearer Security in definitive form in
exchange for an interest in a Global Security.
BEARER DEBT SECURITIES
If so specified in an applicable Prospectus Supplement, pending the
availability of a permanent Global Security, all or any portion of the Debt
Securities of a series which may be issuable as Bearer Securities will initially
be represented by one or more temporary Global Securities, without interest
coupons, to be deposited with a common depositary in London for Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear") and Cedel Bank, societe anonyme ("Cedel") for credit to the
designated accounts. The interests of the beneficial owner or owners in a
temporary Global Security in bearer form will be exchangeable for: (i) in whole,
definitive Bearer Securities, (ii) in whole, Senior Debt Securities to be
represented thereafter by one or more permanent Global Securities in bearer
form, without interest coupons, and/or (iii) in whole or in part, definitive
Registered Securities, (the date of such exchange, the "Exchange Date");
provided, however, that if definitive Bearer Securities have previously been
issued in exchange for an interest in a permanent Global Security in bearer form
representing Senior Debt Securities of the same series, then interests in such
Senior Debt Securities (with certain exceptions) shall only thereafter be
exchangeable, in whole, for definitive Bearer Securities, definitive Registered
Securities, or any combination thereof
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(with certain exceptions) representing Debt Securities having the same interest
rate and Stated Maturity, but only upon written certification in the form and to
the effect described under "Denominations, Registration and Transfer" unless
such certification has been provided on an earlier interest payment date. The
beneficial owner of a Debt Security represented by a permanent Global Security
in bearer form may, on the applicable Exchange Date and upon 30 days' notice to
the applicable Trustee given through Euroclear or Cedel, exchange its interest
in whole for definitive Bearer Securities or, if specified in an applicable
Prospectus Supplement, in whole or in part, for definitive Registered Securities
of any authorized denomination, provided, however, that if definitive Bearer
Securities are issued in partial exchange for Senior Debt Securities represented
by such permanent Global Security or by a temporary Global Security in bearer
form of the same series, such issuance (with certain exceptions) shall give rise
to the exchange of such permanent Global Security in whole for, at the option of
the Holders, definitive Bearer Securities, definitive Registered Securities, or
any combination thereof. No Bearer Security delivered in exchange for a portion
of a permanent Global Security shall be mailed or otherwise delivered to any
location in the United States in connection with such exchange. (Sections 303
and 304).
Unless otherwise specified in an applicable Prospectus Supplement, interest
in respect of any portion of a temporary Global Security in bearer form payable
in respect of an Interest Payment Date occurring prior to the issuance of a
permanent Global Security in bearer form will be paid to each of Euroclear and
Cedel with respect to the portion of the temporary Global Security in bearer
form held for its account. Each of Euroclear and Cedel will undertake in such
circumstances to credit such interest received by it in respect of a temporary
Global Security in bearer form to the respective accounts for which it holds
such temporary Global Security in bearer form as of the relevant Interest
Payment Date, but only upon receipt in each case of written certification, in
the form and to the effect described under "Denomination, Registration and
Transfer."
LIMITATION ON LIENS
So long as any Debt Securities remain outstanding, unless an applicable
Prospectus Supplement relating thereto provides otherwise, Holdings will not,
and will not permit any Designated Subsidiary (as defined below), directly or
indirectly, to create, issue, assume, incur or guarantee any indebtedness for
money borrowed which is secured by a mortgage, pledge, lien, security interest
or other encumbrance of any nature on any of the present or future common stock
of a Designated Subsidiary unless the Debt Securities and, if Holdings so
elects, any other indebtedness of Holdings ranking at least pari passu with the
Debt Securities, shall be secured equally and ratably with (or prior to) such
other secured indebtedness for money borrowed so long as it is outstanding.
(Section 1005).
The term "Designated Subsidiary" means any present or future consolidated
subsidiary of Holdings, the consolidated net worth of which constitutes at least
5% of the consolidated net worth of Holdings. As of September 30, 1995,
Holdings' Designated Subsidiaries were Lehman Brothers, Lehman Brothers Holdings
PLC, Lehman Brothers UK Holdings Limited, Lehman Brothers International
(Europe), Lehman Brothers Japan Inc., Lehman Brothers U.K. Holdings (Delaware)
Inc. and Lehman Brothers Financial Products Inc.
EVENTS OF DEFAULT
The following are Events of Default under each Indenture: (a) failure to pay
principal of or premium, if any, on any Debt Security of that series when due;
(b) failure to pay interest, if any, on any Debt Security of that series and any
related coupons when due, continued for 30 days; (c) failure to deposit any
sinking fund payment or analogous obligation, when due, continued for 30 days,
in respect of any Debt Security of that series; (d) failure to perform any other
covenant of Holdings in the Indenture (other than a covenant included in the
applicable Indenture solely for the benefit of a series of Debt Securities other
than that series), continued for 90 days after written notice as provided in the
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Indenture; and (e) certain events in bankruptcy, insolvency or reorganization in
respect of Holdings. (Section 501). Each Indenture may be amended without the
consent of Holders to provide for additional Events of Default with respect to
any series of Debt Securities then outstanding. In addition, prior to the
issuance of any series of Debt Securities, there may be additions to or
modifications or deletions of the Events of Default described above with respect
to such series of Debt Securities. Any such additions, modifications or
deletions will be specified in an applicable Prospectus Supplement. An Event of
Default with respect to a particular series of Debt Securities does not
necessarily constitute an Event of Default with respect to any other series of
Debt Securities issued under the same or another Indenture. The Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except in the payment of principal, premium or
interest, if any) if it considers such withholding to be in the interests of
such Holders. (Section 602).
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, unless the principal of all of the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are (i) Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of the series, or (ii) Indexed Securities or Dual Currency Securities, the
amount determined in accordance with the specified terms of the series) of all
the Debt Securities of that series to be due and payable immediately. At any
time after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on acceleration has
been obtained and entered, the Holders of a majority in principal amount of the
outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502). For information as to waiver
of defaults, see "Meetings, Modification and Waiver." Each Indenture provides
that the Trustee will be under no obligation, subject to the duty of the Trustee
during default to act with the required standard of care, to exercise any of its
rights or powers under such Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (Section 603). Subject to such provisions for indemnification of the
Trustee, the Holders of a majority in principal amount of the outstanding Debt
Securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the Debt
Securities of that series. (Section 512). Holdings will be required to furnish
to each Trustee annually a statement as to the performance by Holdings of
certain of its obligations under the applicable Indenture and as to any default
in such performance. (Section 1006).
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, each Indenture provides that Holdings
shall be discharged from its obligations under the Debt Securities of such
series (with certain exceptions) at any time prior to the Stated Maturity or
redemption thereof when (a) Holdings has irrevocably deposited with the
applicable Trustee, in trust, (i) sufficient funds in the currency or currency
unit in which the Debt Securities of such series are payable to pay the
principal of (and premium, if any), and interest, if any, to Stated Maturity (or
redemption) on, the Debt Securities of such series, or (ii) such amount of
direct obligations of, or obligations the principal of and interest, if any, on
which are fully guaranteed by, the government which issued the currency in which
the Debt Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series, or (iii) such combination of such funds and securities as
described in (i) and (ii), respectively, as will, together with the
predetermined and certain income to accrue on any such securities as described
in (ii), be sufficient to pay when due the principal of (and premium, if any),
and
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interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of
such series and (b) Holdings has paid all other sums payable with respect to the
Debt Securities of such series and (c) certain other conditions are met. Upon
such discharge, the Holders of the Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Debt Securities of such
series and replacement of lost, stolen or mutilated Debt Securities, and shall
look only to such deposited funds or obligations for payment. (Sections 401 and
403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, Holdings may
omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms"), Section 1005 ("Limitations on Liens
on Common Stock of Designated Subsidiaries") and any other specified covenant
and any such omission with respect to such Sections shall not be an Event of
Default with respect to the Debt Securities of such series, if (a) Holdings has
irrevocably deposited with the applicable Trustee, in trust, (i) sufficient
funds in the currency or currency unit in which the Debt Securities of such
series are payable to pay the principal of (and premium, if any), and interest,
if any, to Stated Maturity (or redemption) on, the Debt Securities of such
series, or (ii) such amount of direct obligations of, or obligations the
principal of and interest, if any, on which are fully guaranteed by, the
government which issued the currency in which the Debt Securities of such series
are payable and which are not subject to prepayment, redemption or call, as
will, together with the predetermined and certain income to accrue thereon
without consideration of any reinvestment thereof, be sufficient to pay when due
the principal of (and premium, if any), and interest, if any, to Stated Maturity
(or redemption) on, the Debt Securities of such series or, (iii) such
combination of such funds and securities as described in (i) and (ii),
respectively, as will, together with the predetermined and certain income to
accrue on any such securities as described in (ii), be sufficient to pay when
due the principal of (and premium, if any), and interest, if any, to Stated
Maturity (or redemption) on, the Debt Securities of such series and (b) certain
other conditions are met. The obligations of Holdings under the Indenture with
respect to the Debt Securities of such series, other than with respect to the
covenants referred to above shall remain in full force and effect. (Section
1009).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by Holdings and
the applicable Trustee with the consent of the Holders of not less than 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
under such Indenture affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of principal of or interest, if
any, on, any Debt Security, (b) reduce the principal amount of, or the premium,
if any, or interest, if any, on, any Debt Security, (c) change any obligation of
Holdings to pay additional amounts, (d) reduce the amount of principal of an
Original Issue Discount Security payable upon acceleration of the Maturity
thereof, (e) adversely affect the right of repayment or repurchase, if any, at
the option of the Holder, (f) reduce the amount, or postpone the date fixed for,
any payment under any sinking fund or analogous provision, (g) change the place
or currency or currency unit of payment of principal of or premium, if any, or
interest, if any, on any Debt Security, (h) change or eliminate the right, if
any, to elect payment in a coin or currency or currency unit other than that in
which Debt Securities which are Registered Securities are denominated or stated
to be payable, (i) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security, (j) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults, (k) reduce the requirements
contained in either Indenture for quorum or voting, or
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(l) change any obligation of Holdings to maintain an office or agency in the
places and for the purposes required in the applicable Indenture. (Section 902).
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by Holdings with certain restrictive provisions of the applicable
Indenture. (Section 1007). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series may on behalf of the
Holders of all Debt Securities of that series and any coupons appertaining
thereto waive any past default under the applicable Indenture with respect to
that series, except a default in the payment of the principal of or premium, if
any, or interest, if any, on any Debt Security of that series or in the payment
of any sinking fund installment or analogous obligation or in respect of a
provision which under the applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513).
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. A meeting may be called at any time by the applicable
Trustee, and also, upon request, by Holdings or Holders of at least 10% in
principal amount of the Outstanding Debt Securities of such series, in any such
case upon notice given in accordance with "Notices" below. (Section 1302).
Except as limited by the proviso in the second preceding paragraph, any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as limited by the proviso in the second preceding
paragraph, any resolution with respect to any consent or waiver which may be
given by the Holders of not less than 66 2/3% in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or an
adjourned meeting at which a quorum is present only by the affirmative vote of
66 2/3% in principal amount of the Outstanding Debt Securities of that series;
and provided, further, that, except as limited by the proviso in the second
preceding paragraph, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of Outstanding Debt Securities of a series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of Debt Securities of that series and
the related coupons. The quorum at any meeting called to adopt a resolution, and
at any reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series; provided,
however, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than 66 2/3% in
principal amount of the Outstanding Debt Securities of a series, the persons
holding or representing 66 2/3% in principal amount of the Outstanding Debt
Securities of such series will constitute a quorum (Section 1304).
CONSOLIDATION, MERGER AND SALE OF ASSETS
Holdings may, without the consent of any Holders of Outstanding Debt
Securities, consolidate or merge with or into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate or merge with or into, or transfer or lease its assets substantially
as an entirety to, Holdings, provided that (i) the Person (if other than
Holdings) formed by such consolidation or into which Holdings is merged or which
acquires or leases the assets of Holdings substantially as an entirety is
organized under the laws of any United States jurisdiction and assumes Holdings'
obligations on the Debt Securities and under the Indenture, (ii) after giving
effect to the transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have happened
and be continuing, and (iii) certain other conditions are met. (Section 801).
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NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, notices to Holders of Bearer Securities
will be given by publication in a daily newspaper in the English language of
general circulation in The City of New York and in London, and so long as such
Bearer Securities are listed on the Stock Exchange and the Stock Exchange shall
so require, in a daily newspaper of general circulation in Luxembourg or, if not
practical, elsewhere in Western Europe. Such publication is expected to be made
in The Wall Street Journal, the Financial Times and the Luxemburger Wort.
Notices to Holders of Registered Securities will be given by mail to the
addresses of such Holders as they appear in the Security Register. (Sections 101
and 106).
TITLE
Title to any temporary global Debt Security, any permanent global Debt
Security, any Bearer Securities and any coupons appertaining thereto will pass
by delivery. Holdings, each Trustee and any agent of Holdings or the applicable
Trustee may treat the bearer of any Bearer Security and the bearer of any coupon
and the registered owner of any Registered Security as the absolute owner
thereof (whether or not such Debt Security or coupon shall be overdue and
notwithstanding any notice to the contrary) for the purpose of making payment
and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Debt Security or a Debt Security with a mutilated coupon
appertaining thereto will be replaced by Holdings at the expense of the Holder
upon surrender of such Debt Security to the applicable Trustee. Debt Securities
or coupons that become destroyed, stolen or lost will be replaced by Holdings at
the expense of the Holder upon delivery to the applicable Trustee of the Debt
Security and coupons or evidence of the destruction, loss or theft thereof
satisfactory to Holdings and the applicable Trustee; in the case of any coupon
which becomes destroyed, stolen or lost, such coupon will be replaced by
issuance of a new Debt Security in exchange for the Debt Security to which such
coupon appertains. In the case of a destroyed, lost or stolen Debt Security or
coupon an indemnity satisfactory to the applicable Trustee and Holdings may be
required at the expense of the Holder of such Debt Security or coupon before a
replacement Debt Security will be issued. (Section 306).
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between, on
the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the Debt Securities to which an
applicable Prospectus Supplement accompanying this Prospectus relates are
described in such Prospectus Supplement.
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DESCRIPTION OF OFFERED PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Offered Preferred Stock. The particular terms of any series of any such
Offered Preferred Stock will be described in an applicable Prospectus
Supplement. If so indicated in such a Prospectus Supplement, the terms of any
such series may differ from the terms set forth below.
The summary of terms of any Offered Preferred Stock contained in this
Prospectus and in an applicable Prospectus Supplement does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
Holdings' Restated Certificate of Incorporation (the "Restated Certificate of
Incorporation"), filed as an exhibit to the Registration Statements of which
this Prospectus is a part, and the certificate of designations relating to such
series of Preferred Stock (the "Certificate of Designation"), the form of which
is filed as an exhibit to the Registration Statement and which will be filed
with the Secretary of State of Delaware, at or prior to the time of issuance of
such series of Preferred Stock.
GENERAL
The Restated Certificate of Incorporation authorizes the issuance of
38,000,000 shares of Preferred Stock, $1.00 par value per share. As of September
30, 1995, there were 13,000,000 shares of Cumulative Convertible Voting
Preferred Stock, Series A (the "Series A Preferred Stock"), 8,000,000 shares of
Cumulative Voting Preferred Stock (the "Cumulative Preferred Stock") and 1,000
shares of Redeemable Voting Preferred Stock (the "Redeemable Preferred Stock")
issued and outstanding.
Series A Preferred Stock. As of the date of this Prospectus, Nippon Life
Insurance Company ("Nippon Life") owns all of the issued and outstanding shares
of Series A Preferred Stock. The 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 payable quarterly on a cumulative basis. The
liquidation preference of the Series A Preferred Stock is equal to $39.10 plus
accumulated and unpaid dividends. Holdings may redeem shares of Series A
Preferred Stock in cumulative annual increments of 2,600,000 shares, subject to
adjustment for shares theretofore converted, at a price per share equal to
$39.10, but only if there is a public market for the Holdings' common stock and
the average market price of shares of Holdings' 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 0.3178313, subject to adjustment, of a share of
Holdings' common stock, provided that at least 250,000 shares of Series A
Preferred Stock (or such lesser number of shares then outstanding) must be
converted each time. Holders of Series A Preferred Stock are entitled to vote,
together with the holders of Holdings' common stock as one class (except as
otherwise required by law), on all matters to be voted on by stockholders of
Holdings. Each share of Series A Preferred Stock is entitled to the number of
votes per share equal to the quotient obtained by dividing $39.10 by the
conversion price then in effect. In addition, the holders of the Series A
Preferred Stock have voting rights in certain other circumstances.
Nippon Life has the non-transferable right to exchange the Series A
Preferred Stock for common shares of American Express Company ("American
Express"). In addition, Holdings has 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.
Cumulative Preferred Stock. As of the date of the Prospectus, American
Express owns all of the issued and outstanding shares of Cumulative Preferred
Stock. The shares of Cumulative Preferred Stock are entitled to receive
preferential dividends, as and when declared by the Board of Directors out
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of funds legally available therefor, at a rate of 8.44% per annum, payable
quarterly on a cumulative basis. The liquidation preference per share of the
Cumulative Preferred Stock is $25.00 plus accumulated and unpaid dividends.
Holdings may not redeem shares of the Cumulative Preferred Stock prior to
June 1, 2001. Thereafter, Holdings may redeem shares of Cumulative Preferred
Stock at a price per share equal to $25.00 plus accumulated and unpaid
dividends.
Holders of the Cumulative Preferred Stock are entitled to vote, together
with the holders of Holdings' common stock, as one class on all matters to be
voted on by stockholders of Holdings. 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 Holdings' common stock
on matters to be voted on by stockholders of Holdings generally. Each share of
the Cumulative Preferred Stock will be entitled to 0.295 votes per share. In
addition, if the equivalent of six quarterly dividends (whether or not
consecutive) on the Cumulative Preferred Stock or any Parity Preferred Stock (as
defined below) 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. The holders of the Cumulative
Preferred Stock have voting rights in certain other circumstances.
Redeemable Preferred Stock. As of the date of this Prospectus, American
Express and Nippon Life together own all of the issued and outstanding shares of
Redeemable Preferred Stock.
The shares of Redeemable Preferred Stock are entitled to receive
preferential dividends, as and when declared by the Board of Directors out of
funds legally available therefor, on a cumulative basis. For each of eight
annual dividend periods following May 31, 1994, the holders of Redeemable
Preferred Stock are 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"). The liquidation preference per
share of the Redeemable Preferred Stock is $1.00 plus accumulated and unpaid
dividends and accrued interest, if any, thereon at a specified rate.
Subject to funds being legally available therefor, Holdings is required to
redeem all of the Redeemable Preferred Stock on the final dividend payment date
therefor, or as soon as practicable thereafter when funds become legally
available, at a price per share equal to the liquidation preference referred to
above. In addition, if a Designated Event (as defined in the Restated
Certificate of Incorporation) occurs, the holders of the Redeemable Preferred
Stock 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 November 30, 1994, declining $50 million per year in each of the
next seven years thereafter.
Holders of Redeemable Preferred Stock are entitled to vote, together with
the holders of Holdings' common stock as one class, on all matters to be voted
on by stockholders of Holdings. 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 Holdings' common stock on matters to
be voted on by stockholders of Holdings generally. Each share of Redeemable
Preferred Stock is entitled to 1,059 votes. 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
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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. In addition, the holders of Redeemable
Preferred Stock have voting rights in certain other circumstances.
-------------------
Subject to the Restated Certificate of Incorporation and to any limitations
contained in then outstanding Preferred Stock, Holdings may issue additional
classes or series of Preferred Stock, at any time or from time to time, with
such powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as the Board of
Directors or any duly authorized committee thereof shall determine, all without
further action of the stockholders, including holders of then outstanding
Preferred Stock, of Holdings.
The Offered Preferred Stock will have the dividend, liquidation, redemption
and voting rights set forth below unless otherwise provided in an applicable
Prospectus Supplement. Reference is made to such Prospectus Supplement for
specific terms, including (1) the designation of such Offered Preferred Stock;
(2) the number of shares of such Offered Preferred Stock, the liquidation
preference per share and the initial offering price of such Offered Preferred
Stock; (3) the dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Offered Preferred Stock; (4) the date
from which dividends on such Offered Preferred Stock shall accumulate, if
applicable; (5) the procedures for any auction and remarketing, if any, of such
Offered Preferred Stock; (6) the provision of a sinking fund, if any, for such
Offered Preferred Stock; (7) the provision for redemption, if applicable, of
such Offered Preferred Stock; (8) any listing of such Offered Preferred Stock on
any securities exchange; (9) the terms and conditions, if applicable, upon which
such Offered Preferred Stock will be convertible into or exchangeable for
Holdings' common stock or other securities, and whether at the option of the
holder thereof or the Company; (10) whether such Offered Preferred Stock will
rank senior or junior to or on a parity with any other class or series of
Offered Preferred Stock; (11) the voting rights, if any, of such Offered
Preferred Stock; (12) any conversion or exchange rights of such Offered
Preferred Stock; (13) any other specific terms, preferences, rights limitations
or restrictions of such Offered Preferred Stock; and (14) a discussion of
Federal income tax considerations applicable to such Offered Preferred Stock.
The Offered Preferred Stock will, when issued, be fully paid and
non-assessable.
RANK
Each series of Offered Preferred Stock will, with respect to dividends or
upon liquidation, dissolution or winding up, rank (i) senior to all common stock
of Holdings, and to all equity securities issued by Holdings the terms of which
specifically provide that such equity securities rank junior to such Offered
Preferred Stock (collectively referred to as "Junior Securities"); (ii) on a
parity with all equity securities issued by Holdings the terms of which
specifically provide that such equity securities rank on a parity with such
Preferred Stock (collectively referred to as "Parity Preferred Stock"); and
(iii) junior to all equity securities issued by Holdings the terms of which
specifically provide that such equity securities rank senior to such Offered
Preferred Stock (collectively referred to as "Senior Securities").
Each series of Offered Preferred Stock will rank on a parity with the Series
A Preferred Stock, the Cumulative Preferred Stock and the Redeemable Preferred
Stock as to dividends and upon liquidation, dissolution or winding up.
DIVIDENDS
Holders of shares of Offered Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, dividends payable on such dates and at such rates per share
per annum as set forth in an applicable Prospectus Supplement. Such Prospectus
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Supplement will also state applicable record dates regarding the payment of
dividends. No dividends may be declared or paid or set apart for payment on any
Parity Preferred Stock 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
Offered Preferred Stock, dividends for all dividend payment periods of such
Offered 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 Offered 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 Offered Preferred Stock have been paid through the most
recently completed dividend period for such Offered Preferred Stock, no
dividends (other than in Holdings' common stock) may be paid or declared and set
aside for payment or other distribution made upon such common stock or on any
other stock of Holdings that are Junior Securities or Parity Preferred Stock as
to dividends, nor may any Holdings' common stock or shares of any other stock of
Holdings that are Junior Securities or Parity 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 Holdings 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, regardless of whether at the time of such application full cumulative
dividends upon shares of such Offered Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment), provided that any such Junior Securities or Parity Preferred Stock or
Holdings' common stock may be converted into or exchanged for shares of stock
that are Junior Securities as to dividends.
Payment of dividends on any series of Offered Preferred Stock may be
restricted by loan agreements, indentures or other transactions entered into by
Holdings.
CONVERTIBILITY
No series of Offered Preferred Stock offered hereby will be convertible
into, or exchangeable for, other securities or property except as set forth in
an applicable Prospectus Supplement.
REDEMPTION AND SINKING FUND
No series of Offered Preferred Stock offered hereby will be redeemable or
receive the benefit of a sinking fund except as set forth in an applicable
Prospectus Supplement.
LIQUIDATION
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of any series of Offered Preferred Stock then outstanding
shall be entitled to receive out of the assets of Holdings available for
distribution to its stockholders, after any distribution is made to or set aside
for holders of Senior Securities and before any distribution is made to holders
of Junior Securities, the liquidation preference per share specified in an
applicable Prospectus Supplement, if any, in each case together with any
accumulated and unpaid dividends. After payment of the full amount of the
liquidation preference and such dividends, the holders of shares of Offered
Preferred Stock will not be entitled to any further participation in any
distribution of assets by Holdings. If, upon any liquidation, dissolution or
winding up of the assets of Holdings, the assets of Holdings, 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
20
<PAGE>
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. Neither
a consolidation or merger of Holdings with or into any other corporation, nor a
merger of any other corporation with or into Holdings, nor a sale or transfer of
all or any part of Holdings' assets shall be considered a liquidation,
dissolution or winding up of Holdings.
The Restated Certificate of Incorporation does not contain any language
requiring funds to be set aside to protect the liquidation preference of the
Offered Preferred Stock, although such liquidation preference may be
substantially in excess of the par value of the Offered Preferred Stock. In
addition, Holdings is not aware of any provision of Delaware law or any
controlling decision of the courts of the State of Delaware (the state of
incorporation of Holdings) that requires a restriction upon the surplus of
Holdings solely because the liquidation preference of Offered Preferred Stock
will exceed its par value. Consequently, there will be no restriction upon
surplus of Holdings solely because the liquidation preference of Offered
Preferred Stock will exceed the par value and there will be no remedies
available to holders of Offered Preferred Stock before or after the payment of
any dividend, other than in connection with the liquidation of Holdings, solely
by reason of the fact that such dividend would reduce the surplus of Holdings to
an amount less than the difference between the liquidation preference of Offered
Preferred Stock and its par value.
VOTING
Except as provided by Delaware law, no series of Offered Preferred Stock
will be entitled to vote except as provided in an applicable Prospectus
Supplement.
MISCELLANEOUS
The holders of Offered Preferred Stock will have no preemptive rights.
Shares of Offered Preferred Stock redeemed or otherwise reacquired by Holdings
shall be retired and, upon the taking of any action required by applicable law,
resume the status of authorized and unissued shares of Offered Preferred Stock
undesignated as to series, and shall be available for subsequent issuance. The
shares of a series of Offered Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in an applicable Prospectus Supplement, the
Restated Certificate of Incorporation or the related Certificate of Designation
or as otherwise required by law. Neither the par value nor the liquidation
preference is indicative of the price at which the Offered Preferred Stock will
actually trade on or after the date of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Offered Preferred Stock
will be described in an applicable Prospectus Supplement.
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<PAGE>
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Description of Debt Securities-- Denominations, Registration and
Transfer"), or delivered in definitive form in connection with a sale during the
restricted period, in the United States or to United States persons other than
to (a) the United States office of (i) an international organization (as defined
in Section 7701(a)(18) of the Code), (ii) a foreign central bank (as defined in
Section 895 of the Code), or (iii) any underwriter, agent, or dealer offering or
selling Bearer Securities during the restricted period (a "Distributor")
pursuant to a written contract with the issuer or with another Distributor, that
purchases Bearer Securities for resale or for its own account and agrees to
comply with the requirements of Section 165(j)(3)(A), (B), or (C) of the Code,
or (b) the foreign branch of a United States financial institution purchasing
for its own account or for resale, which institution agrees to comply with the
requirements of Section 165(j)(3)(A), (B), or (C) of the Code. In addition, a
sale of a Bearer Security may be made during the restricted period to a United
States person who acquired and holds the Bearer Security on the Certification
Date through a foreign branch of a United States financial institution that
agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of
the Code. Any Distributor (including an affiliate of a Distributor) offering or
selling Bearer Securities during the restricted period must agree not to offer
or sell Bearer Securities in the United States or to United States persons
(except as discussed above) and must employ procedures reasonably designed to
ensure that its employees or agents directly engaged in selling Bearer
Securities are aware of these restrictions.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Section 165(j) and 1287(a) of the
Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations under
United States tax laws. See "United States Taxation--Backup Withholding." As
used herein, "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States and an estate or trust the income of which
is subject to United States federal income taxation regardless of its source,
and "United States" means the United States of America (including the States and
the District of Columbia) and its possessions including Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands. The term "Non-United States Holder" means any Holder which is not a
United States person.
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<PAGE>
UNITED STATES TAXATION
The following summary describes certain material United States federal
income tax consequences of the ownership of Debt Securities. Certain additional
tax consequences applicable to Debt Securities and any material federal income
tax consequences applicable to Offered Preferred Stock will be set forth in an
applicable Prospectus Supplement.
In the opinion of Simpson Thacher & Bartlett, special United States tax
counsel to Holdings, under present United States federal income and estate tax
law, and subject to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by Holdings or any Paying Agent of principal or
interest (which for purposes of this discussion includes original issue
discount) on a Debt Security owned by a Non-United States Holder, provided,
in the case of interest, (i) that the beneficial owner does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of Holdings entitled to vote within the meaning of Section
871(h)(3) of the Code and the regulations thereunder, (ii) the beneficial
owner is not a controlled foreign corporation that is related to Holdings
through stock ownership and (iii) in the case of a Registered Security, the
beneficial owner satisfies the statement requirement (described generally
below) set forth in Section 871(h) and Section 881(c) of the Code and the
regulations thereunder;
(b) no withholding of United States federal income tax will be required
with respect to any gain or income realized by a Non-United States Holder
upon the sale, exchange or retirement of a Debt Security; and
(c) a Debt Security beneficially owned by an individual who at the time
of death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Holdings entitled to
vote within the meaning of Section 871(h)(3) of the Code and provided that
the interest payments with respect to such Debt Security would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
To qualify for the exemption from withholding tax in (a)(iii) above, the
beneficial owner of a Registered Security, or a financial institution holding
the Debt Security on behalf of such owner, must provide, in accordance with
specified procedures, a paying agent of Holdings with a statement to the effect
that the beneficial owner is not a United States person. Pursuant to current
temporary Treasury regulations, these requirements will be met if (1) the
beneficial owner provides his name and address, and certifies, under penalties
of perjury, that he is not a United States person (which certification may be
made on an Internal Revenue Service ("IRS") Form W-8, or any successor form) or
(2) a financial institution holding the Debt Security on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes a paying agent with a copy thereof.
Payments to Non-United States Holders not meeting the requirements of
paragraph (a) above and thus subject to withholding of United States federal
income tax may nevertheless be exempt from such withholding if the beneficial
owner of the Debt Security provides a paying agent of Holdings with a properly
executed (1) IRS Form 1001 (or any successor form) claiming an exemption from
withholding under the benefit of a tax treaty or (2) IRS Form 4224 (or any
successor form) stating that interest paid on the Debt Security is not subject
to withholding tax because it is effectively connected with the owner's conduct
of a trade or business in the United States.
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<PAGE>
BACKUP WITHHOLDING
Under certain circumstances, Holdings or its paying agent will have to
report to the United States IRS payments of principal, interest, original issue
discount, if any, and any premium. In addition, Holdings or its paying agent may
have to withhold 31% of such payments made after December 31, 1992, and deposit
such amounts with the IRS ("backup withholding").
Generally, no information reporting or backup withholding will be required
with respect to payments made to Non-United States Holders (1) if those payments
are made outside of the United States on Bearer Securities or (2) on Registered
Securities with respect to which a statement described in (a)(iii) above has
been received.
If the conditions in the preceding paragraph have been met, backup
withholding and information reporting will not apply if the principal of, or
interest on, a Debt Security is paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner of
such Debt Security, or if a foreign office of a broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of a Debt Security to the
owner thereof. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a United States person, a controlled
foreign corporation or a foreign person that derives 50% or more of its gross
income for certain periods from the conduct of a United States trade or
business, such payments will not be subject to backup withholding but will be
subject to information reporting, unless (1) such custodian, nominee, agent or
broker has documentary evidence in its records that the beneficial owner is not
a United States person and certain other conditions are met or (2) the
beneficial owner otherwise establishes an exemption. Principal of, and interest
on, a Debt Security paid to the beneficial owner of a Debt Security by a United
States office of a custodian, nominee or agent, or the payment by the United
States office of a broker of the proceeds of sale of a Debt Security, will be
subject to both backup withholding and information reporting unless the
beneficial owner certifies to its non-United States status under penalties of
perjury or otherwise establishes an exemption.
The temporary regulations expressly provide that the Treasury is still
considering the issue of whether backup withholding will apply with respect to
certain payments of principal, interest or the proceeds of a sale that are not
subject to backup withholding under the current regulations. Although the
temporary regulations indicate that any new provisions that impose backup
withholding on such payments will apply only to payments after the date such
regulations are issued, such provisions may apply to such future payments made
on or with respect to obligations existing at the time such regulations were
issued. Accordingly, such future regulations could result in the imposition of
backup withholding in respect of future payments of principal of and premium, if
any, interest on, or the proceeds of sale of, the Debt Securities
notwithstanding that the requirements outlined above are otherwise satisfied.
TAX CONSEQUENCES OF SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Debt Securities as more
fully described under "Description of Debt Securities--Satisfaction and
Discharge" above. In that event, the IRS may take the view that such a discharge
constitutes the retirement of the Debt Securities and the issuance of new
obligations with the result that Holders of the Debt Securities would recognize
any gain or loss realized on such a retirement, although any such gain would not
be taxable to Non-United States Holders under the circumstances outlined above.
Furthermore, following discharge, the Debt Securities might be subject to
withholding, backup withholding and/or information reporting.
CERTAIN TAX CONSEQUENCES FOR UNITED STATES HOLDERS
A Debt Security may be issued for an amount which is less than its stated
redemption price at maturity. The difference will be "original issue discount"
and will accrue as interest over the life of the
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Debt Security under a formula based on the compounding of interest. The amount
of original issue discount so accrued in respect of a Debt Security will be
added to the Holder's tax cost therefor. Notice will be given in the appropriate
Prospectus Supplement when a particular Debt Security will have original issue
discount.
If a Holder's tax cost for a Debt Security exceeds the redemption price at
maturity thereof, the Holder will be considered to have purchased the Debt
Security at a "premium." The Holder (except in the case of a dealer in
securities or one who holds debt obligations primarily for sale to customers in
the ordinary course of his trade or business) may elect to amortize the premium
generally over the remaining term of the Debt Security. The amount amortized in
any year will be treated as a reduction of the Holder's interest income from the
Debt Security. A Holder's tax cost for the Debt Security will be reduced by the
amount amortized each year. If a subsequent Holder purchases a Debt Security at
a premium, i.e., at a price in excess of the issue price plus the original issue
discount accrued prior to acquisition, the amount includible in income in each
taxable year as original issue discount will be reduced by that portion of the
premium properly allocable to the year. A Holder will recognize taxable gain (or
loss) when all or part of a Debt Security is disposed of for an amount greater
(or less) than his original tax cost therefor plus any accrued original issue
discount or minus any amortized premium. In general, any such taxable gain or
loss will be capital gain or loss, except in the case of a dealer or financial
institution. Such gain (or loss) might arise in the event of a Satisfaction and
Discharge. See "Tax Consequences of Satisfaction and Discharge" above.
Under sections 165(j) and 1287(a) of the Code, a beneficial owner subject to
United States taxation on income derived from the Debt Securities or coupons
will not, with certain exceptions, be entitled to deduct any loss on Bearer
Securities or coupons and must treat as ordinary income any gain realized on the
sale or other disposition (including the receipt of principal) of Bearer
Securities or coupons.
THE OPINIONS AND DISCUSSION SET FORTH ABOVE ARE INTENDED ONLY AS A SUMMARY
AND DO NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX
EFFECTS RELEVANT TO A DECISION TO PURCHASE DEBT SECURITIES. SUCH OPINIONS AND
DISCUSSION DO NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR NON-U.S. JURISDICTION. FURTHERMORE, THE OPINIONS OF COUNSEL
AND DISCUSSION SET FORTH ABOVE ARE BASED ON THE CODE, REGULATIONS, RULINGS AND
JUDICIAL DECISIONS AS OF THE DATE HEREOF, AND SUCH AUTHORITIES MAY BE REPEALED,
REVOKED OR MODIFIED SO AS TO MAKE THE FOREGOING ANALYSIS INAPPLICABLE. IT IS
RECOMMENDED THAT ALL PROSPECTIVE INVESTORS CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE TAX CONSIDERATIONS OF THIS OFFERING.
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<PAGE>
CAPITAL REQUIREMENTS
As registered broker-dealers, Lehman Brothers and certain of Holdings' other
subsidiaries (the "Regulated Subsidiaries") are subject to the SEC's net capital
rule (Rule 15c3-1, the "Net Capital Rule"), promulgated under the Exchange Act.
The Exchange monitors the application of the Net Capital Rule by Lehman
Brothers. The Exchange or the National Association of Securities Dealers, Inc.
(the "NASD"), as the case may be, monitors the application of the Net Capital
Rule by the Regulated Subsidiaries. Lehman Brothers and such Regulated
Subsidiaries compute net capital under the alternative method of the Net Capital
Rule which requires the maintenance of minimum net capital, as defined. A
broker-dealer may be required to reduce its business if its net capital is less
than 4% of aggregate debit balances and may also be prohibited from expanding
its business or paying cash dividends if resulting net capital would be less
than 5% of aggregate debit balances. In addition, the Net Capital Rule does not
allow withdrawal of subordinated capital if net capital would be less than 5% of
such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule equity capital cannot be withdrawn from a broker-dealer without the
prior approval of the SEC when net capital after the withdrawal would be less
than 25% of its securities positions haircuts (which are deductions from capital
of certain specified percentages of the market value of securities to reflect
the possibility of a market decline prior to disposition). In addition, the Net
Capital Rule requires broker-dealers to notify the SEC and the appropriate
self-regulatory organization two business days before a withdrawal of excess net
capital if the withdrawal would exceed the greater of $500,000 or 30% of the
broker-dealer's excess net capital, and two business days after a withdrawal
that exceeds the greater of $500,000 or 20% of excess net capital. Finally, the
Net Capital Rule authorizes the SEC to order a freeze on the transfer of capital
if a broker-dealer plans a withdrawal of more than 30% of its excess net capital
and the SEC believes that such a withdrawal would be detrimental to the
financial integrity of the firm or would jeopardize the broker-dealer's ability
to pay its customers.
Compliance with the Net Capital Rule could limit those operations of Lehman
Brothers and the Regulated Subsidiaries that require the intensive use of
capital, such as underwriting and trading activities and the financing of
customer account balances, and also could restrict Holdings' ability to withdraw
capital from Lehman Brothers and the Regulated Subsidiaries which in turn could
limit Holdings' ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding capital stock. The Company is subject to other
domestic and international regulatory requirements with which it is required to
comply.
26
<PAGE>
PLAN OF DISTRIBUTION
Holdings may sell the Securities in any one or more of the following ways:
(i) through, or through underwriting syndicates managed by, Lehman Brothers
alone or with one or more other underwriters; (ii) through one or more dealers
or agents (which may include Lehman Brothers); or (iii) directly to one or more
purchasers. The specific managing underwriter or underwriters or agent or agents
with respect to the offer and sale of Securities are set forth on the cover of
the Prospectus Supplement relating to such Securities and the members of the
underwriting syndicate, if any, are named in such Prospectus Supplement. Only
the underwriters or agents so named in such Prospectus Supplement are
underwriters or agents, respectively, in connection with such Securities. The
applicable Prospectus Supplement also describes the discounts and commissions to
be allowed or paid to the underwriters or agents, all other items constituting
underwriting or agency compensation, the discounts and commissions to be allowed
or paid to dealers, if any, and the exchanges, if any, on which such Securities
will be listed. Securities acquired by any underwriter will be acquired for its
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of the
underwriters to purchase such Securities will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all such
Securities if any of such Securities are purchased. Any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time. To the extent, if any, that Securities to be
purchased by Lehman Brothers, as underwriter, are not resold by it or are not
resold at the public offering price set forth in an applicable Prospectus
Supplement, the funds derived from such offering by the Company on a
consolidated basis may be reduced.
If so indicated in an applicable Prospectus Supplement, Holdings will
authorize the underwriters named therein to solicit offers by certain
institutional investors to purchase Debt Securities providing for payment and
delivery on a future date specified in such Prospectus Supplement. There may be
limitations on the minimum amount which may be purchased by any such
institutional investor or on the portion of the aggregate principal amount of
the particular Debt Securities which may be sold pursuant to such arrangements.
Institutional investors to which such offers may be made, when authorized,
include commercial and savings banks, insurance companies, pension funds,
educational charitable institutions and such other institutions as may be
approved by Holdings. The obligations of any such purchasers pursuant to such
delayed delivery and payment arrangements will not be subject to any conditions
except (i) the purchase by an institution of the particular Debt Securities
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
Holdings shall have sold to such underwriters the total principal amount of such
Debt Securities less the principal amount thereof covered by such arrangements.
Underwriters named therein will not have any responsibility in respect of the
validity of such arrangements or the performance of Holdings or such
institutional investors thereunder.
Each distributor of Bearer Securities will agree that it will not offer or
sell during the restricted period, directly or indirectly, Bearer Securities in
the United States or to United States persons (other than as discussed under
"Limitations on Issuance of Bearer Securities") and in connection with the sale
of Bearer Securities during the restricted period, will not deliver definitive
Bearer Securities within the United States. See "Limitations on Issuance of
Bearer Securities."
Each underwriter or agent will represent and agree that (i) it has not
offered or sold and will not offer or sell any Debt Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purpose of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it complied and will comply with all applicable provisions
of the Financial Services Act 1986 and the Regulations with respect to anything
done by it in relation to the Securities in, from or otherwise involving the
United Kingdom; and (iii) it has only issued
27
<PAGE>
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the Securities if
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom such document may otherwise lawfully be issued or passed on.
This Prospectus together with an applicable Prospectus Supplement may also
be used by Lehman Brothers in connection with offers and sales of Securities
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
The underwriting and agency arrangements for any offering of the Securities
will comply with the requirements of Schedule E of the By-laws of the NASD
regarding an NASD member firm's participating in distributing its affiliate's
securities.
ERISA MATTERS
Each of Holdings and Lehman Brothers may be considered a "party in interest"
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and a "disqualified person" under corresponding provisions of
the Code, with respect to certain employee benefit plans. Certain transactions
between an employee benefit plan and a party in interest or disqualified person
may result in "prohibited transactions" within the meaning of ERISA and the
Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE DEBT SECURITIES
SHOULD CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement, the
validity of the Securities offered hereby will be passed upon for Holdings by
Karen M. Muller, Esq., Deputy General Counsel of Holdings and for the
underwriters or agents by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), 425 Lexington Avenue, New York, New York
10017. Simpson Thacher & Bartlett acts as counsel in various matters for
Holdings, Lehman Brothers and certain of their subsidiaries.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedules of the Company for the
eleven months ended November 30, 1994 and for the years ended December 31, 1993
and December 31, 1992, appearing in the Company's Transition Report on Form 10-K
for the eleven months ended November 30, 1994, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and schedules are, and audited financial statements included in
subsequently filed documents will be, incorporated herein by reference in
reliance upon the reports of Ernst & Young LLP pertaining to such financial
statements (to the extent covered by consents filed with the Securities and
Exchange Commission) given upon the authority of such firm as experts in
accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED $1,366,100,000
IN THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE
DELIVERY OF THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT NOR
ANY SALE MADE HEREUNDER OR THEREUNDER
SHALL UNDER ANY CIRCUMSTANCES LEHMAN BROTHERS
CREATE AN IMPLICATION THAT THERE HAS HOLDINGS INC.
BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. NEITHER
THIS PROSPECTUS NOR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT CONSTITUTES AN
OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO MEDIUM-TERM NOTES,
DO SO OR TO ANYONE TO WHOM IT IS SERIES E
UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
-------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT ---------------------
DESCRIPTION OF NOTES........... S-3 PROSPECTUS SUPPLEMENT
IMPORTANT CURRENCY INFORMATION. S-23 FEBRUARY 23, 1996
CURRENCY RISKS............... S-23
CERTAIN UNITED STATES FEDERAL ---------------------
INCOME TAX CONSEQUENCES...... S-25
PLAN OF DISTRIBUTION OF NOTES.. S-33
GLOSSARY....................... S-34
PROSPECTUS
Available Information.......... 2
Documents Incorporated by
Reference.................... 2
The Company.................... 3 LEHMAN BROTHERS
Use of Proceeds................ 3
Ratio of Earnings to Fixed
Charges...................... 4
Description of Debt Securities. 5
Limitations on Issuance of
Bearer Securities............ 22
United States Taxation......... 23
Capital Requirements........... 26
Plan of Distribution........... 27
ERISA Matters.................. 28
Legal Opinions................. 28
Independent Accountants........ 28
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