<PAGE>
Filed pursuant to Rule 424(b)(2)
Registration No. 333-14791
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 11, 1997)
$300,000,000
LEHMAN BROTHERS HOLDINGS INC.
6 1/2% NOTES DUE 2002
------------
INTEREST PAYABLE APRIL 1 AND OCTOBER 1
--------------------
The Notes will mature on October 1, 2002. The Notes may not be redeemed
prior to maturity and are not subject to any sinking fund.
The Notes will be represented by one or more global registered certificates
(the "Global Securities"), registered in the name of a nominee of The Depository
Trust Company, as Depository. Ownership of interests in the Global Securities
will be shown on, and the transfer thereof will be effected only through,
records maintained by the Depository or its nominee for such Global Securities
and on the records of participants. Except as otherwise described under
"Description of Notes--Global Securities" below or "Description of Debt
Securities--Global Securities" in the accompanying Prospectus, owners of
beneficial interests in the Global Securities will not be entitled to receive
Notes in definitive form and will not be considered the holders thereof.
Settlement for the Notes will be made in immediately available funds. The Notes
will trade in the Depository's Same-Day Funds Settlement System and secondary
market trading activity for the Notes will therefore settle in immediately
available funds. See "Description of Notes--Settlement and Payment."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(1)(2)
<S> <C> <C> <C>
Per Note.......................... 99.905% .625% 99.280%
Total............................. $299,715,000 $1,875,000 $297,840,000
</TABLE>
(1) Plus accrued interest, if any, from October 6, 1997.
(2) Before deducting expenses payable by the Company estimated at $25,000.
-------------------
The Notes offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of the Notes will be
made in book-entry form through The Depository Trust Company on or about October
6, 1997.
-------------------
LEHMAN BROTHERS
CHASE SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.
HSBC SECURITIES, INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
SBC WARBURG DILLON READ INC.
SMITH BARNEY INC.
October 1, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES FOLLOWING THE PRICING OF THE
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE NOTES OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE NOTES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS THE DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE
DEBT SECURITIES SET FORTH IN THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS
HEREBY MADE.
The Notes offered hereby are limited to an aggregate principal amount of
$300,000,000 and will be issued under the Senior Indenture. Each Note will bear
interest from October 6, 1997, at the annual rate of 6 1/2%, payable
semiannually on April 1 and October 1 of each year, and at maturity, commencing
April 1, 1998, to the person in whose name the Note is registered at the close
of business on the fifteenth day of the month preceding such interest payment
date. The Notes will mature on October 1, 2002. The Notes may not be redeemed
prior to maturity and will not be subject to any sinking fund.
GLOBAL SECURITIES
The Notes will be represented by one or more Global Securities, registered
in the name of a nominee of The Depository Trust Company, as Depository. The
provisions set forth under "Description of Debt Securities--Global Securities"
in the accompanying Prospectus will be applicable to the Notes. Accordingly,
ownership of interests in such Global Securities will be shown on, and the
transfer thereof will be effected only through, records maintained by the
Depository or its nominee for the Notes and on the records of participants.
Except as otherwise described under "Description of Debt Securities--Global
Securities" in the accompanying Prospectus, owners of beneficial interests in
the Global Securities will not be entitled to receive Notes in definitive form
and will not be considered the holders of Notes.
The Depository has advised the Company and the Underwriters as follows: The
Depository is a limited-purpose trust company organized under New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the Securities Exchange Act of 1934. 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
certain of the Underwriters), 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 securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Under the terms of the Senior Indenture, the Company and the Trustee will
treat the persons in whose names the Notes are registered as the owners of such
Notes for the purpose of receiving payment of the principal of and interest on
such Notes and for all other purposes whatsoever. Therefore, neither the
Company, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal of, or interest on, the Notes to owners
of beneficial interests in the Global Securities. The Depository has advised the
Company and the Trustee that its current practice is, upon receipt of any
payment of principal or interest, to credit the accounts of the participants
with such payment in amounts
S-2
<PAGE>
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Securities as shown in the records of the Depository.
Payments by participants and indirect participants to owners of beneficial
interests in the Global Securities 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 the participants or indirect participants.
SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest will be made by the
Company in immediately available funds. The Notes will trade in the Depository's
Same-Day Funds Settlement System until maturity, and secondary market trading in
the Notes will therefore be required by the Depository to settle in immediately
available funds.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters has agreed to purchase, the principal amount of Notes set
forth opposite its name below:
<TABLE>
<CAPTION>
PRINICPAL
AMOUNT OF
UNDERWRITER NOTES
---------------------- --------------
<S> <C>
Lehman Brothers Inc............................................................. $ 45,000,000
Chase Securities Inc............................................................ 42,500,000
First Union Capital Markets Corp................................................ 42,500,000
HSBC Securities, Inc............................................................ 42,500,000
NationsBanc Montgomery Securities, Inc.......................................... 42,500,000
SBC Warburg Dillon Read Inc..................................................... 42,500,000
Smith Barney Inc................................................................ 42,500,000
--------------
Total....................................................................... $ 300,000,000
--------------
--------------
</TABLE>
The Company has been advised that the Underwriters propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of .375% of the principal amount. The
Underwriters may allow and such dealers may reallow a concession not in excess
of .250% of the principal amount to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed.
In connection with the offering, the rules of the Securities and Exchange
Commission permit the Underwriters to engage in certain transactions that
stabilize the price of the Notes. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
If the Underwriters create a short position in the Notes in connection with
the offering (i.e., if they sell a larger principal amount of the Notes than is
set forth on the cover page of this Prospectus Supplement), the Underwriters may
reduce that short position by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor any of the Underwriters makes any representation that the
S-3
<PAGE>
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Underwriters are affiliated with commercial banking
institutions that may from time to time in the ordinary course of their business
loan money to and have other customary banking relationships with the Company
and its affiliates.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
The underwriting arrangements for this offering comply with the requirements
of Rule 2720 of the NASD regarding an NASD member firm underwriting its
securities.
S-4
<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. $3,500,000,000 (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.$3,500,000,000 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.
------------------------
August 11, 1997
<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, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrations that file electronically with the
SEC. 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 8.30% Quarterly Income Capital Securities Due 2035 are listed
on the Exchange. Holdings' $55 Million Serial Zero Coupon Senior Notes Due May
16, 1998, Global Telecommunications Stock Upside Note Securities SM Due 2000,
AMEX Hong Kong 30 Index Call Warrants expiring January 23, 1998 and Select
Technology Index Call Warrants Expiring 1998 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' Annual Report on Form 10-K for the fiscal year ended
November 30, 1996.
(2) Holdings' Quarterly Reports on Form 10-Q for the fiscal quarters
ended February 28, 1997 and May 31, 1997.
(3) Holdings' Current Reports on Form 8-K dated January 7, 1997, March
24, 1997 and May 31, 1997.
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, 8th 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 and Tokyo
are complemented by offices in additional locations in the United States,
Europe, the Middle East, Latin and South America and the Asia Pacifid region
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; asset
management; research; and the trading of foreign exchange, derivative products
and certain commodities. The Company acts as a market 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 two years in the period ended December 31, 1993, the
eleven months ended November 30, 1994, the two years ended November 30, 1996 and
the six months ended May 31, 1997 :
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 ELEVEN MONTHS YEAR ENDED SIX MONTHS
ENDED NOVEMBER 30 ENDED
- ---------------------- NOVEMBER 30, ---------------------- MAY 31,
1992 1993 1994 1995 1996 1997
----- --------- ----------------- ----- --------- -------------
<S> <C> <C> <C> <C> <C>
* 1.00 1.03 1.03 1.06 1.06
</TABLE>
- ------------------------
* Earnings were inadequate to cover fixed charges and would have had to
increase approximately $247 million in 1992 in order to cover the
deficiency.
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
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 two years
in the period ended December 31, 1993, the eleven months ended November 30,
1994, the two years ended November 30, 1996 and the six months ended May 31,
1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 ELEVEN MONTHS YEAR ENDED
ENDED NOVEMBER 30 SIX MONTHS
- ------------------------ NOVEMBER 30, ---------------------- ENDED
1992 1993 1994 1995 1996 MAY 31, 1997
----- ----- ----------------- ----- --------- -------------
<S> <C> <C> <C> <C> <C>
* * 1.02 1.03 1.05 1.06
</TABLE>
- ------------------------
* Earnings were inadequate to cover fixed charges and preferred dividends
and would have had to increase approximately $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, as of
October 1, 1995 and as of June 26, 1997 (the "Senior Indenture"), and the Debt
Securities constituting Subordinated Debt will be issued under an indenture,
dated as of February 1, 1996, between Holdings and The Chase Manhattan Bank, as
successor to Chemical Bank, Trustee as amended and supplemented by the
Supplemental Indenture dated as of February 1, 1996 (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
bear interest, if any, and the date or dates from
5
<PAGE>
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 (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
6
<PAGE>
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.
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of Holdings or a substantial part of its property, (b) that (i) a
default shall have occurred with respect to the payment of principal of or
interest on or other monetary amounts due and payable on any Senior Debt or (ii)
there shall have occurred an event of default (other than a default in the
payment of principal of or interest or other monetary amounts due and payable)
with respect to any Senior Debt, as defined therein or in the instrument under
which the same is outstanding, permitting the holder or holders thereof to
accelerate the maturity thereof (with notice or lapse of time, or both), and
such event of default shall have continued beyond the period of grace, if any,
in respect thereof, and such default or event of default shall not have been
cured or waived or shall not have ceased to exist, or (c) that the principal of
and accrued interest on the Subordinated Debt shall have been declared due and
payable upon an Event of Default under the Subordinated Indenture and such
declaration shall not have been rescinded and annulled as provided therein, then
the holders of all Senior Debt shall first be entitled to receive payment of the
full amount unpaid thereon in cash before the holders of any of the Subordinated
Debt are entitled to receive a payment on account of the principal, premium, if
any, or interest, if any, on such 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 States financial institution
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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 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).
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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).
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
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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 (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
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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 June 30, 1997, 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
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
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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 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).
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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 (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
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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).
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
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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 July 31,
1997, there were 33,050 shares of Cumulative Convertible Voting Preferred Stock,
Series A (the "Series A Preferred Stock"), 12,966,950 shares of Cumulative
Convertible Voting Preferred Stock, Series B (the "Series B Preferred Stock")
and 1,000 shares of Redeemable Voting Preferred Stock (the "Redeemable Preferred
Stock") issued and outstanding.
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 $1.955
per share per annum, 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 10,400,000 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 Insurance Company ("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.
SERIES B PREFERRED STOCK. The terms of the Series B Preferred Stock
(including dividend rate, voting rights and liquidation preference) are
identical in all material respects to the terms of the Series A Preferred Stock,
except that conversion of the Series B Preferred Stock is not subject to the
restriction in the terms of the Series A Preferred Stock requiring that at least
250,000 shares thereof be converted at any one time.
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.
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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 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
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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
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.
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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 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
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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.
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.
UNITED STATES TAXATION
In the opinion of Simpson Thacher & Bartlett, special United States tax
counsel to the Company, the following discussion is an accurate summary of the
material United States federal income tax consequences of the purchase,
ownership and disposition of Debt Securities as of the date hereof. Except where
noted, it
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deals only with Debt Securities held as capital assets by United States Holders
and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance companies,
persons holding Debt Securities as a part of a hedging or conversion transaction
or a straddle or United States Holders whose "functional currency" is not the
U.S. dollar. Furthermore, the discussion below is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed below. Any special United
States federal income tax considerations relevant to a particular issue of Debt
Securities will be provided in the applicable Prospectus Supplement. PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF DEBT SECURITIES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN
LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
PAYMENTS OF INTEREST
Except as set forth below, interest on a Debt Security will generally be
taxable to a United States
Holder as ordinary income at the time it is paid or accrued in accordance with
the United States Holder's method of accounting for tax purposes. As used
herein, a "United States Holder" of a Debt Security means a holder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source. A
"Non-United States Holder" is a holder that is not a United States Holder.
ORIGINAL ISSUE DISCOUNT
United States Holders of Debt Securities issued with original issue discount
("OID") will be subject to special tax accounting rules, as described in greater
detail below. United States Holders of such Debt Securities should be aware that
they generally must include OID in gross income in advance of the receipt of
cash attributable to that income. However, United States Holders of such Debt
Securities generally will not be required to include separately in income cash
payments received on the Debt Securities, even if denominated as interest, to
the extent such payments do not constitute qualified stated interest (as defined
below). Debt Securities issued with OID will be referred to as "Original Issue
Discount Debt Securities." Notice will be given in the applicable Prospectus
Supplement when the Company determines that a particular Debt Security will be
an Original Issue Discount Debt Security.
This summary is based upon final Treasury regulations applicable to debt
instruments issued with OID (the "OID Regulations"). The following discussion
does not address Debt Securities providing for contingent payments other than
Debt Securities that bear qualified stated interest.
A Debt Security with an "issue price" that is less than its stated
redemption price at maturity (the sum of all payments to be made on the Debt
Security other than "qualified stated interest") will be issued with OID if such
difference is at least 0.25 percent of the stated redemption price at maturity
multiplied by the number of complete years to maturity. The "issue price" of
each Debt Security in a particular offering will be the first price at which a
substantial amount of that particular offering is sold (other than to an
underwriter, placement agent or wholesaler). The term "qualified stated
interest" means stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate or, subject to certain conditions, based on one or more
indices. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Notice will be given in the applicable Prospectus Supplement when the Company
determines that a particular Debt Security will bear interest that is not
qualified stated interest.
In the case of a Debt Security issued with de minimis OID (I.E., discount
that is not OID because it is less than 0.25 percent of the stated redemption
price at maturity multiplied by the number of complete
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<PAGE>
years to maturity), the United States Holder generally must include such de
minimis OID in income as principal payments on the Debt Securities are made in
proportion to the stated principal amount of the Debt Security. Any amount of de
minimis OID that has been included in income shall be treated as capital gain.
Original Issue Discount Debt Securities that may be redeemed prior to their
stated maturity at the option of the Company and/or at the option of the Holder
may be subject to rules that differ from the general rules discussed herein.
Persons considering the purchase of Original Issue Discount Debt Securities with
such features should carefully examine the applicable Prospectus Supplement and
should consult their own tax advisors with respect to such features since the
tax consequences with respect to OID will depend, in part, on the particular
terms and features of the Debt Securities.
United States Holders of Original Issue Discount Debt Securities with a
maturity upon issuance of more than one year must, in general, include OID in
income in advance of the receipt of some or all of the related cash payments.
The amount of OID includible in income by the initial United States Holder of an
Original Issue Discount Debt Security is the sum of the "daily portions" of OID
with respect to the Debt Security for each day during the taxable year or
portion of the taxable year in which such United States Holder held such Debt
Security ("accrued OID"). The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The "accrual period" for an Original Issue Discount Debt
Security may be of any length and may vary in length over the term of the Debt
Security, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period. The amount of OID allocable to any accrual period is
an amount equal to the excess, if any, of (a) the product of the Debt Security's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period) over (b) the
sum of any qualified stated interest allocable to the accrual period. OID
allocable to a final accrual period is the difference between the amount payable
at maturity (other than a payment of qualified stated interest) and the adjusted
issue price at the beginning of the final accrual period. Special rules will
apply for calculating OID for an initial short accrual period. The "adjusted
issue price" of a Debt Security at the beginning of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any acquisition or bond
premium, as described below) and reduced by any payments made on such Debt
Security (other than qualified stated interest) on or before the first day of
the accrual period. Under these rules, a United States Holder will have to
include in income increasingly greater amounts of OID in successive accrual
periods. The Company is required to provide information returns stating the
amount of OID accrued on Debt Securities held of record by persons other than
corporations and other exempt Holders.
In the case of certain Original Issue Discount Debt Securities that are
floating rate Debt Securities, both the "yield to maturity" and "qualified
stated interest" will be determined solely for purposes of calculating the
accrual of OID as though the Debt Security will bear interest in all periods at
a fixed rate generally equal to the rate that would be applicable to interest
payments on the Debt Security on its date of issue or, in the case of certain
floating rate Debt Securities, the rate that reflects the yield to maturity that
is reasonably expected for the Debt Security. Additional rules may apply if
interest on a floating rate Debt Security is based on more than one interest
index. Persons considering the purchase of floating rate Debt Securities should
carefully examine the applicable Prospectus Supplement and should consult their
own tax advisors regarding the United States federal income tax consequences of
the holding and disposition of such Debt Securities.
United States Holders may elect to treat all interest on any Debt Security
as OID and calculate the amount includible in gross income under the constant
yield method described above. For the purposes of this election, interest
includes stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount and unstated interest, as adjusted by any
amortizable bond premium or
23
<PAGE>
acquisition premium. The election is to be made for the taxable year in which
the United States Holder acquired the Debt Security, and may not be revoked
without the consent of the IRS. UNITED STATES HOLDERS SHOULD CONSULT WITH THEIR
OWN TAX ADVISORS ABOUT THIS ELECTION.
SHORT-TERM DEBT SECURITIES
In the case of Original Issue Discount Debt Securities having a term of one
year or less ("Short-Term Debt Securities"), under the OID Regulations all
payments (including all stated interest) will be included in the stated
redemption price at maturity and, thus, United States Holders will generally be
taxable on the discount in lieu of stated interest. The discount will be equal
to the excess of the stated redemption price at maturity over the issue price of
a Short-Term Debt Security, unless the United States Holder elects to compute
this discount using tax basis instead of issue price. In general, individuals
and certain other cash method United States Holders of a Short-Term Debt
Security are not required to include accrued discount in their income currently
unless they elect to do so. United States Holders that report income for federal
income tax purposes on the accrual method and certain other United States
Holders are required to accrue discount on such Short-Term Debt Securities (as
ordinary income) on a straight-line basis, unless an election is made to accrue
the discount according to a constant yield method based on daily compounding. In
the case of a United States Holder that is not required, and does not elect, to
include discount in income currently, any gain realized on the sale, exchange or
retirement of the Short-Term Debt Security will be ordinary income to the extent
of the discount accrued through the date of sale, exchange or retirement. In
addition, a United States Holder that does 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 Debt Securities.
MARKET DISCOUNT
If a United States Holder purchases a Debt Security (other than an Original
Issue Discount Debt Security) for an amount that is less than its stated
redemption price at maturity or, in the case of an Original Issue Discount Debt
Security, its adjusted issue price, the amount of the difference will be treated
as "market discount" for United States federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Debt Security as ordinary income to the extent of the market discount which has
not previously been included in income and is treated as having accrued on such
Debt Security at the time of such payment or disposition. In addition, the
United States Holder may be required to defer, until the maturity of the Debt
Security or its earlier disposition in a taxable transaction, the deduction of
all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Debt Security.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Debt Security, unless
the United States Holder elects to accrue on a constant interest method. A
United States Holder of a Debt Security may elect to include market discount in
income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Debt Security for an amount that is
greater than its adjusted issue price but equal to or less than the sum of all
amounts payable on the Debt Security after the purchase date other than payments
of qualified stated interest will be considered to have purchased such Debt
Security at an "acquisition premium." Under the acquisition premium rules, the
amount of OID which
24
<PAGE>
such holder must include in its gross income with respect to such Debt Security
for any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
A United States Holder that purchases a Debt Security for an amount in
excess of the sum of all amounts payable on the Debt Security after the purchase
date other than qualified stated interest will be considered to have purchased
such Debt Security at a "premium" and will not be required to include any OID in
income. A United States Holder generally may elect to amortize the premium over
the remaining term of the Debt Security (or over a shorter period in certain
instances) 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
Debt Security. Bond premium on a Debt Security held by a United States Holder
that does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the Debt Security. The election to
amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF DEBT SECURITIES
A United States Holder's tax basis in a Debt Security will, in general, be
the United States Holder's cost therefor, increased by OID, market discount or
any discount with respect to a Short-Term Debt Security previously included in
income by the United States Holder and reduced by any amortized premium and any
cash payments on the Debt Security other than qualified stated interest. Upon
the sale, exchange or retirement of a Debt Security, a United States Holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement (less any accrued qualified stated interest,
which will be taxable as such) and the adjusted tax basis of the Debt Security.
Except as described above with respect to certain Short-Term Debt Securities or
with respect to market discount, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Debt Security has been held for more than one year. Under current
law, net capital gains of individuals are, under certain circumstances, taxed at
lower rates than items of ordinary income. The deductibility of capital losses
is subject to limitations.
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
generally not be taxable to Non-United States Holders under the circumstances
outlined below. Furthermore, following discharge, the Debt Securities might be
subject to withholding, backup withholding and/or information reporting.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any Paying Agent of principal,
premium, if any, or interest (which for purposes of this discussion includes
OID) on a Debt Security owned by a Non-United States Holder, provided (i)
that the beneficial owner does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code
and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Debt Security is described in section
25
<PAGE>
881(c)(3)(A) of the Code, (iv) in the case of a Registered Security, the
beneficial owner satisfies the statement requirement (described generally
below) set forth in section 871(h) and section 881(c) of the Code and the
regulations thereunder and (v) such interest is not considered contingent
interest under Section 871(h)(4) 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 the company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Debt Security would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Debt Security, or a financial institution holding the Debt
Security on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a U.S. person, citizen or resident. 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 U.S. person, citizen or resident (which
certification may be made on an Internal Revenue Service Form W-8 (or successor
form)) or (2) a financial institution holding the Debt Security on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes a paying agent with a copy thereof.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest (including OID) made to such Non-United States Holder will be
subject to a 30% withholding tax unless the beneficial owner of the Debt
Security provides the Company or its paying agent, as the case may be, with a
properly executed (1) Internal Revenue Service Form 1001 (or successor form)
claiming an exemption or reduced rate from withholding under the benefit of a
tax treaty or (2) Internal Revenue Service Form 4224 (or successor form) stating
that interest paid on the Note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States.
If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest (including OID) on the Debt
Security is effectively connected with the conduct of such trade or business,
the Non-United States Holder, although exempt from the withholding tax discussed
above, will be subject to United States federal income tax on such premium, if
any, and interest (including OID) on a net income basis in the same manner as if
it were a United States Holder. In addition, if such holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) on a Debt Security will be included in such foreign corporation's earnings
and profits.
Any gain or income realized upon the sale, exchange or retirement of a Debt
Security will not be subject to United States federal income tax if (i) such
gain or income is not effectively connected with a trade or business in the
United States of the Non-United States Holder, and (ii) in the case of a Non-
United States Holder who is an individual, such individual is not present in the
United States for 183 days or more in the taxable year of such sale, exchange or
retirement, and certain other conditions are not met.
26
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Debt Securities and to
the proceeds of sale of a Debt Security made to United States Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the United States Holder fails to provide a
taxpayer identification number or certification of foreign or other exempt
status or fails to report in full dividend and interest income.
No information reporting on IRS Form 1099 or backup withholding will be
required with respect to payments made by the Company or any paying agent 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)(iv) under "Non-United States Holders" has
been received and the payor does not have actual knowledge that the beneficial
owner is a United States person. However, interest (including OID) paid to a
Non-United States Holder on a Registered Security will be required to be
reported annually on IRS Form 1042-S.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on a Debt Security are paid
or collected by a foreign office of a custodian, nominee or other foreign agent
on behalf of the beneficial owner of such 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
U.S. person, a controlled foreign corporation or a foreign person that derives
50% or more of its gross income for certain periods from the conduct of a trade
or business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records that
the beneficial owner is not a U.S. person and certain other conditions are met
or (2) the beneficial owner otherwise establishes an exemption. Temporary
Treasury regulations provide that the Treasury is considering whether backup
withholding will apply with respect to such payments of principal, interest or
the proceeds of a sale that are not subject to backup withholding under the
current regulations.
Payments of principal, interest, OID and premium 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
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
27
<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.
28
<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 or passed on and
29
<PAGE>
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 Rule 2720 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
year ended November 30, 1996, the year ended November 30, 1995 and the eleven
months ended November 30, 1994 appearing in the Company's Annual Report on Form
10-K for the year ended November 30, 1996, 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.
30
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes...................... S-2
Underwriting.............................. S-3
PROSPECTUS
Available Information..................... 2
Documents Incorporated by Reference....... 2
The Company............................... 3
Use of Proceeds........................... 3
Ratio of Earnings to Fixed Charges........ 4
Ratio of Earnings to Combined Fixed
Changes and Preferred Stock Dividends... 4
Description of Debt Securities............ 5
Description of Offered Preferred Stock.... 17
Limitations on Issuance of Bearer
Securities.............................. 21
United States Taxation.................... 21
Capital Requirements...................... 28
Plan of Distribution...................... 29
ERISA Matters............................. 30
Legal Opinions............................ 30
Independent Accountants................... 30
</TABLE>
$300,000,000
LEHMAN BROTHERS HOLDINGS INC.
6 1/2% NOTES DUE 2002
--------------
PROSPECTUS SUPPLEMENT
OCTOBER 1, 1997
-------------------
LEHMAN BROTHERS
CHASE SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.
HSBC SECURITIES, INC.
NATIONSBANC MONTGOMERY
SECURITIES, INC.
SBC WARBURG DILLON READ INC.
SMITH BARNEY INC.
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