<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 21, 1998)
FILED PURSUANT TO RULE 424(B)5
REG. NO. 333-50197
4,000,000 SHARES
LEHMAN BROTHERS HOLDINGS INC.
DEPOSITARY SHARES
EACH REPRESENTING 1/100TH OF A SHARE OF
5.67% CUMULATIVE PREFERRED STOCK, SERIES D
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Each Depositary Share (a "Depositary Share") represents ownership of 1/100th
of a share of 5.67% Cumulative Preferred Stock, Series D, $1.00 par value per
share (the "Series D Preferred Stock"), of Lehman Brothers Holdings Inc., a
Delaware corporation (the "Company"), to be deposited with BankBoston, N.A. as
Depositary and, through the Depositary, entitles the holder, proportionately, to
all rights, preferences and privileges of the Series D Preferred Stock
represented thereby. The proportionate stated value of each Depositary Share is
$50.00. See "Description of Depositary Shares."
The Series D Preferred Stock will not be redeemable prior to August 31,
2008. On and after such date, the Series D Preferred Stock will be redeemable at
the option of the Company, in whole or in part, upon not less than 30 days'
notice, at a redemption price equal to $5,000.00 per share of Series D Preferred
Stock (equivalent to $50.00 per Depositary Share) plus dividends accrued and
unpaid to the redemption date.
Dividends on the Series D Preferred Stock will be cumulative from the date
of issuance and are payable quarterly, commencing August 31, 1998. The amount of
dividends payable in respect of the Series D Preferred Stock will be adjusted in
the event of certain amendments to the Internal Revenue Code of 1986, as
amended, in respect of the dividends-received deduction. See "Description of
Series D Preferred Stock--Dividends."
Application will be made to list the Depositary Shares on the New York Stock
Exchange. Trading of the Depositary Shares on the New York Stock Exchange is
expected to commence within a 30-day period after the initial delivery of the
Depositary Shares. The shares of Series D Preferred Stock represented by the
Depositary Shares will not be so listed, and the Company does not expect that
there will be any public trading market for the Series D Preferred Stock except
as represented by the Depositary Shares.
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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 REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Depositary
Share............... $50.00 $1.00 $49.00
Total (4)............. $200,000,000 $4,000,000 $196,000,000
</TABLE>
(1) Plus accrued dividends, if any, from July 24, 1998.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Company estimated at $200,000.
(4) The Company has granted to the Underwriters an option, exercisable within 20
days of the date hereof, to purchase up to an additional 600,000 Depositary
Shares at the Price to Public less Underwriting Discounts and Commission to
cover overallotments, if any. If the Underwriters exercise the option in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $230,000,000, $4,600,000 and $225,400,000,
respectively. See "Underwriting."
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The Depositary Shares 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 Depositary
Receipts will be made at the offices of Lehman Brothers Inc., on or about July
24, 1998 against payment therefor in immediately available funds.
Following the initial offering of the Depositary Shares and subject to
obtaining the approval of the New York Stock Exchange, Lehman Brothers Inc., a
wholly-owned subsidiary of the Company, expects to offer and sell previously
issued Depositary Shares in the course of its business as a broker-dealer.
Lehman Brothers Inc. may act as principal or agent in, and this Prospectus
Supplement may be used by Lehman Brothers Inc. in connection with, those
transactions. Sales will be made at varying prices related to prevailing market
prices at the time of sale.
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LEHMAN BROTHERS
ABN AMRO INCORPORATED
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
July 21, 1998
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEPOSITARY SHARES.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF DEPOSITARY SHARES FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE DEPOSITARY
SHARES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE NOTES. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
CERTAIN TERMS OF SERIES D PREFERRED STOCK
GENERAL
The following description of the Series D Preferred Stock offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Offered Preferred Stock set forth in
the Prospectus, to which reference is hereby made. Certain terms not defined in
this description are defined in the Prospectus. The following summary of the
terms and provisions of the Series D Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to the Company's Restated
Certificate of Incorporation, as amended (the "Restated Certificate of
Incorporation") and the Certificate of Designations of the Series D Preferred
Stock (the "Certificate of Designations").
Pursuant to action of the Board of Directors of the Company, the shares of
Series D Preferred Stock represented by the Depositary Shares constitute a
single series of Preferred Stock. As used herein, the term "Board of Directors"
means the Board of Directors of the Company and includes any duly authorized
committee thereof. The Series D Preferred Stock is not convertible into, or
exchangeable for, shares of any other class or series of stock or other
securities of the Company. Shares of Series D Preferred Stock have no preemptive
rights. Any shares of Series D Preferred Stock that are surrendered for
redemption will be returned to the status of authorized and unissued Preferred
Stock.
The Series D Preferred Stock ranks on a parity with the Company's Cumulative
Convertible Voting Preferred Stock, Series A, Cumulative Convertible Voting
Preferred Stock, Series B, 5.94% Cumulative Preferred Stock, Series C and
Redeemable Voting Preferred Stock as to both dividends and upon liquidation,
dissolution or winding up.
BankBoston, N.A. is the registrar, transfer agent and dividend disbursing
agent for the shares of Series D Preferred Stock and also will serve as the
Depositary for the Series D Preferred Stock.
DIVIDENDS
Holders of shares of Series D Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors or a duly authorized
committee thereof out of funds of the Company legally available for payment,
cumulative cash dividends at the rate of 5.67% per annum per share of the
liquidation preference per share of Series D Preferred Stock (equivalent to
$283.50 per annum per share of Series D Preferred Stock and $2.835 per annum per
Depositary Share) and no more, in equal quarterly installments (rounded down to
the nearest cent). See "Description of Depositary Shares--Dividends and Other
Distributions" regarding the deferral of distribution of amounts that are
fractions of one cent. Dividends on the Series D Preferred Stock will be payable
quarterly, in arrears, on February 28, May 31, August 31 and November 30 of each
year, commencing August 31, 1998 (each a "Dividend Payment Date"). If any date
on which dividends would otherwise be payable shall be or be declared a national
or New York State holiday, or if banking institutions in the State of New York
shall be closed because of a banking moratorium or otherwise on such date, then
the Dividend Payment Date will be the next succeeding day on which such banks
shall be open. Dividends on shares of the Series D Preferred Stock will be fully
cumulative and shall accrue (whether or not earned or declared), on a daily
basis, without interest, from the previous Dividend Payment Date, except that
the first dividend shall accrue, without
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interest, from the date of initial issuance of the Series D Preferred Stock.
Accumulated and unpaid dividends will not bear interest. Dividends will be
payable, in arrears, to holders of record as they appear on the stock books of
the Company at the close of business on the 15th day of the month in which such
Dividend Payment Date occurs (each a "Dividend Payment Record Date"). Dividends
payable on the Series D Preferred Stock for any full quarterly dividend period
will be computed on the basis of a 360-day year consisting of twelve 30-day
months and, for any period shorter than a full quarter, on the basis of the
actual number of days elapsed in such a 90-day quarter. Dividends will cease to
accrue on the Series D Preferred Stock on the date of their earlier redemption,
as described under "Optional Redemption" below, unless the Company shall default
in providing funds for the payment of redemption price on the shares called for
redemption pursuant thereto.
No dividends may be declared or paid or set apart for payment on any stock
of the Company on a parity 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
Series D Preferred Stock, dividends for all dividend payment periods of the
Series D Preferred Stock ending on or before the Dividend Payment Date of such
Parity Preferred Stock, ratably in proportion to the respective amounts of
dividends (x) accumulated and unpaid or payable on such Parity Preferred Stock,
on the one hand, and (y) accumulated and unpaid through the dividend payment
period or periods of the Series D Preferred Stock next preceding such Dividend
Payment Date, on the other hand.
Except as set forth in the preceding paragraph, unless full cumulative
dividends on the Series D Preferred Stock have been paid through the most
recently completed quarterly dividend period for the Series D Preferred Stock,
no dividends (other than in common stock of the Company) may be paid or declared
and set aside for payment or other distribution made upon the common stock or on
any other stock of the Company ranking junior to or on a parity with the Series
D Preferred Stock as to dividends, nor may any common stock or any other stock
of the Company ranking junior to or on a parity with the Series D Preferred
Stock as to dividends be redeemed, purchased or otherwise acquired for any
consideration (or any payment be made to or available for a sinking fund for the
redemption of any shares of such stock; provided, however, that any moneys
theretofore deposited in any sinking fund with respect to any preferred stock of
the Company 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 Series D
Preferred Stock outstanding to the last Dividend Payment Date shall have been
paid or declared and set apart for payment) by the Company; provided that any
such junior or parity stock or common stock may be converted into or exchanged
for stock of the Company ranking junior to the Series D Preferred Stock as to
dividends.
If, prior to 18 months after the date of the original issuance of the Series
D Preferred Stock, one or more amendments to the Internal Revenue Code of 1986,
as amended (the "Code"), are enacted that reduce the percentage of the
dividends-received deduction for certain corporations (currently 70%) as
specified in section 243(a)(1) of the Code or any successor provision (the
"Dividends-Received Percentage"), certain adjustments may be made in respect of
the dividends payable by the Company, and Post Declaration Date Dividends and
Retroactive Dividends (as such terms are defined below) may become payable, as
described below.
The amount of each dividend payable (if declared) per share of Series D
Preferred Stock for dividend payments made on or after the effective date of
such change in the Code will be adjusted by multiplying the amount of the
dividend payable described above (before adjustment) by the following fraction
(the "DRD Formula"), and rounding the result to the nearest cent (with one-half
cent rounded up):
1-.35(1-.70)
-----------
1-.35(1-DRP)
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For the purposes of the DRD Formula, "DRP" means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in question;
provided, however, that if the Dividends-Received Percentage applicable to the
dividend in question shall be less than 50%, then the DRP shall equal .50. No
amendment to the Code, other than a change in the percentage of the
dividends-received deduction set forth in section 243(a)(1) of the Code or any
successor provision thereto, will give rise to an adjustment. Notwithstanding
the foregoing provisions, if, with respect to any such amendment, the Company
receives either an unqualified opinion of nationally recognized independent tax
counsel selected by the Company or a private letter ruling or similar form of
authorization from the Internal Revenue Service ("IRS") to the effect that such
amendment does not apply to a dividend payable on the Series D Preferred Stock,
then such amendment will not result in the adjustment provided for pursuant to
the DRD Formula with respect to such dividend. The opinion referenced in the
previous sentence shall be based upon the legislation amending or establishing
the DRP or upon a published pronouncement of the IRS addressing such
legislation.
Notwithstanding the foregoing, if any such amendment to the Code is enacted
after the dividend payable on a Dividend Payment Date has been declared, the
amount of the dividend payable on such Dividend Payment Date will not be
increased; instead, additional dividends (the "Post Declaration Date Dividends")
equal to the excess, if any, of (x) the product of the dividend paid by the
Company on such Dividend Payment Date and the DRD Formula (where the DRP used in
the DRD Formula would be equal to the greater of the Dividend-Received
Percentage applicable to the dividend in question and .50) over (y) the dividend
paid by the Company on such Dividend Payment Date, will be payable (if declared)
to holders of Series D Preferred Stock on the Dividend Payment Record Date
applicable to the next succeeding Dividend Payment Date or, if the Series D
Preferred Stock is called for redemption prior to such Dividend Payment Record
Date, to holders of Series D Preferred Stock on the applicable redemption date,
as the case may be, in addition to any other amounts payable on such date.
Notwithstanding the foregoing provisions, if, with respect to any such
amendment, the Company receives either an unqualified opinion of nationally
recognized independent tax counsel selected by the Company or a private letter
ruling or similar form of authorization from the IRS to the effect that such
amendment does not apply to a dividend so payable on the Series D Preferred
Stock, then such amendment will not result in the payment of Post Declaration
Date Dividends. The opinion referenced in the previous sentence shall be based
upon the legislation amendment or establishing the DRP or upon a published
pronouncement of the IRS addressing such legislation.
If any such amendment to the Code is enacted and the reduction in the
Dividends-Received Percentage retroactively applies to a Dividend Payment Date
as to which the Company previously paid dividends on the Series D Preferred
Stock (each, an "Affected Dividend Payment Date"), the Company will pay (if
declared) additional dividends (the "Retroactive Dividends") to holders of
Series D Preferred Stock on the Dividend Payment Record Date applicable to the
next succeeding Dividend Payment Date (or, if such amendment is enacted after
the dividend payable on such Dividend Payment Date has been declared, to holders
of Series D Preferred Stock on the Dividend Payment Record Date following the
date of enactment) or, if the Series D Preferred Stock is called for redemption
prior to such Dividend Payment Record Date, to holders of Series D Preferred
Stock on the applicable redemption date, as the case may be, in an amount equal
to the excess of (x) the product of the dividend paid by the Company on each
Affected Dividend Payment Date and the DRD Formula (where the DRP used in the
DRD Formula would be equal to the greater of the Dividends-Received Percentage
and .50 applied to each Affected Dividend Payment Date) over (y) the sum of the
dividends paid by the Company on each Affected Dividend Payment Date. The
Company will only make one payment of Retroactive Dividends for any such
amendment. Notwithstanding the foregoing provisions, if, with respect to any
such amendment, the Company receives either an unqualified opinion of nationally
recognized independent tax counsel selected by the Company or a private letter
ruling or similar form of authorization from the IRS to the effect that such
amendment does not apply to a dividend payable on an Affected Dividend Payment
Date for the Series D Preferred Stock, then such amendment will not result in
the payment of Retroactive Dividends
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with respect to such Affected Dividend Payment Date. The opinion referenced in
the previous sentence shall be based upon the legislation amending or
establishing the DRP or upon a published pronouncement of the IRS addressing
such legislation.
Notwithstanding the foregoing, no adjustment in the dividends payable by the
Company shall be made, and no Post Declaration Date Dividends or Retroactive
Dividends shall be payable by the Company, in respect of the enactment of any
amendment to the Code 18 months or more after the date of original issuance of
the Series D Preferred Stock that reduces the Dividends-Received Percentage.
In the event that the amount of dividends payable per share of the Series D
Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration
Date Dividends or Retroactive Dividends are to be paid, the Company will give
notice of each such adjustment and, if applicable, any Post Declaration Date
Dividends and Retroactive Dividends to the holders of Series D Preferred Stock.
Unless the context otherwise requires, references to dividends in this
Prospectus Supplement and the accompanying Prospectus mean dividends as adjusted
by the DRD Formula. The Company's calculation of the dividends payable, as to
adjusted and as certified accurate as to calculation and reasonable as to method
by the independent certified public accountants then regularly engaged by the
Company, shall be final and not subject to review absent manifest error.
OPTIONAL REDEMPTION
The Series D Preferred Stock is not subject to mandatory redemption pursuant
to a sinking fund or otherwise. The Series D Preferred Stock is not redeemable
prior to August 31, 2008. On and after such date, the Company, at its option,
may redeem shares of Series D Preferred Stock, as a whole or in part, at any
time or from time to time, upon not less than 30 days' and no more than 60 days'
written notice, at a redemption price equal to $5,000.00 per share (equivalent
to $50.00 per Depositary Share), plus accrued and accumulated but unpaid
dividends to but excluding the date fixed for redemption. Dividends will cease
to accrue from and after the redemption date on shares of Series D Preferred
Stock so called for redemption, and all rights of holders thereof as
stockholders of the Company (except the right to receive the redemption price)
will cease as of such date. If full cumulative dividends on the Series D
Preferred Stock have not been paid or set apart for payment in respect of all
prior dividend periods, the Series D Preferred Stock may not be redeemed in part
and the Company may not purchase or acquire any shares of Series D Preferred
Stock otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Series D Preferred Stock. If fewer than all the
outstanding shares of Series D Preferred Stock are to be redeemed, the Company
will select those to be redeemed by lot or pro rata or by any other method as
may be determined by the Board of Directors to be equitable.
VOTING RIGHTS
The Series D Preferred Stock, except as provided below or as otherwise from
time to time required by law, will have no voting rights.
Whenever, at any time or times, dividends payable on the shares of Series D
Preferred Stock or on any Parity Preferred Stock shall be in arrears for an
aggregate number of days equal to six calendar quarters or more, whether or not
consecutive, the authorized number of directors of the Company will
automatically be increased by two and the holders of the Series D Preferred
Stock will have the right, with holders of shares of any one or more other
classes or series of Parity Preferred Stock outstanding at the time upon which
like voting rights have been conferred and are exercisable ("Voting Parity
Stock"), voting together as a class, to elect two directors (hereinafter the
"Preferred Directors" and each a "Preferred Director") to fill such newly
created directorships at the Company's next annual meeting of stockholders and
at each subsequent annual meeting of stockholders until such arrearages have
been paid or set aside for payment, at which time such right will terminate,
except as herein or by law expressly provided, subject to revesting in the event
of each and every subsequent default of the character above mentioned. Upon any
termination
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of the right of the holders of shares of Series D Preferred Stock and Voting
Parity Stock as a class to vote for directors as provided above, the term of
office of all Preferred Directors then in office will terminate immediately and
the authorized number of directors will be reduced by the number of Preferred
Directors elected pursuant hereto. Any Preferred Director may be removed at any
time, with or without cause. Any vacancy created thereby may be filled only by
the affirmative vote of the holders of shares of Series D Preferred Stock voting
separately as a class (together with the holders of shares of Voting Parity
Stock). If the office of any Preferred Director becomes vacant for any reason
other than removal from office as aforesaid, the remaining Director may choose a
successor who will hold office for the unexpired term in respect of which such
vacancy occurred. At elections for such directors, each holder of shares of
Series D Preferred Stock will be entitled to ten votes for each share held (the
holders of shares of any other class or series of Voting Parity Stock being
entitled to such number of votes, if any, for each share of such stock held as
may be granted to them). As of the date of this Prospectus Supplement, the
Company's Redeemable Voting Preferred Stock and 5.94% Cumulative Preferred
Stock, Series C are the only outstanding series of Voting Parity Stock.
So long as any shares of any Series D Preferred Stock remain outstanding,
the Company shall not, without the affirmative vote of the holders of at least
66 2/3% of the shares of such Series D Preferred Stock:
(i) authorize, create or issue any capital stock of the Company ranking,
as to dividends or upon liquidation, dissolution or winding up, prior to
such Series D Preferred Stock, or reclassify any authorized capital stock of
the Company into any such shares of such capital stock or issue any
obligation or security convertible into or evidencing the right to purchase
any such shares of capital stock, or
(ii) amend, alter or repeal the certificate of designations for such
Series D Preferred Stock, or the Restated Certificate of Incorporation of
the Company, whether by merger, consolidation or otherwise, so as to
adversely affect the powers, preferences or special rights of such Series D
Preferred Stock.
Any increase in the amount of authorized common stock or authorized preferred
stock, or any increase or decrease in the number of shares of any series of
preferred stock or the authorization, creation and issuance of other classes or
series of common stock or other stock, in each case ranking on a parity with or
junior to the shares of Series D Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to adversely affect such powers, preferences or
special rights.
Whenever the Series D Preferred Stock is entitled to voting rights as
described above or when required by law or otherwise granted by the Company,
whether as a single series or together with one or more other series of any
class of stock of the Company, each share of Series D Preferred Stock will be
entitled to ten votes.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required or upon
which the holders of Series D Preferred Stock shall be entitled to vote shall be
effected, all outstanding shares of Series D Preferred Stock shall have been
redeemed or called for redemption and sufficient funds shall have been deposited
in trust to effect such redemption.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, before any distribution of the assets of the
Company to holders of common stock or any other capital stock the Company
ranking junior upon liquidation, dissolution or winding up of the Company, the
holders of the Series D Preferred Stock shall be entitled to receive out of the
assets of the Company available for distribution to its stockholders, whether
from capital, surplus or earnings, $5,000.00 per share
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(equivalent to $50.00 per Depositary Share) plus an amount equal to all
dividends (whether or not earned or declared) accumulated and unpaid on such
share of Series D Preferred Stock. If, upon any liquidation, dissolution or
winding up of the Company, the assets of the Company, or proceeds thereof,
distributable among the holders of shares of Series D Preferred Stock or any
capital stock ranking on a parity with the Series D Preferred Stock upon
liquidation, dissolution or winding up of the Company, shall be insufficient to
pay in full the preferential amounts to which such stock would be entitled, then
such assets, or the proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full. For the purposes
hereof, neither a consolidation nor a merger of the Company with one or more
other corporations, nor a sale, lease, exchange or transfer of all or
substantially all of the assets of the Company, shall be deemed to be a
liquidation, dissolution or winding up of the Company.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company will issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent one one-hundredth (1/100th) of a share of
Series D Preferred Stock. The shares of Series D Preferred Stock represented by
Depositary Shares will be deposited under the Deposit Agreement (the "Deposit
Agreement") among the Company, BankBoston, N.A. (the "Depositary") and the
holders from time to time of the Depositary Receipts. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Series D Preferred Stock
represented by such Depositary Share, to all the rights and preferences of the
Series D Preferred Stock represented thereby (including dividend, voting,
redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement. Immediately following the issuance and
delivery of the Series D Preferred Stock by the Company to the Depositary as
contemplated in the Deposit Agreement, the Depositary will issue the Depositary
Receipts representing the Depositary Shares to the Underwriters. A copy of the
form of Deposit Agreement, including the form of Depositary Receipt, is filed as
an exhibit to the Registration Statement of which the Prospectus is a part, and
the following summary is qualified in its entirety by reference thereto.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all dividends and other cash distributions
received in respect of the Series D Preferred Stock to the record holders of
Depositary Shares in proportion to the number of such Depositary Shares owned by
such holders, subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the Depositary. The Depositary will distribute or make available for
distribution, only such amount, however, as can be distributed without
attributing to any holder of Depositary Shares a fraction of one cent, and any
balance not so distributable shall be held by the Depositary (without liability
for interest thereon) and shall be added to and be treated as part of the next
sum received by the Depositary for distribution to record holders of Depositary
Receipts then outstanding.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, as nearly as practicable in proportion to the number of such
Depositary Shares held by them, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to the Depositary, unless the Depositary in consultation with the
Company determines that it is not feasible to make such distribution, in which
case the Depositary may, with the approval of the Company, adopt such method as
it deems practicable including sale of such property and distribution of the net
proceeds from such sale to the holders of Depositary Shares.
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TAXES AND OTHER GOVERNMENTAL CHARGES
The amount paid as dividends or otherwise distributable by the Depositary
with respect to the Depositary Shares or the underlying shares of Series D
Preferred Stock will be reduced by any amounts required to be withheld by the
Company or the Depositary on account of taxes or other governmental charges. The
Depositary may refuse to make any such payment or distribution, or any transfer,
exchange or withdrawal of any Depositary Shares or shares of Series D Preferred
Stock, until such taxes or other governmental charges are paid.
REDEMPTION OF DEPOSITARY SHARES
If the Company redeems the Series D Preferred Stock represented by the
Depositary Shares as a whole or in part, the Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of the
Series D Preferred Stock so redeemed, upon payment by the Company to the
Depositary of the redemption price of such shares of Series D Preferred Stock to
be redeemed plus an amount equal to any accrued and unpaid dividends thereon to
the date fixed for redemption. See "Description of Series D Preferred
Stock--Optional Redemption" above. The redemption price per Depositary Share
will be equal to 1/100th of the redemption price per share payable with respect
to the Series D Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by lot or pro
rata (subject to rounding to avoid fractions of Depositary Shares) as may be
determined by the Company.
WITHDRAWAL OF SERIES D PREFERRED STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Depositary and upon payment of the taxes, charges and fees provided for in
the Deposit Agreement and subject to the terms thereof, the holder of the
Depositary Shares evidenced thereby is entitled to delivery of the number of
whole shares of the Series D Preferred Stock and any money or property
represented by such Depositary Shares. Holders of Depositary Shares will be
entitled to receive whole shares of Series D Preferred Stock, but holders of
such whole shares of Series D Preferred Stock will not thereafter be entitled to
deposit such shares with the Depositary or to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of Series D Preferred Stock to be withdrawn, the
Depositary will deliver to such holder, or upon his or her order, at the same
time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
VOTING THE SERIES D PREFERRED STOCK
Because each Depositary Share represents ownership of 1/100th of a share of
Series D Preferred Stock, and each share of Series D Preferred Stock is entitled
to ten votes per share under the limited circumstances in which the holders of
Series D Preferred Stock are entitled to vote, holders of Depositary Shares will
be entitled to 1/10th of a vote per Depositary Share under such limited
circumstances.
Upon receipt of notice of any meeting at which the holders of shares of
Series D Preferred Stock are entitled to vote, the Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Shares relating to the Series D Preferred Stock. Each record holder
of such Depositary Shares on the record date (which will be the same date as the
Dividend Payment Record Date for the Series D Preferred Stock) will be entitled
to instruct the Depositary as to the exercise of the voting rights pertaining to
the number of shares of Series D Preferred Stock represented by such holder's
Depositary Shares. The Depositary will endeavor, insofar as practicable, to vote
the number of shares (including fractional shares) of Series D Preferred Stock
represented by such Depositary Shares in accordance with such instructions, and
the Company will agree to take all actions deemed necessary by the Depositary in
order to enable the Depositary to do so. The Depositary will abstain from voting
shares of
S-8
<PAGE>
Series D Preferred Stock to the extent it does not receive specific instructions
from the holders of Depositary Shares representing such Series D Preferred
Stock.
STOCK EXCHANGE LISTING
The Company will apply to list the Depositary Shares on the New York Stock
Exchange, but does not expect that there will be any public trading market for
the shares of Series D Preferred Stock, except as represented by the Depositary
Shares.
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 number of Depositary Shares set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER DEPOSITARY SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Lehman Brothers Inc.......................................................................... 800,000
ABN AMRO Incorporated........................................................................ 800,000
Bear, Stearns & Co. Inc...................................................................... 800,000
Chase Securities Inc......................................................................... 800,000
NationsBanc Montgomery Securities LLC........................................................ 800,000
-----------------
Total.................................................................................... 4,000,000
-----------------
-----------------
</TABLE>
The Company has been advised that the Underwriters propose initially to
offer the Depositary Shares 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 $.70 per Depositary Share. The
Underwriters may allow and such dealers may reallow a concession not in excess
of $.20 per Depositary Share 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 Depositary Shares. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Depositary Shares.
If the Underwriters create a short position in the Depositary Shares in
connection with the offering (i.e., if they sell a larger number of the
Depositary Shares than is set forth on the cover page of this Prospectus
Supplement), the Underwriters may reduce that short position by purchasing
Depositary Shares 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 Depositary Shares. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Company has granted to the Underwriters an option to purchase up to an
additional 600,000 Depositary Shares at the price to public less the aggregate
underwriting discount and commissions, shown on the cover page of this
Prospectus Supplement, solely to cover over-allotments, if any. Such option may
S-9
<PAGE>
be exercised at any time up to 20 days after the date of this Prospectus
Supplement. To the extent that the option is exercised, each of the Underwriters
will be committed, subject to certain conditions, to purchase a number of
additional Depositary Shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
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 Underwriters may not confirm sales to any accounts over which they
exercise discretionary authority without the prior written approval of the
customer.
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-10
<PAGE>
PROSPECTUS
LEHMAN BROTHERS HOLDINGS INC.
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
-----------------
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST I
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST II
LEHMAN BROTHERS HOLDINGS CAPITAL TRUST III
TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT SET FORTH HEREIN, BY
LEHMAN BROTHERS HOLDINGS INC.
------------
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, or (ii) shares of preferred stock, par value $1.00 per share (the
"Offered Preferred Stock"), which may be issued in the form of depositary shares
evidenced by depositary receipts (the "Depositary Shares") in one or more
series, in each case at prices and on terms to be determined at the time of
sale.
Lehman Brothers Holdings Capital Trust I, Lehman Brothers Holdings Capital
Trust II and Lehman Brothers Holdings Capital Trust III (each, an "LBH Trust"
and together, the "LBH Trusts"), each a statutory business trust formed under
the laws of the State of Delaware, may offer from time to time, in each case at
prices and on terms to be determined at the time of sale, trust preferred
securities, representing undivided beneficial ownership interests in the assets
of the respective LBH Trust ("Preferred Securities") with the payment of
periodic cash distributions ("Distributions") and payments on liquidation,
redemption or otherwise of such Preferred Securities guaranteed (each a
"Guarantee" and together, the "Guarantees", and together with the Debt
Securities, the Offered Preferred Stock, the Depositary Shares and the Preferred
Securities, the "Securities") on a subordinated basis by Holdings to the extent
described herein. Holdings' obligations under the Guarantees will rank on a
parity with the most senior preferred or preference stock now or hereafter
issued by Holdings. Subordinated Debt (as defined herein) may be issued and sold
from time to time in one or more series by Holdings to an LBH Trust, or a
trustee of such trust, in connection with the investment of the proceeds from
the offering of Preferred Securities and Common Securities (as defined herein)
of such LBH Trust. Subordinated Debt purchased by an LBH Trust may be
subsequently distributed pro rata to holders of Preferred Securities and Common
Securities in connection with the dissolution of such LBH Trust upon the
occurrence of certain events as may be described in an accompanying Prospectus
Supplement. Each Guarantee, when taken together with Holdings' obligations under
the related Subordinated Debt, the Subordinated Indenture (as defined herein)
and the Declaration (as defined herein) of the related LBH Trust, including
Holdings' obligations to pay costs, expenses, debts and liabilities of such LBH
Trust (other than with respect to the Preferred Securities and the Common
Securities of such LBH Trust), will provide a full and unconditional guarantee
on a subordinated basis by Holdings of payments due on such Preferred
Securities.
The aggregate initial public offering price of all Securities shall not
exceed $4,917,520,712 (or, if any Securities are issued (i) with an initial
offering price denominated in a foreign currency or currency unit, such amount
as shall result in aggregate gross proceeds equivalent to $4,917,520,712 at the
time of initial offering or (ii) at an original issue discount, such greater
amount as shall result in aggregate gross proceeds of $4,917,520,712).
(COVER CONTINUED ON NEXT PAGE)
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied or, to the extent permitted by applicable law, preceded by a
Prospectus Supplement.
The Securities will be sold either through underwriters, dealers or agents,
or directly by Holdings or any of the LBH Trusts. The applicable Prospectus
Supplement sets forth the names of any underwriters or agents (which may include
Lehman Brothers Inc., a subsidiary of Holdings and an affiliate of the LBH
Trusts ("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.
------------------------
July 21, 1998
<PAGE>
(CONTINUED FROM PRIOR PAGE)
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 Holdings or an LBH
Trust, as applicable, 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, (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 and whether interests in the Offered Preferred
Stock will be represented by Depositary Shares and (iii) in the case of
Preferred Securities, the designation, number of securities, liquidation
preference per security, initial public offering price, any listing on a
securities exchange, distribution rate (or method of calculation thereof), dates
on which Distributions shall be payable and dates from which Distributions shall
accrue, any voting rights, any redemption or sinking fund provisions, any other
rights, preferences, privileges, limitations or restrictions relating to the
Preferred Securities and the terms upon which the proceeds of the sale of the
Preferred Securities shall be used to purchase a specific series of Subordinated
Debt.
AVAILABLE INFORMATION
Holdings is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "SEC"). Such reports and information may be inspected and copied at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, 500 W. Madison Street, Chicago, Illinois
60661-2511; 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 registrants that file electronically with the SEC. Holdings' Common
Stock is listed on the New York Stock Exchange, Inc. (the "NYSE") and the
Pacific Stock Exchange Inc. (the "PSE"). Depositary Shares, each representing
1/10th of a Share of Holdings' 5.94% Cumulative Preferred Stock, Series C, are
listed on the NYSE. Holdings' 8 3/4% Notes Due 2002 and 8.30% Quarterly Income
Capital Securities Due December 31, 2035 are listed on the NYSE. Holdings'
Global Telecommunications Stock Upside Note Securities(SM) Due 2000 and 5% Cisco
Systems Yield Enhanced Equity Linked Debt Securities Due 2001 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 NYSE 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 and the LBH Trusts have filed with the SEC a registration statement
on Form S-3 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933 (the "Securities
Act"). This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement.
No separate financial statements of the LBH Trusts have been included or
incorporated by reference herein. Holdings does not believe that such financial
statements would be material to holders of the
2
<PAGE>
Preferred Securities because (i) all of the voting securities of the LBH Trusts
will be owned, directly or indirectly, by Holdings, a reporting company under
the Exchange Act, (ii) the LBH Trusts have no independent operations but exist
for the sole purpose of issuing securities representing undivided beneficial
ownership interests in their assets and investing the proceeds thereof in
Subordinated Debt issued by Holdings and (iii) the obligations of the LBH Trusts
under the Preferred Securities are guaranteed by Holdings to the extent
described herein. See "Description of Subordinated Debt" and "Description of
Guarantees."
The LBH Trusts are not currently subject to the informational reporting
requirements of the Exchange Act. The LBH Trusts will become subject to such
requirements upon the effectiveness of the Registration Statement, although they
intend to seek and expect to receive exemptions therefrom.
------------------------
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, 1997, filed with the SEC on February 27, 1998;
(2) Holdings' Quarterly Report on Form 10-Q for the quarterly period
ended February 28, 1998, filed with the SEC on April 14, 1998, as amended by
Holdings' Amended Quarterly Report on Form 10-Q/A for the quarterly period
ended February 28, 1998, filed with the SEC on May 12, 1998;
(3) Holdings' Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1998, filed with the SEC on July 15, 1998; and
(4) Holdings' Current Reports on Form 8-K, filed with the SEC on January
7, 1998, March 25, 1998, April 6, 1998, May 13, 1998, and June 18, 1998.
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
Statement 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 Statement 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 the
Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial Center,
8th Floor, New York, New York 10285 (telephone (212) 526-0660).
3
<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 America and the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; asset
management; research; and the trading of foreign exchange, derivative products
and certain commodities. The Company acts as a market 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).
THE LBH TRUSTS
Each of the LBH Trusts is a statutory business trust formed under the
Delaware Business Trust Act, as amended (the "Trust Act"), pursuant to (i) a
declaration of trust, dated as of January 16, 1998 executed by Holdings, as
sponsor (the "Sponsor"), and the trustees of such LBH Trust and (ii) a
certificate of trust, dated as of January 16, 1998, filed with the Secretary of
State of the State of Delaware. Each such declaration will be amended and
restated in its entirety (as so amended and restated, each a "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. Holdings will acquire common securities
representing undivided beneficial ownership interests in the assets of each LBH
Trust (the "Common Securities," and together with the Preferred Securities, the
"Trust Securities") in an aggregate liquidation amount equal to at least 3% of
the total capital of such LBH Trust, at the same time as the Preferred
Securities are sold. Each LBH Trust will use all the proceeds derived from the
issuance of its Trust Securities to purchase Subordinated Debt and, accordingly,
the assets of each LBH Trust will consist solely of Subordinated Debt. Each LBH
Trust exists for the exclusive purposes of (i) issuing and selling the Trust
Securities, (ii) investing the gross proceeds from such sales in Subordinated
Debt and (iii) engaging in only those other activities necessary or incidental
thereto.
Each LBH Trust's business and affairs will be conducted by the trustees of
such LBH Trust (the "LBH Trustees") appointed by Holdings as holder of all the
Common Securities. Pursuant to the Declaration, there will initially be five
trustees (the "Trustees") for each LBH Trust. For each LBH Trust, three of the
LBH Trustees (the "Regular Trustees") will be individuals who are employees or
officers of or who are affiliated with Holdings. An additional trustee will be a
financial institution that is unaffiliated with Holdings, has a combined capital
and surplus of at least $50,000,000 and is subject to supervision or examination
by federal or state authorities (the "Property Trustee"). Such trustee, or a
fifth trustee, must be an entity that maintains its principal place of business
in the State of Delaware (the "Delaware Trustee"). Initially for each LBH Trust,
The Chase Manhattan Bank will act as Property Trustee and Chase Manhattan Bank
Delaware will act as Delaware Trustee, in each case, until removed or replaced
by Holdings as the holder of the Common Securities.
4
<PAGE>
The Property Trustee will hold title to the applicable Subordinated Debt for
the benefit of the holders of the Trust Securities and, as the holder of
Subordinated Debt, the Property Trustee will have the power to exercise all
rights, powers and privileges of a holder of Subordinated Debt under the
Subordinated Indenture. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of Subordinated Debt
for the benefit of the holders of the Trust Securities. Holdings, as the holder
of all the Common Securities, will have the right to appoint, remove or replace
any of the LBH Trustees and to increase or decrease the number of LBH Trustees,
provided that the number of LBH Trustees will be at least three; provided
further that at least one LBH Trustee will be a Delaware Trustee, at least one
LBH Trustee will be the Property Trustee and at least one LBH Trustee will be a
Regular Trustee. Holdings, as issuer of the Subordinated Debt to be held by the
LBH Trusts, will pay all fees and expenses related to the organization and
operations of the LBH Trusts (including any taxes, duties, assessments or
governmental charges of whatever nature (other than United States withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the LBH Trusts) and the offering of the Trust Securities and be responsible for
all debts and obligations of the LBH Trusts (other than with respect to the
Trust Securities).
For each LBH Trust, for so long as the Preferred Securities of such LBH
Trust remain outstanding, Holdings will covenant, among other things, to
maintain 100% ownership of the Common Securities of such LBH Trust, to cause
such LBH Trust to remain a statutory business trust and to use its commercially
reasonable efforts to ensure that such LBH Trust will not be an "investment
company" for purposes of the Investment Company Act of 1940 (the "Investment
Company Act"). See "Description of Debt Securities-- Certain Provisions
Applicable to LBH Trusts."
The rights of the holders of the Preferred Securities of an LBH Trust,
including economic rights, rights to information and voting rights, are set
forth in the Declaration of such LBH Trust and the Trust Indenture Act. See
"Description of Preferred Securities." Declarations and Guarantees also
incorporate by reference the terms of the Trust Indenture Act.
The office of the Delaware Trustee for each LBH Trust is Chase Manhattan
Bank Delaware, 1201 Market Street, Wilmington, Delaware 19802. The location of
the principal executive office of each LBH Trust is c/o Lehman Brothers Holdings
Inc., 3 World Financial Center, New York, New York 10285 (telephone number (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 Subordinated Debt to the LBH Trusts, and the net proceeds from the
sale of any other Debt Securities, Preferred Stock or Depositary Shares, for
general corporate purposes. Each LBH Trust will invest all of its net proceeds
from the sale of any Preferred Securities in Subordinated Debt.
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the year ended December 31, 1993, the eleven months ended November
30, 1994, the years ended November 30, 1995, 1996 and 1997 and the six months
ended May 31, 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED NOVEMBER 30 SIX MONTHS
DECEMBER 31, NOVEMBER 30, ------------------------------------------------- ENDED MAY 31,
1993 1994 1995 1996 1997 1998
- --------------- ----------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
1.00 1.03 1.03 1.06 1.07 1.10
</TABLE>
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 the year ended December
31, 1993, the eleven months ended November 30, 1994, the years ended November
30, 1995, 1996 and 1997 and the six months ended May 31, 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER ENDED YEAR ENDED NOVEMBER 30 SIX MONTHS ENDED
31, NOVEMBER 30, ------------------------------------------------- MAY 31,
1993 1994 1995 1996 1997 1998
- ------------------- ----------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
* 1.02 1.03 1.05 1.06 1.08
</TABLE>
- ------------------------
* Earnings were inadequate to cover fixed charges and preferred dividends
and would have had to increase approximately $27 million in 1993 in order
to cover the deficiency.
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.
6
<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,
formerly known as Chemical Bank, as 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, as 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 Statement 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. Particular provisions of Subordinated
Debt held by any LBH Trust will be contained in the certificates evidencing such
Subordinated Debt and described in the applicable Prospectus Supplement
accompanying this Prospectus; a copy of the form of such Subordinated Debt to be
held by any LBH Trust is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
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, as
a holding company, Holdings' assets primarily consist of 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
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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 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
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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 depositary (a "Depositary") identified in the Prospectus Supplement
relating to such series. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depositary arrangements.
Debt Securities which are to be represented by a Global Security in
registered form to be deposited with or on behalf of a Depositary will be
registered in the name of such Depositary or its nominee. Upon the issuance of a
Global Security in registered form, the Depositary for such Global Security will
credit the respective principal amounts of the Debt Securities represented by
such Global Security to the accounts of institutions that have accounts with
such Depositary or its nominee ("participants"). The accounts to be credited
shall be designated by the underwriters or agents of such 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 Depositary or its nominee for such Global Security.
Ownership of beneficial interests in Global Securities by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such 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 Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the registered
owner or the holder of the Global Security. None of the Company, the Trustee,
any Paying Agent or the Security Registrar for such Debt Securities will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. (Section 308).
The Company expects that the Depositary for a permanent Global Security in
registered form, upon receipt of any payment of principal, premium or interest
in respect of a permanent Global Security, will credit immediately participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of such Depositary. The Company also expects that payments by
participants to owners of beneficial interests in
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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 Depositary for such Global Security to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor. If a Depositary for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as Depositary and a successor Depositary is not appointed by the
Company within 90 days, the Company will issue 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 Depositary 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 May 31, 1998, Holdings'
Designated Subsidiaries were Lehman Brothers, Lehman Brothers Holdings PLC,
Lehman Brothers UK Holdings Limited, Lehman Brothers International (Europe),
Lehman Brothers U.K. Holdings (Delaware) Inc., Structured Asset Securities
Corp., Lehman Brothers Japan 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). In the event Subordinated Debt of a series
is issued and sold to an LBH Trust or a trustee of such trust in connection with
the issuance of Preferred Securities and Common Securities by such LBH Trust,
the following is an additional Event of Default under the Subordinated Indenture
with respect to such series of Subordinated Debt: the LBH Trust shall have
voluntarily or involuntarily dissolved, wound-up its business or otherwise
terminated its existence except in connection with the (i) distribution of
Subordinated Debt to holders of Preferred Securities and Common Securities in
liquidation of their interests in the LBH Trust, (ii) the redemption of
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all of the outstanding Preferred Securities and Common Securities of such LBH
Trust, or (iii) certain mergers, consolidations or amalgamations, each as
permitted by such LBH Trust's Declaration. Each Indenture may be amended without
the consent of Holders to provide for additional Events of Default with respect
to any series of Debt Securities then outstanding. In addition, prior to the
issuance of any series of Debt Securities, there may be additions to or
modifications or deletions of the Events of Default described above with respect
to such series of Debt Securities. Any such additions, modifications or
deletions will be specified in an applicable Prospectus Supplement. An Event of
Default with respect to a particular series of Debt Securities does not
necessarily constitute an Event of Default with respect to any other series of
Debt Securities issued under the same or another Indenture. The Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except in the payment of principal, premium, if
any, or interest) if it considers such withholding to be in the interest 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
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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).
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
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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); provided, further, that if
Subordinated Debt of a series is held by an LBH Trust or a trustee of such
trust, no such modification or amendment shall be effective until the holders of
not less than 66 2/3% of the aggregate liquidation amount of the Trust
Securities of the applicable LBH Trust shall have consented to such modification
or amendment; provided, further, that where a consent under the Subordinated
Indenture would require the consent of the holders of more than 66 2/3% of the
principal amount of such series of Subordinated Debt, such modification or
amendment shall not be effective until the holders of at least the same
proportion in aggregate stated liquidation amount of the Trust Securities of the
applicable LBH Trust shall have consented to such modification or amendment.
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by Holdings with certain restrictive provisions of the applicable
Indenture. (Section 1007). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series may on behalf of the
Holders of all Debt Securities of that series and any coupons appertaining
thereto waive any past default under the applicable Indenture with respect to
that series, except a default in the payment of the principal of or premium, if
any, or interest, if any, on any Debt Security of that series or in the payment
of any sinking fund installment or analogous obligation or in respect of a
provision which under the applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513). If Subordinated Debt of a series is held by an
LBH Trust or a trustee of such trust, such waiver shall not be effective until
the holders of a majority in aggregate liquidation amount of Trust Securities of
the applicable LBH Trust shall have consented to such waiver; provided, further,
that where a consent under the Subordinated Indenture would require the consent
of the holders of more than a majority in principal amount of such series of
Subordinated Debt, such waiver shall not be effective until the holders of at
least the same proportion in aggregate stated liquidation amount of the Trust
Securities of the applicable LBH Trust shall have consented to such waiver.
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
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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 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
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Debt Securities to which an applicable Prospectus Supplement accompanying this
Prospectus relates are described in such Prospectus Supplement.
CERTAIN PROVISIONS APPLICABLE TO LBH TRUSTS
In the event Subordinated Debt of a series is issued and sold to an LBH
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such LBH Trust, such Subordinated Debt subsequently may be
distributed pro rata to the holders of such Trust Securities in connection with
the dissolution of such LBH Trust upon the occurrence of certain events
described in the Prospectus Supplement relating to such Trust Securities. Only
one series of Subordinated Debt will be issued to an LBH Trust or a trustee of
such trust in connection with the issuance of Trust Securities by such LBH
Trust. In each certificate evidencing Subordinated Debt of a series held by an
LBH Trust or a trustee of such trust, Holdings will covenant that, so long as
any Trust Securities issued by such LBH Trust remain outstanding, if (i) there
shall have occurred any Event of Default under the Subordinated Indenture with
respect to such series of Subordinated Debt, (ii) Holdings shall be in default
with respect to its payment of any obligations under its Guarantee with respect
to such LBH Trust or (iii) Holdings shall have given notice of its election of
an Extension Period as provided in the certificate evidencing such Subordinated
Debt and shall not have rescinded such notice, or such Extension Period or any
extension thereof shall be continuing, then Holdings will not, and will not
permit any subsidiary to, (x) declare or pay any dividends or distributions on,
or redeem, purchase, acquire or make a liquidation payment with respect to, any
of Holdings' capital stock or (y) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of
Holdings that rank on a parity with or junior in interest to such Subordinated
Debt or make any guarantee payments with respect to any guarantee by Holdings of
the debt securities of any subsidiary of Holdings if such guarantee ranks on a
parity with or junior in interest to such Subordinated Debt (other than (a)
dividends or distributions in common stock of Holdings, (b) payments under the
applicable Guarantee made by Holdings in respect of the Trust Securities of such
LBH Trust, (c) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, and (d) purchases of common stock related to the issuance of
common stock or rights under any of Holdings' benefit plans).
In the event Subordinated Debt of a series is issued to an LBH Trust or a
trustee of such trust in connection with the issuance of Trust Securities of
such LBH Trust, for so long as such Trust Securities remain outstanding,
Holdings will covenant (i) to maintain directly or indirectly 100% ownership of
the Common Securities of such LBH Trust, (ii) to cause such LBH Trust to remain
a statutory business trust and not to voluntarily dissolve, wind-up, liquidate
or be terminated, except as permitted by such LBH Trust's Declaration, (iii) to
use its commercially reasonable efforts to ensure that such LBH Trust will not
be an "investment company" for purposes of the Investment Company Act and (iv)
to take no action that would be reasonably likely to cause such LBH Trust to be
classified as an association or a publicly traded partnership taxable as a
corporation for United States federal income tax purposes.
DESCRIPTION OF PREFERRED SECURITIES
Each LBH Trust may issue only one series of Preferred Securities having
terms described in the Prospectus Supplement relating thereto. The Declaration
of each LBH Trust will be qualified as an indenture under the Trust Indenture
Act. The Chase Manhattan Bank will act as indenture trustee under each
Declaration. The Preferred Securities will represent undivided beneficial
ownership interests in the assets of the LBH Trusts and the holders thereof will
be entitled to a preference in certain circumstances with respect to
Distributions and amounts payable on redemption or liquidation over the Common
Securities, as well as other benefits as described in the Declaration. This
Prospectus contains a description of all material provisions of each
Declaration. The summary of such provisions does not purport to be complete; a
copy of the form of such Declarations is filed as an exhibit to the Registration
Statement of
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which this Prospectus forms a part. All capitalized terms set forth below have
the meanings specified in the form of Declaration.
The Preferred Securities will have such terms, including as to
Distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such restrictions as shall be set forth in
the Declaration of the LBH Trust issuing such Preferred Securities or made part
of such Declaration by the Trust Indenture Act. Reference is made to any
Prospectus Supplement relating to the Preferred Securities of an LBH Trust for
specific terms, including (i) the distinctive designation of such Preferred
Securities, (ii) the number of Preferred Securities issued by such LBH Trust,
(iii) the annual Distribution rate (or method of determining such rate) for
Preferred Securities issued by such LBH Trust and the date or dates upon which
such Distributions shall be payable, (iv) whether Distributions on Preferred
Securities issued by such LBH Trust shall be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates form which distributions on
Preferred Securities issued by such LBH Trust shall be cumulative, (v) the
amount or amounts which shall be paid out of the assets of such LBH Trust to the
Holders of Preferred Securities of such LBH Trust upon voluntary or involuntary
dissolution, winding-up or termination of such LBH Trust, (vi) the obligation,
if any, of such LBH Trust to purchase or redeem Preferred Securities issued by
such LBH Trust and the price or prices at which, the period or periods within
which and the terms and conditions upon which Preferred Securities issued by
such LBH Trust shall be purchased or redeemed, in whole or in part, pursuant to
such obligation, (vii) the voting rights, if any, of Preferred Securities issued
by such LBH Trust in addition to those required by law, including the number of
votes per Preferred Security and any requirement for the approval by the holders
of Preferred Securities as a condition to specified action or amendments to the
Declaration of such LBH Trust, and (viii) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred Securities
issued by such LBH Trust, consistent with the Declaration of such LBH Trust and
with applicable law. All Preferred Securities offered hereby will be guaranteed
by the Company to the extent set forth below under "Description of Guarantees."
Certain United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus Supplement
relating thereto.
In connection with the issuance of Preferred Securities, each LBH Trust will
issue one series of Common Securities, having such terms, including as to
Distributions, redemption, voting, liquidation rights or such restrictions, as
shall be set forth in the Declaration of the LBH Trust issuing such Common
Securities or made part of such Declaration by the Trust Indenture Act. The
terms of the Common Securities issued by such LBH Trust will be substantially
identical to the terms of the Preferred Securities issued by such LBH Trust. The
Common Securities will rank on a parity, and payments will be made thereon pro
rata, with such Preferred Securities except that upon a Trust Enforcement Event
under the Declaration of such LBH Trust, the rights of the holders of such
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of such Preferred Securities. Except in certain limited circumstances,
the holders of Common Securities of an LBH Trust will also be entitled to vote
and appoint, remove or replace any of the LBH Trustees of such LBH Trust. All of
the Common Securities of an LBH Trust will be directly or indirectly owned by
Holdings.
If a Trust Enforcement Event with respect to a Declaration of any LBH Trust
occurs and is continuing, then the holders of Preferred Securities of such LBH
Trust would rely on the enforcement by the Property Trustee of its rights as a
holder of Subordinated Debt against the Company. In addition, the Holders of a
majority in liquidation amount of such Preferred Securities will have the right
to direct the time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee or to direct the exercise of any trust
or power conferred upon the Property Trustee under such Declaration, including
the right to direct the Property Trustee to exercise the remedies available to
it as a holder of Subordinated Debt.
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An Event of Default under the Subordinated Indenture that has occurred and
is continuing constitutes a "Trust Enforcement Event" under the Declaration with
respect to any LBH Trust, provided that pursuant to such Declaration, the holder
of the Common Securities will be deemed to have waived any Trust Enforcement
Event with respect to the Common Securities until all Trust Enforcement Events
with respect to the Preferred Securities have been cured, waived or otherwise
eliminated. Until such Trust Enforcement Event with respect to the Preferred
Securities has been so cured, waived or otherwise eliminated, the Property
Trustee will be deemed to be acting solely on behalf of the Holders of the
Preferred Securities and only the Holders of the Preferred Securities will have
the right to direct the Property Trustee with respect to certain matters under
such Declaration, and therefore the Subordinated Indenture.
Upon the occurrence of a Trust Enforcement Event, the Property Trustee, as
the holder of Subordinated Debt, will have the right under the Subordinated
Indenture to declare the principal of and premium, if any, and interest on such
Subordinated Debt to be immediately due and payable.
If the Property Trustee fails to enforce its rights with respect to
Subordinated Debt, any Holder of Preferred Securities may, to the extent
permitted by applicable law, institute a legal proceeding directly against
Holdings to enforce the Property Trustee's rights under such Subordinated Debt
without first instituting any legal proceeding against the Property Trustee or
any other person or entity. In addition, if a Trust Enforcement Event has
occurred and is continuing and such event is attributable to the failure of
Holdings to pay principal of and premium, if any, and interest or other required
payments on Subordinated Debt on the date such interest, principal or other
payment is otherwise payable, then a Holder of Preferred Securities of such LBH
Trust may, on or after the respective due dates specified in such Subordinated
Debt, institute a proceeding directly against Holdings under the Subordinated
Indenture for enforcement of payment on such Subordinated Debt having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities held by such Holder (a "Direct Action"). In connection with such
Direct Action, the rights of Holdings will be subrogated to the rights of such
Holder of Preferred Securities under such Declaration to the extent of any
payment made by Holdings to such Holder of Preferred Securities in such Direct
Action. Consequently, Holdings will be entitled to payment of amounts that a
Holder of Preferred Securities receives in respect of an unpaid distribution
that resulted in the bringing of a Direct Action to the extent that such Holder
receives or has already received full payment with respect to such unpaid
distribution from an LBH Trust. The Holders of Preferred Securities of an LBH
Trust will not be able to exercise directly any other remedy available to the
holders of Subordinated Debt.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by Holdings concurrently with the
issuance by an LBH Trust of Preferred Securities for the benefit of the Holders
from time to time of such Preferred Securities. Each Guarantee will be qualified
as an indenture under the Trust Indenture Act. The Chase Manhattan Bank will act
as indenture trustee under each Guarantee (the "Guarantee Trustee"). This
Prospectus contains a description of all material provisions of each Guarantee.
The summary of such provisions does not purport to be complete; a copy of the
form of such Guarantees is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. All capitalized terms set forth below have
the meanings specified in the form of Guarantee. The Guarantee Trustee will hold
each Guarantee for the benefit of the Holders of the Preferred Securities of an
LBH Trust.
GENERAL
Pursuant to and to the extent set forth in each Guarantee, and except as
otherwise set forth in the applicable Prospectus Supplement, Holdings will
irrevocably and unconditionally agree to pay in full the Guarantee Payments (as
defined below) to the Holders of the Preferred Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that such LBH Trust
may have or assert. The
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following payments or Distributions with respect to the Preferred Securities, to
the extent not paid by or on behalf of such LBH Trust (the "Guarantee
Payments"), will be subject to such Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on such Preferred Securities, to the extent
that such LBH Trust has sufficient funds available therefor at the time, (ii)
the Redemption Price with respect to any Preferred Securities called for
redemption, to the extent that such LBH Trust has sufficient funds available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution,
winding up or liquidation of such LBH Trust (unless Subordinated Debt are
distributed to Holders of the Preferred Securities), the lesser of (a) the
aggregate liquidation amount of the Preferred Securities and all accumulated and
unpaid Distributions thereon to the date of payment and (b) the amount of assets
of such LBH Trust remaining available for distribution to Holders of such
Preferred Securities. Holdings' obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by Holdings to the Holders
of the applicable Preferred Securities or by causing such LBH Trust to pay such
amounts to such Holders.
Each Guarantee will apply only to the extent that the applicable LBH Trust
has sufficient funds available to make such payments. If Holdings does not make
interest payments on Subordinated Debt held by an LBH Trust, such LBH Trust will
not be able to pay Distributions on the Preferred Securities issued by such LBH
Trust and will not have funds legally available therefor.
Holdings will also irrevocably and unconditionally guarantee the obligations
of any LBH Trust with respect to such LBH Trust's Common Securities to the same
extent as the Guarantee of the Preferred Securities of such LBH Trust, except
that upon the occurrence and the continuation of a Trust Enforcement Event with
respect to such LBH Trust, holders of such Preferred Securities shall have a
priority over holders of such Common Securities with respect to Distributions
and payments on liquidation, redemption or otherwise.
Holdings will, through the Declaration, the Guarantee, the Subordinated Debt
and the Subordinated Indenture, taken together, fully and unconditionally
guarantee each LBH Trust's obligations under the Preferred Securities of such
LBH Trust. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full
and unconditional guarantee of each LBH Trust's obligations under the Preferred
Securities of such LBH Trust.
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of Holdings and will
rank (i) subordinate and junior in right of payment to all other liabilities of
Holdings, (ii) on a parity with the most senior preferred or preference stock
now or hereafter issued by Holdings and with any guarantee now or hereafter
entered into by Holdings in respect of any preferred securities of any affiliate
of Holdings and (iii) senior to Holding's common stock. The Guarantees will not
place a limitation on the amount of additional Senior Debt that may be incurred
by Holdings.
Each Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
Holdings to enforce its rights under a Guarantee without first instituting a
legal proceeding against any other person or entity). Each such Guarantee will
not be discharged except by payment of the Guarantee Payments in full to the
extent not paid by the applicable LBH Trust or upon distribution of Subordinated
Debt to the holders of the applicable Preferred Securities in exchange for all
such Preferred Securities.
CERTAIN COVENANTS OF HOLDINGS
In each Guarantee, Holdings will covenant that, so long as any Trust
Securities issued by the applicable LBH Trust remain outstanding, if (i) there
shall have occurred any Event of Default under the
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Subordinated Indenture with respect to the applicable series of Subordinated
Debt held by such LBH Trust, (ii) Holdings shall be in default with respect to
its payment of any obligations under such Guarantee or (iii) Holdings shall have
given notice of its election of an Extension Period as provided in the
certificate evidencing such Subordinated Debt and shall not have rescinded such
notice, or such Extension Period or any extension thereof shall be continuing,
then Holdings will not, and will not permit any subsidiary to, (x) declare or
pay any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of Holdings' capital stock or (y) make
any payment of principal, interest or premium, if any, on or repay, repurchase
or redeem any debt securities of Holdings that rank on a parity with or junior
in interest to Subordinated Debt or make any guarantee payments with respect to
any guarantee by Holdings of the debt securities of any subsidiary of Holdings
if such guarantee ranks on a parity with or junior in interest to such
Subordinated Debt (other than (a) dividends or distributions in common stock of
Holdings, (b) payments under the applicable Guarantee made by Holdings in
respect of the Trust Securities of such LBH Trust, (c) any declaration of a
dividend in connection with the implementation of a shareholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (d) purchases of common
stock related to the issuance of common stock or rights under any of Holdings'
benefit plans).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities to which a Guarantee relates (in
which case no consent of such holders will be required), a Guarantee may not be
amended without the prior approval of the holders of not less than 66 2/3% of
the aggregate liquidation amount of the outstanding Preferred Securities to
which a Guarantee relates. The manner of obtaining any such approval will be as
set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of Holdings and shall inure to the
benefit of the Holders of the related Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under a Guarantee will occur upon the failure of
Holdings to perform any of its payment or other obligations thereunder. The
Holders of not less than a majority in aggregate liquidation amount of the
Preferred Securities to which a Guarantee relates have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under such Guarantee.
If the Guarantee Trustee fails to enforce a Guarantee, then any Holder of
Preferred Securities to which such Guarantee relates may institute a legal
proceeding directly against Holdings to enforce the Guarantee Trustee's rights
under such Guarantee, without first instituting a legal proceeding against the
LBH Trust that issued such Preferred Securities, the Guarantee Trustee or any
other person or entity.
Holdings, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not Holdings is in compliance with all
the conditions and covenants applicable to it under any outstanding Guarantees.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Holdings in performance of a Guarantee, undertakes to perform only
such duties as are specifically set forth in the Guarantee and, after default
with respect to a Guarantee (that has not been cured or waived) that is actually
known to a responsible officer of the Guarantee Trustee, must exercise the same
degree of care
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and skill as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by a
Guarantee at the request of any Holder of Preferred Securities to which such
Guarantee relates unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate as to the Preferred Securities issued by an
LBH Trust and be of no further force and effect upon full payment of the
Redemption Price of all Preferred Securities of such LBH Trust, upon full
payment of the amounts payable upon liquidation of such LBH Trust or upon
distribution of Subordinated Debt held by such LBH Trust to the holders of the
Preferred Securities of such LBH Trust in exchange for all of the Preferred
Securities of such LBH Trust. Each Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any Holder of related
Preferred Securities issued by an LBH Trust must restore payment of any sums
paid under such Preferred Securities or such Guarantee.
GOVERNING LAW
The Guarantees will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
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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 May 31,
1998, there were 32,100 shares of Cumulative Convertible Voting Preferred Stock,
Series A (the "Series A Preferred Stock"), 12,967,900 shares of Cumulative
Convertible Voting Preferred Stock, Series B (the "Series B Preferred Stock"),
500,000 shares of 5.94% Cumulative Preferred Stock, Series C (the "Series C
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 the Series A Preferred Stock at any
time in whole or in part, 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 of a share of Holdings' common stock,
subject to adjustment, 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.
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.
SERIES C PREFERRED STOCK. The Company issued depositary receipts for
5,000,000 Depositary Shares, each of which represents 1/10th of a share of
Series C Preferred Stock. The shares of Series C 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 $29.70 per share
per annum (equivalent to $2.97 per Depositary Share), payable quarterly on a
cumulative basis. The amount of dividends payable in respect of the Series C
Preferred Stock will be adjusted in the event of certain amendments to the
Internal Revenue
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Code of 1986, as amended. The liquidation preference of the Series C Preferred
Stock is equal to $500.00 per share (equivalent to $50.00 per Depositary Share)
plus accumulated and unpaid dividends. On and after May 31, 2008, Holdings may
redeem shares of Series C Preferred Stock at a price per share equal to $500.00
(equivalent to $50.00 per Depositary Share) plus accumulated and unpaid
dividends. The Series C Preferred Stock has no voting rights except as required
by law, in the event that dividends are in arrears for six calendar quarters and
in certain other limited circumstances. If the holders of Series C Preferred
Stock are entitled to vote, each share has one vote per share.
REDEEMABLE PREFERRED STOCK. As of the date of this Prospectus, American
Express Company and Nippon Life Insurance Company together own all of the issued
and outstanding shares of Redeemable Preferred Stock.
The shares of Redeemable Preferred Stock are entitled to receive
preferential dividends, as and when declared by the Board of Directors out of
funds legally available therefor, on a cumulative basis. Beginning on December
1, 1994, the holders of Redeemable Preferred Stock are entitled to receive
annual 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 for
the fiscal year exceeds $400 million, up to a maximum of $50 million for any
such period (pro rated for the last dividend period which runs from December 1,
2001 to May 31, 2002) (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 equal to $200 million if such Designated Event takes place
prior to November 30, 1998, declining $50 million per year 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.
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The Offered Preferred Stock will have the dividend, liquidation, redemption
and voting rights set forth below unless otherwise provided in an applicable
Prospectus Supplement. Reference is made to such Prospectus Supplement for
specific terms, including (1) the designation of such Offered Preferred Stock;
(2) the number of shares of such Offered Preferred Stock, the liquidation
preference per share and the initial offering price of such Offered Preferred
Stock; (3) the dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Offered Preferred Stock; (4) the date
from which dividends on such Offered Preferred Stock shall accumulate, if
applicable; (5) the procedures for any auction and remarketing, if any, of such
Offered Preferred Stock; (6) the provision of a sinking fund, if any, for such
Offered Preferred Stock; (7) the provision for redemption, if applicable, of
such Offered Preferred Stock; (8) any listing of such Offered Preferred Stock on
any securities exchange; (9) the terms and conditions, if applicable, upon which
such Offered Preferred Stock will be convertible into or exchangeable for
Holdings' common stock or other securities, and whether at the option of the
holder thereof or the Company; (10) whether such Offered Preferred Stock will
rank senior or junior to or on a parity with any other class or series of
Offered Preferred Stock; (11) the voting rights, if any, of such Offered
Preferred Stock; (12) any conversion or exchange rights of such Offered
Preferred Stock; (13) whether Holdings has elected to offer Depositary Shares
with respect to such Offered Preferred Stock as described below under
"Depositary Shares"; (14) any other specific terms, preferences, rights
limitations or restrictions of such Offered Preferred Stock; and (15) 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 equity securities issued by Holdings if the terms of such Offerred
Preferred Stock provide that it shall rank on a parity with such equity
securities (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 Series B 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. Each such
dividend will be payable to the holders of record as they appear on the stock
books of Holdings (or, if applicable, the records of the Depositary referred to
below under "Depositary Shares") on such record dates as will be fixed by the
Board of Directors or a duly authorized committee thereof, or specified in such
Prospectus Supplement. 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.
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Except as set forth in the preceding sentence, unless full cumulative
dividends on the Offered Preferred Stock have been paid through the most
recently completed dividend period for such Offered Preferred Stock, no
dividends (other than in Holdings' common stock) may be paid or declared and set
aside for payment or other distribution made upon such common stock or on any
other stock of Holdings that are Junior Securities or Parity Preferred Stock as
to dividends, nor may any Holdings' common stock or shares of any other stock of
Holdings that are Junior Securities or Parity Preferred Stock as to dividends be
redeemed, purchased or otherwise acquired for any consideration (or any payment
be made to or available for a sinking fund for the redemption of any shares of
such stock; provided, however, that any moneys theretofore deposited in any
sinking fund with respect to any preferred stock of Holdings in compliance with
the provisions of such sinking fund may thereafter be applied to the purchase or
redemption of such preferred stock in accordance with the terms of such sinking
fund, regardless of whether at the time of such application full cumulative
dividends upon shares of such Offered Preferred Stock outstanding to the last
dividend payment date shall have been paid or declared and set apart for
payment), provided that any such Junior Securities or Parity Preferred Stock or
Holdings' common stock may be converted into or exchanged for shares of stock
that are Junior Securities as to dividends.
Payment of dividends on any series of Offered Preferred Stock may be
restricted by loan agreements, indentures or other transactions entered into by
Holdings.
CONVERTIBILITY
No series of Offered Preferred Stock offered hereby will be convertible
into, or exchangeable for, other securities or property except as set forth in
an applicable Prospectus Supplement.
REDEMPTION AND SINKING FUND
No series of Offered Preferred Stock offered hereby will be redeemable or
receive the benefit of a sinking fund except as set forth in an applicable
Prospectus Supplement.
LIQUIDATION
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of any series of Offered Preferred Stock then outstanding
shall be entitled to receive out of the assets of Holdings available for
distribution to its stockholders, after any distribution is made to or set aside
for holders of Senior Securities and before any distribution is made to holders
of Junior Securities, the liquidation preference per share specified in an
applicable Prospectus Supplement, if any, in each case together with any
accumulated and unpaid dividends. After payment of the full amount of the
liquidation preference and such dividends, the holders of shares of Offered
Preferred Stock will not be entitled to any further participation in any
distribution of assets by Holdings. If, upon any liquidation, dissolution or
winding up of the assets of Holdings, the assets of Holdings, or proceeds
thereof, distributable among the holders of shares of Parity Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributable among 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.
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Consequently, there will be no restriction upon surplus of Holdings solely
because the liquidation preference of Offered Preferred Stock will exceed the
par value and there will be no remedies available to holders of Offered
Preferred Stock before or after the payment of any dividend, other than in
connection with the liquidation of Holdings, solely by reason of the fact that
such dividend would reduce the surplus of Holdings to an amount less than the
difference between the liquidation preference of Offered Preferred Stock and its
par value.
VOTING
Except as provided by Delaware law, no series of Offered Preferred Stock
will be entitled to vote except as provided in an applicable Prospectus
Supplement.
MISCELLANEOUS
The holders of Offered Preferred Stock will have no preemptive rights.
Shares of Offered Preferred Stock redeemed or otherwise reacquired by Holdings
shall be retired and, upon the taking of any action required by applicable law,
resume the status of authorized and unissued shares of Offered Preferred Stock
undesignated as to series, and shall be available for subsequent issuance. The
shares of a series of Offered Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in an applicable Prospectus Supplement, the
Restated Certificate of Incorporation or the related Certificate of Designation
or as otherwise required by law. Neither the par value nor the liquidation
preference is indicative of the price at which the Offered Preferred Stock will
actually trade on or after the date of issuance.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Offered Preferred Stock
will be described in an applicable Prospectus Supplement.
DEPOSITARY SHARES
GENERAL. Holdings may, at its option, elect to offer fractional shares of
Offered Preferred Stock, rather than full shares of Offered Preferred Stock. In
the event such option is exercised, Holdings will issue to the public receipts
for Depositary Shares, each of which will represent a fraction (to be set forth
in the Prospectus Supplement relating to a particular series of Offered
Preferred Stock) of a share of a particular series of Offered Preferred Stock as
described below.
The shares of any series of Offered Preferred Stock represented by
Depositary Shares will be deposited under a Deposit Agreement (the "Deposit
Agreement") between Holdings and a bank or trust company selected by Holdings
having its principal office in the United States and having a combined capital
and surplus of at least $50,000,000 (the "Depositary"). Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a share of Offered Preferred Stock
represented by such Depositary Share, to all the rights and preferences of the
Offered Preferred Stock represented thereby (including dividend, voting,
redemption and liquidation rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). Depositary Receipts
will be distributed to those persons purchasing the fractional shares of Offered
Preferred Stock in accordance with the terms of the offering. Copies of the
forms of Deposit Agreement and Depositary Receipt are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and the following
summary is qualified in its entirety by reference to such exhibits.
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Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of Holdings, issue temporary Depositary
Receipts substantially identical to (and entitling the holders thereof to all
the rights pertaining to) the definitive Depositary Receipts but not in
definitive form. Definitive Depositary Receipts will be prepared thereafter
without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at Holdings' expense. In
addition, subject to the terms of the Deposit Agreement, holders of Depositary
Shares are entitled to withdraw and receive, upon surrender of Depositary
Receipts, certificates evidencing the fractional number of shares of Offered
Preferred Stock represented by such Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Depositary will distribute all cash
dividends or other cash distributions received in respect of the Offered
Preferred Stock to the record holders of Depositary Shares relating to such
Offered Preferred Stock in proportion to the number of such Depositary Shares
owned by such holders.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
Holdings, sell such property and distribute the net proceeds from such sale to
such holders.
REDEMPTION OF DEPOSITARY SHARES. If a series of Offered Preferred Stock
represented by Depositary Shares is subject to redemption, the Depositary Shares
will be redeemed from the proceeds received by the Depositary resulting from the
redemption, in whole or in part, of such series of Offered Preferred Stock held
by the Depositary. The redemption price per Depositary Share will be equal to
the applicable fraction of the redemption price per share payable with respect
to such series of the Offered Preferred Stock. Whenever Holdings redeems shares
of Offered Preferred Stock held by the Depositary, the Depositary will redeem as
of the same redemption date the number of Depositary Shares representing the
shares of Offered Preferred Stock so redeemed. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be selected
by lot or pro rata as may be determined by the Depositary.
VOTING THE OFFERED PREFERRED STOCK. Upon receipt of notice of any meeting
at which the holders of the Offered Preferred Stock are entitled to vote, the
Depositary will mail the information contained in such notice of meeting to the
record holders of the Depositary Shares relating to such Offered Preferred
Stock. Each record holder of such Depositary Shares on the record date (which
will be the same date as the record date for the Offered Preferred Stock) will
be entitled to instruct the Depositary as to the exercise of the voting rights
pertaining to the amount of the Offered Preferred Stock represented by such
holder's Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote the amount of the Offered Preferred Stock represented by
such Depositary Shares in accordance with such instructions, and Holdings will
agree to take all action which may be deemed necessary by the Depositary in
order to enable the Depositary to do so. The Depositary will abstain from voting
shares of the Offered Preferred Stock to the extent it does not receive specific
instructions from the holders of Depositary Shares representing such Offered
Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT. The form of
Depositary Receipt evidencing the Depositary Shares and any provision of the
Deposit Agreement may at any time be amended by agreement between Holdings and
the Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Shares will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding. The Deposit Agreement may be terminated by
Holdings or the Depositary only if (i) all outstanding Depositary Shares have
been redeemed or (ii) there has been a final distribution in respect of the
Offered Preferred Stock in connection with any liquidation, dissolution or
winding up of Holdings and such distribution has been distributed to the holders
of Depositary Receipts.
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CHARGES OF DEPOSITARY. Holdings will pay all transfer and other taxes and
governmental charges arising solely from the existence of the depositary
arrangements. Holdings will pay charges of the Depositary in connection with the
initial deposit of the Offered Preferred Stock and any redemption of the Offered
Preferred Stock. Holders of Depositary Receipts will pay other transfer and
other taxes and governmental charges and such other charges, including a fee for
the withdrawal of shares of Offered Preferred Stock upon surrender of Depositary
Receipts, as are expressly provided in the Deposit Agreement to be for their
accounts.
MISCELLANEOUS. The Depositary will forward to holders of Depositary
Receipts all reports and communications from Holdings that are delivered to the
Depositary and which Holdings is required to furnish to the holders of the
Offered Preferred Stock.
Neither the Depositary nor Holdings will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of Holdings and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Offered
Preferred Stock unless satisfactory indemnity is furnished. They may rely upon
written advice of counsel or accountants, or upon information provided by
persons presenting Offered Preferred Stock for deposit, holders of Depositary
Receipts or other persons believed to be competent and on documents believed to
be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY. The Depositary may resign at any
time by delivering to Holdings notice of its election to do so, and Holdings may
at any time remove the Depositary, any such resignation or removal to take
effect upon the appointment of a successor Depositary and its acceptance of such
appointment. Such successor Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
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
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income tax laws, including the limitations provided in Section 165(j) and
1287(a) of the Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations under
United States tax laws. See "United States Taxation--Backup Withholding and
Information Reporting." As used herein, a "United States person" means a citizen
or resident of the United States, a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate the income of which is subject to United States federal
income taxation regardless of its source or a trust that is subject to the
supervision of a court within the United States and the control of a United
States person as described in section 7701(a)(30) of the Code, and "United
States" means the United States of America (including the States and the
District of Columbia) and its possessions including Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. The
term "Non-United States Holder" means any Holder which is not a United States
person.
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UNITED STATES TAXATION
In the opinion of Simpson Thacher & Bartlett, special United States tax
counsel to the Company, the following discussion is an accurate summary of the
material United States federal income tax consequences of the purchase,
ownership and disposition of Debt Securities as of the date hereof. Except where
noted, it deals only with Debt Securities held as capital assets by United
States Holders and does not deal with special situations, such as those of
dealers in securities or currencies, financial institutions, tax-exempt
entities, life insurance companies, persons holding Debt Securities or
Depositary Shares as a part of a hedging, conversion or constructive sale
transaction or a straddle or United States Holders whose "functional currency"
is not the U.S. dollar. Furthermore, the discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
federal income tax consequences different from those discussed below. This
summary deals only with Debt Securities that are classified as debt for United
States federal income tax purposes. Any special United States federal income tax
considerations relevant to a particular issue of Debt Securities or Depositary
Shares will be provided in the applicable Prospectus Supplement. PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF DEBT SECURITIES OR
DEPOSITARY SHARES 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.
Certain United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus Supplement
relating thereto.
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 or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust that
is subject to the supervision of a court within the United States and the
control of a United States person as described in section 7701(a)(30) of the
Code. A "Non-United States Holder" is a holder that is not a United States
Holder.
ORIGINAL ISSUE DISCOUNT
United States Holders of Debt Securities issued with original issue discount
("OID") will be subject to special tax accounting rules, as described in greater
detail below. United States Holders of such Debt Securities should be aware that
they generally must include OID in gross income in advance of the receipt of
cash attributable to that income. However, United States Holders of such Debt
Securities generally will not be required to include separately in income cash
payments received on the Debt Securities, even if denominated as interest, to
the extent such payments do not constitute qualified stated interest (as defined
below). Debt Securities issued with OID will be referred to as "Original Issue
Discount Debt Securities." Notice will be given in the applicable Prospectus
Supplement when the Company determines that a particular Debt Security will be
an Original Issue Discount Debt Security. This summary is based upon Treasury
regulations applicable to debt instruments issued with OID (the "OID
Regulations").
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
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annually at a single fixed rate or, subject to certain conditions, based on one
or more indices. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Notice will be given in the applicable Prospectus Supplement when the Company
determines that a particular Debt Security will bear interest that is not
qualified stated interest.
In the case of a Debt Security issued with de minimis OID (I.E., discount
that is not OID because it is less than 0.25 percent of the stated redemption
price at maturity multiplied by the number of complete years to maturity), the
United States Holder generally must include such de minimis OID in income as
principal payments on the Debt Securities are made in proportion to the stated
principal amount of the Debt Security. Any amount of de minimis OID that has
been included in income shall be treated as capital gain.
Original Issue Discount Debt Securities that may be redeemed prior to their
stated maturity at the option of the Company and/or at the option of the Holder
may be subject to rules that differ from the general rules discussed herein.
Persons considering the purchase of Original Issue Discount Debt Securities with
such features should carefully examine the applicable Prospectus Supplement and
should consult their own tax advisors with respect to such features since the
tax consequences with respect to OID will depend, in part, on the particular
terms and features of the Debt Securities.
United States Holders of Original Issue Discount Debt Securities with a
maturity upon issuance of more than one year must, in general, include OID in
income in advance of the receipt of some or all of the related cash payments.
The amount of OID includible in income by the initial United States Holder of an
Original Issue Discount Debt Security is the sum of the "daily portions" of OID
with respect to the Debt Security for each day during the taxable year or
portion of the taxable year in which such United States Holder held such Debt
Security ("accrued OID"). The daily portion is determined by allocating to each
day in any "accrual period" a pro rata portion of the OID allocable to that
accrual period. The "accrual period" for an Original Issue Discount Debt
Security may be of any length and may vary in length over the 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
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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 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 (but may be required to include any stated interest
in income as it is received). United States Holders that report income for
federal income tax purposes on the accrual method and certain other United
States Holders are required to accrue discount on such Short-Term Debt
Securities (as ordinary income) on a straight-line basis, unless an election is
made to accrue the discount according to a constant yield method based on daily
compounding. In the case of a United States Holder that is not required, and
does not elect, to include discount in income currently, any gain realized on
the sale, exchange or retirement of the Short-Term Debt Security will generally
be ordinary income to the extent of the discount accrued through the date of
sale, exchange or retirement. In addition, a United States Holder that does not
elect to include currently accrued discount in income may be required to defer
deductions for a portion of the United States Holder's interest expense with
respect to any indebtedness incurred or continued to purchase or carry such Debt
Securities.
MARKET DISCOUNT
If a United States Holder purchases a Debt Security (other than an Original
Issue Discount Debt Security) for an amount that is less than its stated
redemption price at maturity or, in the case of an Original Issue Discount Debt
Security, its adjusted issue price, the amount of the difference will be treated
as "market discount" for 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.
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ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Debt Security for an amount that is
greater than its adjusted issue price but equal to or less than the sum of all
amounts payable on the Debt Security after the purchase date other than payments
of qualified stated interest will be considered to have purchased such Debt
Security at an "acquisition premium." Under the acquisition premium rules, the
amount of OID which such holder must include in its gross income with respect to
such Debt Security for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
A United States Holder that purchases a Debt Security for an amount in
excess of the sum of all amounts payable on the Debt Security after the purchase
date other than qualified stated interest will be considered to have purchased
such Debt Security at a "premium" and will not be required to include any OID in
income. A United States Holder generally may elect to amortize the premium over
the remaining term of the Debt Security (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.
Final Treasury regulations issued on December 30, 1997 provide that, at a
holder's election, premium may be amortized to offset interest income only as a
United States Holder takes the qualified stated interest into account under the
United States Holder's regular accounting method. In the case of instruments
that provide for alternative payment schedules, bond premium is calculated by
assuming that (i) the holder will exercise or not exercise options in a manner
that maximizes the holder's yield and (ii) the issuer will exercise or not
exercise options in a manner that minimizes the holder's yield, except with
respect to call options for which the issuer is assumed to exercise such call
options in a manner that maximizes the holder's yield. To the extent the
assumptions prove incorrect, adjustments may then be made to the holder's bond
premium amortization. The final regulations are effective for debt instruments
acquired on or after March 2, 1998. However, if a United States Holder elects to
amortize bond premium for the taxable year containing March 2, 1998 or for any
subsequent taxable year, the final Treasury regulations would apply to all the
United States Holder's debt instruments held on or after the first day of that
taxable year. Once made, the election cannot 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. Long-term
capital gains of individuals are eligible for reduced rates of taxation, with
additional rate reductions applicable to gains from capital assets held for more
than 18 months. The deductibility of capital losses is subject to limitations.
Prospective investors should consult their own tax advisors with respect to the
treatment of capital gains and losses.
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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. Such a discharge would generally for federal income tax
purposes constitute the retirement of the Debt Securities and the issuance of
new obligations with the result that Holders of the Debt Securities would
realize gain or loss (if any) on such exchange, which would be recognized
depending upon, for example, whether the exchange qualified as a tax-free
recapitalization for federal income tax purposes or whether the wash sale loss
disallowance rules applied. Any such gain would generally not be taxable to
Non-United States Holders under the circumstances outlined below. Furthermore,
following discharge, the Debt Securities might be subject to withholding, backup
withholding and/or information reporting and might be issued with OID. Similar
results might occur if the Company defeases certain obligations as described
under "Description of Debt Securities--Defeasance of Certain Obligations".
EXTENDIBLE DEBT SECURITIES, RENEWABLE DEBT SECURITIES AND RESET DEBT SECURITIES
If so specified in an applicable Prospectus Supplement relating to a Debt
Security, the Company may have the option to extend the maturity of a Debt
Security (an "Extendible Debt Security" or a "Renewable Debt Security"). In
addition, the Company may have the option to reset the interest rate, the Spread
or the Spread Multiplier (a "Reset Debt Security"). The treatment of a United
States Holder of Debt Securities with respect to which such an option has been
exercised is unclear and will depend, in part, on the terms established for such
Debt Securities by the Company pursuant to the exercise of such option (the
"Revised Terms"). Such United States Holder may be treated for federal income
tax purposes as having exchanged such Debt Securities (the "Old Debt
Securities") for new Debt Securities with Revised Terms (the "New Debt
Securities"). If the exercise of the option by the Company is not treated as an
exchange of Old Debt Securities for New Debt Securities, no gain or loss will be
recognized by a United States Holder as a result thereof. If the exercise of the
option is treated as a taxable exchange of Old Debt Securities for New Debt
Securities, a United States Holder would recognize gain or loss equal to the
difference between the issue price of the New Debt Securities and the United
States Holder's tax basis in the Old Debt Securities.
The presence of such options may also affect the calculation of OID, among
other things. The OID Regulations provide that, solely for purposes of the
accrual of OID, an issuer of a debt instrument having an option or combination
of options to extend the term of the debt instrument will be presumed to
exercise such option or options in a manner that minimizes the yield on the debt
instrument. Conversely, if a holder is treated as having a put option, such an
option will be presumed to be exercised in a manner that maximizes the yield on
the debt instrument. If the exercise of such option or options to extend the
term of the debt instrument actually occurs or the option to put does not occur,
contrary to the presumption made under the OID Regulations (a "change in
circumstances"), then, solely for purposes of the accrual of OID, the debt
instrument is treated as reissued on the date of the change in circumstances for
an amount equal to its adjusted issue price on the date. Persons considering the
purchase of Extendible Debt Securities, Renewable Debt Securities or Reset 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.
FOREIGN CURRENCY DEBT SECURITIES
The following is a summary of the principal United States federal income tax
consequences to a United States Holder of the ownership of a Debt Security
denominated in a Specified Currency other than the U.S. dollar (a "Foreign
Currency Debt Security"). If interest payments are made in a Foreign Currency to
a United States Holder that is not required to accrue such interest prior to its
receipt, such holder will be required to include in income the U.S. dollar value
of the amount received (determined by translating the Foreign Currency received
at the "spot rate" for such Foreign Currency on the date such payment is
received), regardless of whether the payment is in fact converted into U.S.
dollars. No exchange gain or loss is recognized with respect to the receipt of
such payment.
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A United States Holder that is required to accrue interest on a Foreign
Currency Debt Security prior to the receipt of such interest will be required to
include in income for each taxable year the U.S. dollar value of the interest
that has accrued during such year, determined by translating such interest at
the average rate of exchange for the period or periods during which such
interest accrued. The average rate of exchange for an interest accrual period is
the simple average of the exchange rates for each business day of such period
(or such other average that is reasonably derived and consistently applied by
the holder). An accrual basis holder may elect to translate interest income at
the spot rate on the last day of the accrual period (or last day of the taxable
year in the case of an accrual period that straddles the holder's taxable year)
or on the date the interest payment is received if such date is within five days
of the end of the accrual period. Upon receipt of an interest payment on such
Debt Security, such United States Holder will recognize ordinary income or loss
in an amount equal to the difference between the U.S. dollar value of such
payment (determined by translating any Foreign Currency received at the "spot
rate" for such Foreign Currency on the date received) and the U.S. dollar value
of the interest income that such United States Holder has previously included in
income with respect to such payment.
OID on a Debt Security that is also a Foreign Currency Debt Security will be
determined for any accrual period in the applicable Foreign Currency and then
translated into U.S. dollars in the same manner as interest income accrued by a
holder on the accrual basis, as described above. Likewise, a United States
Holder will recognize exchange gain or loss when the OID is paid to the extent
of the difference between the U.S. dollar value of the accrued OID (determined
in the same manner as for accrued interest) and the U.S. dollar value of such
payment (determined by translating any Foreign Currency received at the spot
rate for such Foreign Currency on the date of payment). For this purpose, all
receipts on a Debt Security will be viewed first as the receipt of any stated
interest payments called for under the terms of the Debt Security, second as
receipts of previously accrued OID (to the extent thereof), with payments
considered made for the earliest accrual periods first, and thereafter as the
receipt of principal.
The amount of market discount on Foreign Currency Debt Securities includible
in income will generally be determined by translating the market discount
determined in the Foreign Currency into U.S. dollars at the spot rate on the
date the Foreign Currency Debt Security is retired or otherwise disposed of. If
the United States Holder has elected to accrue market discount currently, then
the amount which accrues is determined in the Foreign Currency and then
translated into U.S. dollars on the basis of the average exchange rate in effect
during such accrual period. A United States Holder will recognize exchange gain
or loss with respect to market discount which is accrued currently using the
approach applicable to the accrual of interest income as described above.
Bond premium on a Foreign Currency Debt Security will be computed in the
applicable Foreign Currency. With respect to a United States Holder that elects
to amortize the premium, the amortizable bond premium will reduce interest
income in the applicable Foreign Currency. At the time bond premium is
amortized, exchange gain or loss (which is generally ordinary income or loss)
will be realized based on the difference between spot rates at such time and at
the time of acquisition of the Foreign Currency Debt Security. A United States
Holder that does not elect to amortize bond premium will translate the bond
premium, computed in the applicable Foreign Currency, into U.S. dollars at the
spot rate on the maturity date and such bond premium will constitute a capital
loss which may be offset or eliminated by exchange gain.
A United States Holder's tax basis in a Foreign Currency Debt Security will
be the U.S. dollar value of the Foreign Currency amount paid for such Foreign
Currency Debt Security determined at the time of such purchase. A United States
Holder that purchases a Debt Security with previously owned Foreign Currency
will recognize exchange gain or loss at the time of purchase attributable to the
difference at the time of purchase, if any, between his tax basis in such
Foreign Currency and the fair market value of the Debt Security in U.S. dollars
on the date of purchase. Such gain or loss will be ordinary income or loss.
For purposes of determining the amount of any gain or loss recognized by a
United States Holder on the sale, exchange, retirement or other disposition of a
Foreign Currency Debt Security, the amount
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realized upon such sale, exchange, retirement or other disposition will be the
U.S. dollar value of the amount realized in Foreign Currency (other than amounts
attributable to accrued but unpaid interest not previously included in the
holder's income), determined at the time of the sale, exchange, retirement or
other disposition.
A United States Holder will recognize exchange gain or loss attributable to
the movement in exchange rates between the time of purchase and the time of
disposition (including the sale, exchange, retirement or other disposition) of a
Foreign Currency Debt Security. Such gain or loss will be treated as ordinary
income or loss. The realization of such gain or loss will be limited to the
amount of overall gain or loss realized on the disposition of a Foreign Currency
Debt Security. Under proposed Treasury Regulations issued on March 17, 1992, if
a Foreign Currency Debt Security is denominated in one of certain
hyperinflationary currencies, generally (i) exchange gain or loss would be
realized with respect to movements in the exchange rate between the beginning
and end of each taxable year (or such shorter period) that such Debt Security
was held and (ii) such exchange gain or loss would be treated as an addition or
offset, respectively, to the accrued interest income on (and an adjustment to
the holder's tax basis in) the Foreign Currency Debt Security.
A United States Holder's tax basis in Foreign Currency received as interest
on (or OID with respect to), or received on the sale, exchange, retirement or
other disposition of, a Foreign Currency Debt Security will be the U.S. dollar
value thereof at the spot rate at the time the holder received such Foreign
Currency. Any gain or loss recognized by a United States Holder on a sale,
exchange, retirement or other disposition of Foreign Currency will be ordinary
income or loss and will not be treated as interest income or expense, except to
the extent provided in Treasury Regulations or administrative pronouncements of
the IRS.
DUAL CURRENCY DEBT SECURITIES
If so specified in an applicable Prospectus Supplement relating to a Foreign
Currency Debt Security, the Company may have the option to make all payments of
principal and interest scheduled after the exercise of such option in a currency
(the "Optional Payment Currency") other than the Specified Currency. The United
States federal income tax treatment of Dual Currency Debt Securities is
uncertain. Treasury Regulations currently in effect do not address the tax
treatment of Dual Currency Debt Securities. Under the approach of proposed
Treasury Regulations issued on March 17, 1992, a Dual Currency Debt Security
would be bifurcated into two hypothetical instruments: (i) a zero coupon bond
denominated in the currency of the stated redemption price at maturity, and (ii)
an installment obligation denominated in the currency of the qualified stated
interest payments. The proposed regulations are effective only for Debt
Securities issued or transactions occurring after final regulations are
published. Persons considering the purchase of Dual Currency 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.
A United States Holder of a Dual Currency Debt Security with respect to
which the Company's option has been exercised may be considered to have
exchanged a Debt Security denominated in the Specified Currency for a Debt
Security denominated in the Optional Payment Currency. If the exercise of the
option by the Company is not treated as a deemed exchange, a United States
Holder of a Dual Currency Debt Security will not recognize gain or loss and the
Holder's basis in the Debt Security will be unchanged. If the exercise of the
option is treated as a taxable exchange, a United States Holder will recognize
gain or loss, if any, equal to the difference between the holder's basis in the
Debt Security denominated in the Specified Currency and the value of the Debt
Security denominated in the Optional Payment Currency.
CONTINGENT PAYMENT DEBT SECURITIES
The OID Regulations contain special rules for determining the timing and
amount of OID to be accrued with respect to certain Debt Securities providing
for one or more contingent payments ("Contingent Payment Debt Security"). Under
these rules, United States Holders will accrue OID each year based on the
"comparable yield" of the Debt Securities. The comparable yield of the Debt
Securities will
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generally be the rate at which the Company would issue a fixed rate debt
instrument with terms and conditions similar to the Debt Securities. The Company
is required to provide the comparable yield to the United States Holders and,
solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the Debt Securities and
estimates the amount and timing of contingent payments on the Debt Securities.
Notice will be given in the applicable Prospectus Supplement when the Company
determines that a particular Debt Security will be treated as a Contingent
Payment Debt Security.
The amount of OID on a Contingent Payment Debt Security for each accrual
period will be determined by multiplying the comparable yield of the Contingent
Payment Debt Security (adjusted for the length of the accrual period) by the
Debt Security's adjusted issue price at the beginning of the accrual period
(determined in accordance with the rules set forth in the OID Regulations
relating to contingent payment debt instruments). The amount of OID so
determined will then be allocated on a ratable basis to each day in the accrual
period that the United States Holder holds the Contingent Payment Debt Security.
If the actual payments made on the Contingent Payment Debt Securities in a
taxable year differ from the projected contingent payments, the OID Regulations
require that adjustments be made for such differences. A positive adjustment
(i.e., the amount by which an actual payment exceeds a projected contingent
payment) will be treated as additional interest. A negative adjustment will
first reduce the amount of interest required to be accrued in the current year.
Any negative adjustments that exceed the amount of interest accrued in the
current year will be treated as ordinary loss to the extent that the United
States Holder's total interest inclusions on the Contingent Payment Debt
Security exceed the total amount of the United States Holder's net negative
adjustments treated as ordinary loss on the Contingent Payment Debt Security in
prior taxable years. Any excess negative adjustments will be carried forward to
offset future income or amount realized on disposition of the Contingent Payment
Debt Securities.
Gain on the sale, exchange, or retirement of a Contingent Payment Debt
Security generally will be treated as ordinary income. Loss from the disposition
of a Contingent Payment Debt Security will be treated as ordinary loss to the
extent of the United States Holder's prior net interest inclusions (reduced by
the total net negative adjustments previously allowed to the United States
Holder as ordinary loss). Any loss in excess of such amount will be treated as
capital loss.
A United States Holder is generally bound by the comparable yield and
projected payment schedule provided by the Company. However, if a United States
Holder believes that the Company's projected payment schedule is unreasonable, a
United States Holder may set its own projected payment schedule so long as such
United States Holder explicitly discloses the use of such schedule and the
reason therefor. Unless otherwise prescribed by the Commissioner of the IRS,
such disclosure must be made in a statement attached to the United States
Holder's timely filed federal income tax return for the taxable year in which
the Debt Security is acquired.
For special treatment of Foreign Currency Debt Securities or Dual Currency
Debt Securities that are also Contingent Payment Debt Securities see the
applicable Prospectus Supplement.
The rules regarding Contingent Payment Debt Securities are complex.
Investors considering the purchase of Debt Securities providing for one or more
contingent payments should carefully examine the applicable Prospectus
Supplement and consult their own tax advisors regarding the United States
federal income tax consequences of the holding and disposition of such Debt
Securities.
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
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combined voting power of all classes of stock of the Company entitled to
vote within the meaning of section 871(h)(3) of the Code and the regulations
thereunder, (ii) the beneficial owner is not a controlled foreign
corporation that is related to the Company through stock ownership, (iii)
the beneficial owner is not a bank whose receipt of interest on a Debt
Security is described in section 881(c)(3)(A) of the Code, (iv) in the case
of a Registered Security, the beneficial owner satisfies the statement
requirement (described generally below) set forth in section 871(h) and
section 881(c) of the Code and the regulations thereunder and (v) such
interest is not considered contingent interest under Section 871(h)(4) 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. Currently, these
requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a 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. Under Treasury regulations (the "Final
Regulations") finalized in 1997, the statement requirement referred to in
(a)(iv) above may be satisfied with other documentary evidence for interest paid
after December 31, 1999 with respect to an offshore account or through certain
foreign intermediaries.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, as might be the case with
a Contingent Payment Debt Security, 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.
Under the Final Regulations, Non-United States Holders will generally be
required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224,
although alternative documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and premium, if any, or interest (including OID) on the Debt
Security is effectively connected with the conduct of such trade or business,
the Non-United States Holder, although exempt from the withholding tax discussed
above, 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
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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 generally 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.
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
United States person, a controlled foreign corporation or a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States, or, after December 31, 1999, if such
nominee, custodian, agent or broker is a foreign partnership in which one or
more United States persons, in the aggregate, own more than 50% of the income or
capital interests in the partnership or if the partnership is engaged in 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.
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.
PREFERRED STOCK AND DEPOSITARY SHARES
Persons considering the purchase of Offered Preferred Stock or Depositary
Shares should carefully examine the applicable Prospectus Supplement regarding
the United States federal income tax consequences of the holding and disposition
of such Offered Preferred Stock and Depositary Shares.
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CAPITAL REQUIREMENTS
As a registered broker-dealer, Lehman Brothers is 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. Lehman Brothers computes 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 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 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.
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PLAN OF DISTRIBUTION
Holdings may sell any series of Debt Securities, Offered Preferred Stock or
Depositary Shares and any LBH Trust may sell Preferred 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."
Securities may also be offered and sold, if so indicated in an applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for Holdings. Any remarketing firm will be identified and
the terms of its agreement, if any, with Holdings and its compensation will be
described in such Prospectus Supplement. Remarketing firms may be deemed to be
underwriters, as that term is defined in the Securities Act, in connection with
the Securities remarketed thereby.
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Each underwriter, agent or remarketing firm will represent and agree that
(i) it has not offered or sold and, prior to the expiration of six months from
the issue date thereof, will not offer or sell any 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 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 1997 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 National Association of
Securities Dealers, Inc. (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 OR
THE PREFERRED SECURITIES SHOULD CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement, the
validity of the Debt Securities, Preferred Stock, Depositary Shares and
Guarantees offered hereby will be passed upon for Holdings by Karen M. Muller,
Esq., Deputy General Counsel of Holdings, for the LBH Trusts by Richards, Layton
& Finger, One Rodney Square, Wilmington, Delaware 19899, and for the
underwriters or agents by Simpson Thacher & Bartlett, 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 financial statement schedule of
the Company for each of the three years in the period ended November 30, 1997
appearing in the Company's Annual Report on Form 10-K for the year ended
November 30, 1997, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and financial statement
schedule are incorporated herein by reference in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent covered
by consents filed with the Securities and Exchange Commission) given upon the
authority of such firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT
NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. 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 THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Certain Terms of Series D Preferred Stock....... S-2
Description of Depositary Shares................ S-7
Underwriting.................................... S-9
PROSPECTUS
Available Information........................... 2
Documents Incorporated by Reference............. 3
The Company..................................... 4
The LBH Trusts.................................. 4
Use of Proceeds................................. 5
Ratio of Earnings to Fixed Charges.............. 6
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends..................... 6
Description of Debt Securities.................. 7
Description of Preferred Securities............. 19
Description of Guarantees....................... 21
Description of Offered Preferred Stock.......... 25
Limitations on Issuance of Bearer Securities.... 31
United States Taxation.......................... 33
Capital Requirements............................ 43
Plan of Distribution............................ 44
ERISA Matters................................... 45
Legal Opinions.................................. 45
Independent Accountants......................... 45
</TABLE>
4,000,000 SHARES
LEHMAN BROTHERS
HOLDINGS INC.
DEPOSITARY SHARES, EACH
REPRESENTING A 1/100TH INTEREST
IN A SHARE OF 5.67% CUMULATIVE
PREFERRED STOCK, SERIES D
-------------------
PROSPECTUS SUPPLEMENT
JULY 21, 1998
---------------------
LEHMAN BROTHERS
ABN AMRO INCORPORATED
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
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