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As Filed Pursuant to Rule 424(b)5
Registration No. 333-50197
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 4, 1998)
$6,608,437,312
LEHMAN BROTHERS HOLDINGS INC.
MEDIUM-TERM NOTES, SERIES E
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
Lehman Brothers Holdings Inc. (the "Company") may offer from time to time
its medium-term notes which are issuable in one or more series and may be
offered and sold either in the United States or outside the United States or
both simultaneously. The Medium-Term Notes, Series E (the "Notes") offered by
this Prospectus Supplement are offered in the United States in an aggregate
principal amount of up to $6,608,437,312 (or (i) the equivalent thereof in
foreign currencies or composite currencies, including the European Currency Unit
("ECU") (each, a "Foreign Currency"), or (ii) such greater amount, if Notes are
issued at an original issue discount, as shall result in aggregate gross
proceeds to the Company of $6,608,437,312), subject to reduction as a result of
the sale under certain circumstances of other Securities. The foregoing limit,
however, may be increased by the Company if in the future it determines that it
may wish to sell additional Notes. Each Note will mature on a day that is nine
months or more from its Issue Date, as selected by the initial purchaser and
agreed to by the Company. Unless otherwise set forth in an accompanying Pricing
Supplement (a "Pricing Supplement") to this Prospectus Supplement, the Notes
will not be redeemable at the option of the Company or repayable at the option
of the Holder prior to their Stated Maturity.
Each Note will be denominated in U.S. dollars or in units of a Foreign
Currency (the "Specified Currency") as specified in the applicable Pricing
Supplement. See "Important Currency Information" and "Currency Risks." Unless
otherwise specified in the applicable Pricing Supplement, Notes denominated in
U.S. dollars will be issued only in denominations of $1,000 or any amount in
excess thereof which is an integral multiple of $1,000. If the Notes are to be
denominated in a Foreign Currency, the authorized denominations and currency
exchange rate information will be set forth in the applicable Pricing
Supplement. The principal amount payable at Maturity and/or any interest or
premium on a Note may be determined by reference to the relationship between two
or more currencies, to the price of one or more specified securities or
commodities or to one or more securities or commodities exchange indices or
other indices or by other similar methods (an "Indexed Note"), as described in
the applicable Pricing Supplement. An Indexed Note, the principal amount payable
at Maturity and/or the interest rate of which is determined by reference to the
relationship between two currencies, two composite currencies or a currency and
a composite currency, is referred to herein as a Currency Indexed Note. See
"Description of Notes--Currency Indexed Notes" and "--Other Indexed Notes and
Certain Terms Applicable to All Indexed Notes."
(COVER CONTINUED ON FOLLOWING PAGE)
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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,
ANY PRICING SUPPLEMENT HERETO OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO AGENT'S PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
<S> <C> <C> <C>
Per Note......... 100% .125%--.625% 99.375%--99.875%
Total............ $6,608,437,312(4) $8,260,547--$41,302,733 $6,567,134,579--$6,600,176,765
</TABLE>
(1) Unless otherwise indicated in a Pricing Supplement, Notes will be issued at
100% of their principal amount.
(2) Unless otherwise indicated in a Pricing Supplement, the Company will pay
Lehman Brothers Inc. ("Lehman Brothers"), as agent (the "Agent"), a
commission ranging from .125% to .625% of the principal amount of any Note,
depending on its Stated Maturity, sold through the Agent, except that the
commission payable by the Company to the Agent with respect to Notes with
maturities of greater than 30 years will be negotiated at the time the
Company issues such Notes. The Company may also sell Notes to the Agent as
principal for resale to investors and other purchasers at varying prices
related to prevailing market prices at the time of resale to be determined
by the Agent. Unless otherwise specified in the applicable Pricing
Supplement, any Note sold to the Agent as principal will be purchased by the
Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to an agency sale of a Note of
identical maturity, and may be resold by the Agent. The Company may also
sell Notes directly to investors on its own behalf, in which case no
commission will be payable.
(3) Before deducting other expenses payable by the Company.
(4) Including the U.S. dollar equivalent with respect to any Notes denominated
in foreign or composite currencies.
------------------------
The Notes are offered on a continuing basis by the Company through the
Agent, which has agreed to use reasonable best efforts to solicit purchases of
the Notes. The Notes will not be listed on any securities exchange, and there
can be no assurance that the Notes offered by this Prospectus Supplement will be
sold or that there will be a secondary market for the Notes. The Company
reserves the right to withdraw, cancel or modify the offer made hereby without
notice. The Company or the Agent may reject any offer to purchase Notes in whole
or in part. See "Plan of Distribution of Notes".
This Prospectus Supplement and the accompanying Prospectus may also be used
by Lehman Brothers Inc., a subsidiary of the Company, in connection with offers
and sales of the Notes related to marketmaking transactions, by and through
Lehman Brothers, at negotiated prices related to prevailing market prices at the
time of sale or otherwise. Lehman Brothers may act as principal or agent in such
transactions.
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LEHMAN BROTHERS
May 4, 1998
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(COVER CONTINUED FROM PRECEDING PAGE)
Each Note will be represented by either a global security (a "Global
Security") registered in the name of a nominee of The Depository Trust Company,
as Depository (each such Note represented by a Global Security being referred to
herein as a "Book-Entry Note"), or a certificate issued in definitive form (a
"Certificated Note"), as set forth in the applicable Pricing Supplement.
Beneficial interests in Book-Entry Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depository and its
participants.
Terms not otherwise provided in this Prospectus Supplement or in the
accompanying Prospectus will be established for each Note by the Company prior
to the date of issuance of such Note (the "Issue Date") and will be indicated in
an accompanying Pricing Supplement. The Pricing Supplement relating to each Note
will describe the following terms, as applicable: (1) the Specified Currency
with respect to such Note (and, if such Specified Currency is a Foreign Currency
(a "Foreign Specified Currency"), certain other terms relating to such Note);
(2) whether such Note is a Fixed Rate Note, a Floating Rate Note, an Amortizing
Note or an Original Issue Discount Note; (3) whether such Note is an Indexed
Note, and if so the special terms thereof; (4) the price (expressed as a
percentage of the aggregate initial public offering price thereof) at which such
Note will be issued to the public; (5) the Issue Date of such Note; (6) the
Stated Maturity of such Note; (7) if such Note is a Fixed Rate Note, the rate
per annum at which such Note will bear interest, if any; (8) if such Note is a
Floating Rate Note, the interest rate formula, the Initial Interest Rate, the
Interest Reset Dates, the Interest Payment Dates, the Index Maturity, the
maximum interest rate and the minimum interest rate, if any, the Spread or
Spread Multiplier, if any, Calculation Dates, Regular Record Dates and any other
terms relating to the Calculation Agent or to the particular method of
calculating the interest rate for such Note; (9) if such Note is an Amortizing
Note, the repayment information in respect thereof; (10) whether such Note is a
Renewable Note, and if so the special terms thereof; (11) whether the interest
rate on such Note may be reset upon the occurrence of certain events or at the
option of the Company; (12) whether such Note may be redeemed at the option of
the Company, or repaid at the option of the Holder, prior to its Stated
Maturity, and if so, the provisions relating to such redemption or repayment;
(13) whether such Note will be issued initially as a Book-Entry Note or a
Certificated Note; (14) certain special federal income tax consequences of the
purchase, ownership and disposition of certain Notes, if any; and (15) any other
terms of such Note not inconsistent with the provisions of the Indenture.
Interest rates and interest rate formulas are subject to change by the
Company, but no such change will affect the interest rate on or interest rate
formula for any Note theretofore issued or which the Company has agreed to sell,
except as described herein under "Subsequent Interest Periods" and "Extension of
Maturity." Unless otherwise indicated in the applicable Pricing Supplement, the
Notes will bear interest at (i) a fixed rate or (ii) a floating rate or rates
determined by reference to the Commercial Paper Rate, the Federal Funds
Effective Rate, the CD Rate, LIBOR, the Prime Rate, the Treasury Rate or such
other interest rate formula as may be designated in an accompanying Pricing
Supplement, as adjusted by the Spread or Spread Multiplier, if any, applicable
to such Notes. Certain Notes issued at a discount from the principal amount
payable at Maturity thereof may provide that Holders of such Notes will not
receive periodic payments of interest. See "Description of Notes-- Original
Issue Discount Notes."
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable each February 15 and August 15 and at Maturity.
Interest on Floating Rate Notes will be payable on the dates indicated therein
and in the applicable Pricing Supplement. See "Description of Notes--Interest
and Interest Rates."
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DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements and to the extent inconsistent therewith replaces the
description of the general terms of the Debt Securities set forth under the
heading "Description of Debt Securities" in the accompanying Prospectus. For a
description of the rights attaching to different series of Debt Securities under
the Indenture, see "Description of Debt Securities" in the Prospectus. The Notes
constitute "Senior Debt" as defined in the accompanying Prospectus.
Certain capitalized terms used herein have the meanings ascribed thereto in
the accompanying Prospectus. Reference is also made to the Glossary for certain
defined terms used herein and the locations of other defined terms used herein.
Currency amounts in this Prospectus Supplement, the accompanying Prospectus
and any Pricing Supplement are stated in United States dollars ("$", "dollars",
"U.S. dollars" or "U.S.$"), unless otherwise indicated.
GENERAL
The Notes constitute a single series of Debt Securities for purposes of the
Indenture under which they are to be issued. As of May 4 , 1998, there was an
aggregate of $11,006,840,000 in principal amount (or the equivalent thereof in
Foreign Currencies) of Notes outstanding. The Notes are not limited as to a
total amount authorized. The Company from time to time may sell additional
series of Debt Securities (as defined in the accompanying Prospectus), including
additional series of medium-term notes. See "Plan of Distribution of Notes."
The Notes will be offered on a continuing basis and will mature on a day
nine months or more from their Issue Date, as specified in an applicable Pricing
Supplement. The Notes, other than Amortizing Notes, will not be subject to any
sinking fund nor will the Notes be redeemable at the option of the Company or
repayable at the option of the Holder prior to their Stated Maturity, unless
otherwise provided in an applicable Pricing Supplement.
Unless otherwise specified for Notes denominated in a Foreign Currency or as
otherwise specified in an applicable Pricing Supplement, the Notes will be
issuable only in fully registered form in denominations of $1,000 and integral
multiples of $1,000 in excess thereof. If any of the Notes are to be denominated
in a Foreign Currency, or if the principal of and premium, if any, and any
interest on any of the Notes is to be payable at the option of the Holder or the
Company in a currency, including a currency unit, other than that in which such
Note is denominated, the applicable Pricing Supplement will provide additional
information, including applicable exchange rate information, pertaining to the
terms of such Notes and other matters of interest to the holders thereof.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note. Except as set forth in the accompanying Prospectus under
"Description of Debt Securities--Global Securities" or in the applicable Pricing
Supplement, Book-Entry Notes will not be issuable in definitive form. Unless
otherwise specified in the applicable Pricing Supplement, Indexed Notes and Dual
Currency Notes will only be issued as Certificated Notes. See "Book-Entry
Notes." Certificated Notes may be presented for registration of transfer or
exchange at the Corporate Trust Office.
PAYMENT CURRENCY
Unless otherwise specified in the applicable Pricing Supplement, and except
as otherwise described herein with respect to Currency Indexed Notes and Dual
Currency Notes, the Notes will be denominated in U.S. dollars and payments of
principal, premium, if any, and interest will be made in U.S. dollars. The
principal of, premium, if any, and interest on each Note denominated in a
Foreign Currency is payable by the Company in U.S. dollars based on the
equivalent of that Foreign Currency converted into U.S. dollars.
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If a Note is denominated in a Foreign Currency, the Company will (unless
otherwise specified in the applicable Pricing Supplement) appoint an agent (the
"Exchange Rate Agent") to determine the exchange rate for converting all
payments in respect of such Note into U.S. dollars in the manner described in
the following paragraph. Unless otherwise specified in the applicable Pricing
Supplement, Lehman Brothers Inc., or an affiliate, will act as the Exchange Rate
Agent. Notwithstanding the foregoing, the Holder of a Note denominated in a
Foreign Currency may (if the applicable Pricing Supplement and Note so indicate)
elect to receive all such payments in the Foreign Currency by delivery of a
written request to the Trustee (or to any duly appointed Paying Agent) at the
Corporate Trust Office not later than 10 calendar days prior to the applicable
payment date, and such election will remain in effect for such Holder until
revoked by written notice to the Trustee (or to any such Paying Agent) at the
Corporate Trust Office received not later than 10 calendar days prior to the
applicable payment date; provided, however, no such election or revocation may
be made with respect to payments on any Note with respect to which (i) an Event
of Default (as defined in the accompanying Prospectus) has occurred, (ii) the
Company has exercised any discharge or defeasance options or (iii) the Company
has given a notice of redemption. In the event any Holder makes any such
election pursuant to the preceding sentence, such election will not be effective
on any transferee of such Holder and such transferee shall be paid in U.S.
dollars unless such transferee makes an election pursuant to the preceding
sentence; provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, such election, if in effect while funds are on deposit with
the Trustee to satisfy and discharge such Note in accordance with the provisions
of the Indenture, will be effective on any transferee of such Holder. Unless
otherwise specified in the applicable Pricing Supplement, payment of principal
of, premium, if any, and interest on Notes to be made in a Foreign Specified
Currency will be made to an account maintained by the Holder of such Notes at a
bank in the country which issues such Foreign Specified Currency (or, if such
Foreign Specified Currency is a composite currency, at a bank outside the United
States that accepts deposits in such Foreign Specified Currency).
Unless otherwise specified in the applicable Pricing Supplement, the amount
of U.S. dollars payable in respect of a Note denominated in a Foreign Currency
will be determined by the Exchange Rate Agent based on the indicative quotation
in The City of New York selected by the Exchange Rate Agent at approximately
11:00 A.M., New York City time, on the second Business Day preceding the
applicable payment date that yields the least number of U.S. dollars upon
conversion of such Foreign Currency. Unless otherwise specified in the
applicable Pricing Supplement, such selection shall be made from among the
quotations appearing on the bank composite or multi-contributor pages of the
Reuters Monitor Foreign Exchange Service or, if not available, the Telerate
Monitor Foreign Exchange Service. If such quotations are unavailable from either
such foreign exchange service, such selection shall (unless otherwise specified
in the applicable Pricing Supplement) be made from the quotations received by
the Exchange Rate Agent from no more than three nor less than two recognized
foreign exchange dealers in The City of New York selected by the Exchange Rate
Agent and approved by the Company (one of which may be the Exchange Rate Agent)
for the purchase by the quoting dealer, for settlement on such payment date, of
the aggregate amount of such Foreign Currency payable on such payment date in
respect of all Notes denominated in such Foreign Currency and for which the
applicable dealer commits to execute a contract. If no such bid quotations are
available, payments will be made in the Foreign Currency.
Unless otherwise specified in the applicable Pricing Supplement, if payment
on a Note is required to be made in a Foreign Specified Currency and such
currency is unavailable to the Company for making payments thereof due to the
imposition of exchange controls or other circumstances beyond the Company's
control, or is no longer used by the government of the country which issued such
currency or for the settlement of transactions by public institutions of or
within the international banking community, then the Company will be entitled to
make payments with respect to such Note in U.S. dollars until such Foreign
Currency is again available or so used. The amount so payable on any date in
such Foreign Currency shall be converted into U.S. dollars at a rate determined
by the Exchange Rate Agent on the basis of the noon buying rate in The City of
New York for cable transfers in the Foreign Currency as certified for customs
purposes by the Federal Reserve Bank of New York (the "Market Exchange Rate")
for such Foreign
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Currency on the second Business Day prior to such payment date, or on such other
basis as shall be specified in the applicable Pricing Supplement. In the event
such Market Exchange Rate is not then available, the Company will be entitled to
make payments in U.S. dollars (i) if such Foreign Currency is not a composite
currency, on the basis of the most recently available Market Exchange Rate for
such Foreign Currency or (ii) if such Foreign Currency is a composite currency,
including, without limitation, the ECU, in an amount determined by the Exchange
Rate Agent to be the sum of the results obtained by multiplying the number of
units of each component currency of such composite currency, as of the most
recent date on which such composite currency was used, by the Market Exchange
Rate for such component currency on the second Business Day prior to such
payment date (or if such Market Exchange Rate is not then available, by the most
recently available Market Exchange Rate for such component currency, or as
otherwise specified in the applicable Pricing Supplement). Any payment in
respect of such Note made under such circumstances in U.S. dollars will not
constitute an Event of Default under the Indenture.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a component
shall be divided or multiplied in the same proportion. If two or more component
currencies are consolidated into a single currency, the amounts of those
currencies as components shall be replaced by an amount in such single currency
equal to the sum of the amounts of the consolidated component currencies
expressed in such single currency. If any component currency is divided into two
or more currencies, the amount of that original component currency as a
component shall be replaced by the amounts of such two or more currencies having
an aggregate value on the date of division equal to the amount of the former
component currency immediately before such division.
In the event of an official redenomination of the Specified Currency, the
Denominated Currency, the Indexed Currency or the Optional Payment Currency
(including without limitation, an official redenomination of any such currency
that is a composite currency), the obligations of the Company to make payments
in or with reference to such currency shall, in all cases, be deemed immediately
following such redenomination to be obligations to make payments in or with
reference to that amount of redenominated currency representing the amount of
such currency immediately before such redenomination. Except to the extent
Indexed Notes provide for the adjustment of the amount of principal or interest
payable in respect of such Notes pursuant to application of the formulas
described under "Currency Indexed Notes," or any other formula provided for in
the applicable Pricing Supplement, Notes will not provide for any adjustment to
any amount payable under such Notes as a result of (a) any change in the value
of the Specified Currency thereof relative to any other currency due solely to
fluctuations in exchange rates or (b) any redenomination of any component
currency of any composite currency (unless such composite currency is itself
officially redenominated).
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion (except to the extent expressly provided herein that
any determination is subject to the approval of the Company). In the absence of
manifest error, such determinations shall be conclusive for all purposes and
binding on holders of the Notes and the Exchange Rate Agent shall have no
liability therefor.
All currency exchange costs will be borne by the holders of the applicable
Notes by deduction from the payments made thereon.
PAYMENT OF PRINCIPAL AND INTEREST
Interest, if any, on the Notes will be payable on each Interest Payment Date
and at Maturity. Principal of and premium, if any, on the Notes will be payable
at Maturity.
Unless otherwise specified in the applicable Pricing Supplement, the
interest payable on any Interest Payment Date will, as provided in the
Indenture, be paid to each person in whose name a Note (or one or more
predecessor Notes) is registered at the close of business on the Regular Record
Date (whether or not a Business Day) next preceding such Interest Payment Date;
provided that, notwithstanding any provision
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of the Indenture to the contrary, interest payable on any date of Maturity shall
be payable to the Person to whom principal shall be payable; and provided,
further, that, unless otherwise specified in the applicable Pricing Supplement,
in the case of a Note initially issued between a Regular Record Date and the
Interest Payment Date relating to such Regular Record Date, interest for the
period beginning on the Issue Date and ending on such Interest Payment Date
shall be paid on the Interest Payment Date following the next succeeding Regular
Record Date to the Holder on such next succeeding Regular Record Date.
Unless otherwise specified in the applicable Pricing Supplement and except
as stated below, all interest payments with respect to Certificated Notes and
all principal payments with respect to Amortizing Notes which are Certificated
Notes (in each case other than interest and, in the case of Amortizing Notes,
principal payable at Maturity), will be made by wire transfer or by check;
provided that a Holder of $10,000,000 or more in aggregate principal amount of
Certificated Notes of like tenor and term (or a Holder of the equivalent thereof
in a Foreign Currency) shall be entitled to receive such interest (and, in the
case of Amortizing Notes, principal payments) in immediately available funds,
but only if complete and appropriate instructions have been received in writing
by the Trustee (or any duly appointed Paying Agent) on or prior to the
applicable Regular Record Date. Simultaneously with the election by any Holder
of a Note to receive payments in a Foreign Currency as provided under "Payment
Currency" above, such Holder may, if so entitled as described above, elect to
receive such payments in immediately available funds by providing complete and
appropriate instructions to the Trustee (or any duly appointed Paying Agent),
and all payments of principal of, premium, if any, and interest on such Note
will be made in immediately available funds to an account at a bank outside the
United States or as otherwise specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, payments of
principal, premium, if any, and interest payable at Maturity with respect to
Certificated Notes will be made in immediately available funds (unless otherwise
specified in the applicable Pricing Supplement, payable to an account at a bank
outside the United States if payable in a Foreign Currency) upon surrender of
the Note at the Corporate Trust Office, provided that the Note is presented to
the Trustee (or any duly appointed Paying Agent) in time for the Trustee (or any
such Paying Agent) to make such payments in such funds in accordance with its
normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, payments of
interest on a Book-Entry Note, and principal of Amortizing Notes that are
Book-Entry Notes (in each case, other than at Maturity), will be made in
same-day funds in accordance with existing arrangements between the Trustee (or
any duly appointed Paying Agent) and the Depository. Unless otherwise specified
in the applicable Pricing Supplement, any principal, premium and/or interest
payable at Maturity of a Book-Entry Note will be paid by the Trustee (or any
such Paying Agent) by wire transfer in immediately available funds to an account
specified by the Depository (which account, unless otherwise provided in the
applicable Pricing Supplement, will be at a bank located outside the United
States if payable in a Foreign Currency). The Depository will allocate payments
received by it to each Book-Entry Note and make payments to the holders thereof
in accordance with its existing operating procedures. Neither the Company nor
the Trustee (nor any such Paying Agent) shall have any responsibility or
liability for such payments by the Depository.
In the event that any Interest Payment Date and/or Maturity date of any
Fixed Rate Note is not a Business Day, principal, premium and/or interest
payable at such date will be paid upon the next succeeding Business Day with the
same effect as if paid on such Interest Payment Date or such Maturity date, as
the case may be, and no additional interest shall accrue as a result of such
delayed payments. In the event that any Interest Payment Date and/or Maturity
date of any Floating Rate Note is not a Business Day, principal, premium and/or
interest payable at such date will be paid upon the next succeeding Business Day
with the same effect as if such Business Day were such Interest Payment Date
and/or Maturity date, and no interest shall accrue for the period from and after
such Interest Payment Date and/ or Maturity date to such next succeeding
Business Day, except that in the case of a LIBOR Note, if such
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next succeeding Business Day falls in the next calendar month, such Interest
Payment Date and/or Maturity date shall be the preceding day that is a Business
Day with respect to such Note.
The Company will pay any administrative costs imposed by banks in connection
with making payments in immediately available funds, but any tax, assessment or
governmental charge imposed upon payments, including, without limitation, any
withholding tax, will be borne by the holders of the Notes in respect of which
such payments are made.
INTEREST AND INTEREST RATES
Each Note will bear interest from its Issue Date at the annual rate, or at a
rate determined pursuant to an interest rate formula, stated therein and in the
applicable Pricing Supplement, until the principal thereof is paid or made
available for payment, except as described below under "Subsequent Interest
Periods" and "Extension of Maturity."
Interest rates and interest rate formulas are subject to change by the
Company from time to time but no such change will affect any Note theretofore
issued or which the Company has agreed to sell, except as described below under
"Subsequent Interest Periods" and "Extension of Maturity." Unless otherwise
indicated in the applicable Pricing Supplement, the Interest Payment Dates and
the Regular Record Dates for Fixed Rate Notes shall be as described below under
"Fixed Rate Notes." The Interest Payment Dates for Floating Rate Notes shall be
as indicated in the applicable Pricing Supplement, and unless otherwise
specified in the applicable Pricing Supplement, each Regular Record Date for a
Floating Rate Note will be the fifteenth day (whether or not a Business Day)
next preceding each Interest Payment Date.
Each Note will bear interest at either (a) a per annum fixed rate, in which
case such Note will be a "Fixed Rate Note," or (b) a floating rate determined by
reference to an interest rate formula which may be adjusted by a Spread or
Spread Multiplier, if any, in which case such Note will be a "Floating Rate
Note." Any Floating Rate Note may also have either or both of the following: (i)
a maximum numerical interest rate limitation, or ceiling, on the rate of
interest which may accrue during any interest period; and (ii) a minimum
numerical interest rate limitation, or floor, on the rate of interest which may
accrue during any interest period. The applicable Pricing Supplement will
designate one of the following interest rate bases as applicable to each
Floating Rate Note: (a) the Commercial Paper Rate in which case such Note will
be a "Commercial Paper Rate Note," (b) the Federal Funds Effective Rate in which
case such Note will be a "Federal Funds Effective Rate Note," (c) the CD Rate in
which case such Note will be a "CD Rate Note," (d) LIBOR in which case such Note
will be a "LIBOR Note," (e) the Prime Rate in which case such Note will be a
"Prime Rate Note," (f) the Treasury Rate in which case such Note will be a
"Treasury Rate Note" or (g) such other interest rate formula as is set forth in
such Pricing Supplement.
The interest rate on the Notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States law
of general application. Under present New York law, the maximum rate of
interest, with certain exceptions, is 25% per annum (calculated, in each case,
on a simple interest basis). This limit does not apply to loans of $2,500,000 or
more.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its Issue Date at the annual
rate stated on the face thereof. Unless otherwise indicated in the applicable
Pricing Supplement, the Interest Payment Dates for the Fixed Rate Notes (other
than Amortizing Notes) will be February 15 and August 15 of each year and the
Regular Record Dates will be February 1 and August 1 of each year. Unless
otherwise indicated in the applicable Pricing Supplement, interest on Fixed Rate
Notes will be computed and paid on the basis of a 360-day year of twelve 30-day
months.
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Unless otherwise specified in the applicable Pricing Supplement, principal
of and interest on each Amortizing Note will be payable either quarterly on each
February 15, May 15, August 15 and November 15, or semi-annually on each
February 15 and August 15, as set forth in the applicable Pricing Supplement,
and at Maturity. Payments with respect to Amortizing Notes will be applied first
to interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in respect
of each Amortizing Note will be set forth in the applicable Pricing Supplement.
FLOATING RATE NOTES
Except for the period from the Issue Date to the first Interest Reset Date
set forth in the applicable Pricing Supplement, the interest rate on each
Floating Rate Note will be equal to either (i) the interest rate calculated by
reference to the specified interest rate formula (as specified in the applicable
Pricing Supplement) plus or minus the Spread, if any, or (ii) the interest rate
calculated by reference to the specified interest rate formula multiplied by the
Spread Multiplier, if any. The applicable Pricing Supplement will specify the
interest rate basis and the Spread or Spread Multiplier, if any, and the maximum
or minimum interest rate limitation, if any, applicable to each Floating Rate
Note. In addition, such Pricing Supplement may contain particulars as to the
Calculation Agent, Calculation Dates, Index Maturity, Initial Interest Rate,
Interest Determination Dates, Interest Payment Dates, Regular Record Dates and
Interest Reset Dates with respect to such Note.
Except as provided below or as set forth in an applicable Pricing
Supplement, interest on Floating Rate Notes will be payable in the case of
Floating Rate Notes with a daily, weekly or monthly Interest Reset Date on the
third Wednesday of each month or on the third Wednesday of March, June,
September and December of each year, as specified in the applicable Pricing
Supplement; in the case of Floating Rate Notes with a quarterly Interest Reset
Date, on the third Wednesday of the four months of each year specified in the
applicable Pricing Supplement; in the case of Floating Rate Notes with a
semi-annual Interest Reset Date, on the third Wednesday of the two months of
each year specified in the applicable Pricing Supplement; and in the case of
Floating Rate Notes with an annual Interest Reset Date, on the third Wednesday
of the one month of each year specified in the applicable Pricing Supplement.
The rate of interest on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each an "Interest Reset Date"),
as specified in the applicable Pricing Supplement. The Interest Reset Date will
be, in the case of Floating Rate Notes which reset daily, each Business Day; in
the case of Floating Rate Notes (other than Treasury Rate Notes) which reset
weekly, the Wednesday of each week; in the case of Treasury Rate Notes which
reset weekly, the Tuesday of each week; in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes which reset quarterly, the third Wednesday of the four months of each year
specified in the applicable Pricing Supplement; in the case of Floating Rate
Notes which reset semi-annually, the third Wednesday of the two months of each
year specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of the one month of each
year specified in the applicable Pricing Supplement; provided, however, that (i)
the interest rate in effect from the Issue Date to the first Interest Reset Date
with respect to a Floating Rate Note will be the Initial Interest Rate (as set
forth in the applicable Pricing Supplement) and (ii) the interest rate in effect
for the ten days immediately prior to Maturity will be that in effect on the
tenth day preceding such Maturity. If any Interest Reset Date for any Floating
Rate Note would otherwise be a day that is not a Business Day for such Floating
Rate Note (or in the case of a LIBOR Note, a day that is not a London Banking
Day), the Interest Reset Date for such Floating Rate Note shall be postponed to
the next day that is a Business Day (or in the case of a LIBOR Note, to the next
day that is a London Banking Day) for such Floating Rate Note, except that in
the case of a LIBOR Note, if such London Banking Day is in the next succeeding
calendar month, such Interest Reset Date shall be the immediately preceding
London Banking Day. If an
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auction date for Treasury bills shall fall on any Interest Reset Date for a
Treasury Rate Note, then such Interest Reset Date shall instead be the first
Business Day immediately following such auction date.
Unless otherwise specified in the applicable Pricing Supplement, the
Interest Determination Date pertaining to an Interest Reset Date will be (a)
such Interest Reset Date for a Prime Rate Note (the "Prime Interest
Determination Date") and (b) the Business Day preceding such Interest Reset Date
for a Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), a Federal Funds Effective Rate Note (the "Federal Funds Interest
Determination Date") or a CD Rate Note (the "CD Interest Determination Date").
Unless otherwise specified in the applicable Pricing Supplement, the Interest
Determination Date pertaining to an Interest Reset Date for a LIBOR Note (the
"LIBOR Interest Determination Date") will be the second London Banking Day
preceding such Interest Reset Date. Unless otherwise specified in the applicable
Pricing Supplement, the Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note (the "Treasury Interest Determination Date")
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills of the applicable Index Maturity would normally be auctioned.
Treasury bills are usually sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is usually held on the
following Tuesday, except that such auction may be held on the preceding Friday.
If, as the result of a legal holiday, an auction is so held on the preceding
Friday, such Friday will be the Treasury Interest Determination Date pertaining
to the Interest Reset Date occurring in the next succeeding week.
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will mature on an Interest Payment Date. Unless otherwise specified
in the applicable Pricing Supplement, the interest payable on each Interest
Payment Date or at Maturity for Floating Rate Notes will be the amount of
interest accrued from and including the Issue Date or from and including the
last Interest Payment Date to which interest has been paid, as the case may be,
to, but excluding, such Interest Payment Date or the date of Maturity, as the
case may be; provided, however, that in the case of a Floating Rate Note on
which interest is reset daily or weekly, interest payable on each Interest
Payment Date will be the amount of interest accrued from and including the Issue
Date or from and excluding the last date to which interest has been paid, as the
case may be, to, and including, the Regular Record Date immediately preceding
such Interest Payment Date, except that at Maturity the interest payable will
include interest accrued to, but excluding, the date of Maturity. Accrued
interest from the Issue Date or from the last date to which interest has been
paid is calculated by multiplying the face amount of a Note by an accrued
interest factor. This accrued interest factor is computed by adding the interest
factors calculated for each day from the Issue Date or from the last date to
which interest has been paid, to the date for which accrued interest is being
calculated. The interest factor for each such day is computed by dividing the
interest rate applicable to such date by 360, in the case of Commercial Paper
Rate Notes, Federal Funds Effective Rate Notes, CD Rate Notes, LIBOR Notes and
Prime Rate Notes, or by the actual number of days in the year, in the case of
Treasury Rate Notes. The interest rate applicable to any day that is an Interest
Reset Date is the interest rate as determined, in accordance with the procedures
hereinafter set forth, with respect to the Interest Determination Date
pertaining to such Interest Reset Date. The interest rate applicable to any
other day is the interest rate for the immediately preceding Interest Reset Date
(or, if none, the Initial Interest Rate).
Unless otherwise specified in the applicable Pricing Supplement, all
percentages resulting from any calculation of the rate of interest on a Floating
Rate Note will be rounded, if necessary, to the nearest one hundred-thousandth
of a percent (.0000001), with five one-millionths of a percentage point rounded
upward, and all currency amounts used in or resulting from such calculation on
Floating Rate Notes will be rounded to the nearest one-hundredth of a unit (with
five one-thousandths of a unit being rounded upwards).
The Calculation Agent will, upon the request of the Holder of any Floating
Rate Note, provide the interest rate then in effect and, if determined, the
interest rate which will become effective as a result of a determination made on
the most recent Interest Determination Date with respect to such Note. For
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purposes of calculating the rate of interest payable on Floating Rate Notes, the
Company will enter into an agreement with the Calculation Agent.
COMMERCIAL PAPER RATE NOTES
A Commercial Paper Rate Note will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any) specified in the Commercial Paper Rate Note and in the
applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Commercial Paper Interest Determination
Date, the Money Market Yield (calculated as described below) of the rate on that
date for commercial paper having the applicable Index Maturity as such rate is
published in H.15(519) under the heading "Commercial Paper." If such rate is not
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such Commercial Paper Interest Determination Date, then the Commercial Paper
Rate shall be the Money Market Yield of the rate on such Commercial Paper
Interest Determination Date for commercial paper having the applicable Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on such Calculation Date, then the
Commercial Paper Rate for such Commercial Paper Interest Determination Date
shall be calculated by the Calculation Agent and shall be the Money Market Yield
of the arithmetic mean of the offered rates as of 11:00 A.M., New York City
time, on such Commercial Paper Interest Determination Date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent after consultation with the Company for commercial paper having the
applicable Index Maturity, placed for industrial issuers whose bond rating is
"AA", or the equivalent, from a nationally recognized securities rating agency;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Commercial Paper Rate
for the applicable period will be the Commercial Paper Rate in effect on such
Commercial Paper Interest Determination Date.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C> <C>
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for the commercial paper, quoted on a
bank discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the interest period for which interest is being calculated.
FEDERAL FUNDS EFFECTIVE RATE NOTES
A Federal Funds Effective Rate Note will bear interest at the interest rate
(calculated with reference to the Federal Funds Effective Rate and the Spread or
Spread Multiplier, if any) specified in the Federal Funds Effective Rate Note
and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Effective Rate" means, with respect to any Federal Funds Interest
Determination Date, the rate on that day for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)" or, if not so published
by 9:00 A.M., New York City time, on the Calculation Date pertaining to such
Federal Funds Interest Determination Date, the Federal Funds Effective Rate will
be the rate on such Federal Funds Interest Determination Date as published in
Composite Quotations under the heading "Federal Funds/Effective Rate." If such
rate is not yet published in either H.15(519) or Composite Quotations by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Federal
Funds Interest Determination Date, then the Federal Funds Effective Rate for
such Federal Funds Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates as of 11:00 A.M.,
New
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<PAGE>
York City time, on such Federal Funds Interest Determination Date for the last
transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in The City of New York selected by the Calculation
Agent after consultation with the Company; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Effective Rate for the applicable
period will be the Federal Funds Effective Rate in effect on such Federal Funds
Interest Determination Date.
CD RATE NOTES
A CD Rate Note will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any) specified
in the CD Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any CD Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the applicable Index Maturity as
published in H.15(519) under the heading "CDs (Secondary Market)" or, if not so
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such CD Interest Determination Date, the CD Rate will be the rate on such CD
Interest Determination Date for negotiable certificates of deposit of the
applicable Index Maturity as published in Composite Quotations under the heading
"Certificates of Deposit." If such rate is not yet published in either H.15(519)
or Composite Quotations by 3:00 P.M., New York City time, on such Calculation
Date, then the CD Rate for such CD Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of the opening of business, New York City
time, on such CD Interest Determination Date, of three leading nonbank dealers
in negotiable U.S. dollar certificates of deposit in The City of New York
selected by the Calculation Agent after consultation with the Company for
negotiable certificates of deposit of major United States money center banks of
the highest credit standing (in the market for negotiable certificates of
deposit) with a remaining maturity closest to the applicable Index Maturity in a
denomination of $5,000,000; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the CD Rate for the applicable period will be the CD Rate in effect on
such CD Interest Determination Date.
LIBOR NOTES
A LIBOR Note will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) specified in the
LIBOR Note and in the applicable Pricing Supplement.
With respect to LIBOR Notes indexed to the offered rate for U.S. dollar or
Foreign Currency deposits, unless otherwise indicated in the applicable Pricing
Supplement, "LIBOR" means the rate determined by the Calculation Agent as
follows:
(a) With respect to a LIBOR Interest Determination Date, LIBOR will be,
as specified in the applicable Pricing Supplement, either (i) the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period
(commencing on the Interest Reset Date) of the applicable Index Maturity
which appear on the Reuters Screen LIBO Page at approximately 11:00 A.M.,
London time, on such LIBOR Interest Determination Date, if at least two such
offered rates appear on the Reuters Screen LIBO Page ("LIBOR Reuters"), or
(ii) the offered rate for deposits in U.S. dollars or the applicable Foreign
Currency specified in the applicable Pricing Supplement for the period
(commencing on the Interest Reset Date) of the applicable Index Maturity
which appears on the Telerate Page 3740 or the Telerate Page 3750, as
applicable, at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date ("LIBOR Telerate"). If neither LIBOR Reuters nor LIBOR
Telerate is specified in the applicable Pricing Supplement, LIBOR will be
determined as if LIBOR Telerate had been specified.
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<PAGE>
(b) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Reuters Screen LIBO Page as specified
in (a)(i) above, or on which no rate appears on the Telerate Page 3740 or
the Telerate Page 3750, as applicable, as specified in (a)(ii) above, as
applicable, the Calculation Agent will request the principal London office
of each of four major banks in the London interbank market, as selected by
the Calculation Agent after consultation with the Company, to provide the
Calculation Agent with its offered quotation for deposits in the applicable
currency for the period (commencing on the Interest Reset Date) of the
applicable Index Maturity to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest Determination
Date and in a principal amount equal to an amount of not less than
$1,000,000 (or the equivalent thereof in the applicable currency if such
currency is a Foreign Currency) that is representative of a single
transaction in such market at such time. If at least two such quotations are
provided, LIBOR in respect of such LIBOR Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two such quotations
are provided, LIBOR in respect of such LIBOR Interest Determination Date
will be the arithmetic mean of the rates quoted at approximately 11:00 A.M.,
New York City time, on such LIBOR Interest Determination Date by three major
banks in The City of New York selected by the Calculation Agent after
consultation with the Company for loans in the applicable currency to
leading European banks, for the period (commencing on the Interest Reset
Date) of the applicable Index Maturity and in a principal amount equal to an
amount of not less than $1,000,000 (or the equivalent thereof in the
applicable currency if such currency is a Foreign Currency) that is
representative of a single transaction in such market at such time,
provided, however, that if the banks in The City of New York selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR for the applicable period will be LIBOR as in effect on such
LIBOR Interest Determination Date.
PRIME RATE NOTES
A Prime Rate Note will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any)
specified in the Prime Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Prime Interest Determination Date, the rate on
that day as published in H.15(519) under the heading "Bank Prime Loan" or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Prime Interest Determination Date, the Prime Rate will be
determined by the Calculation Agent and will be the arithmetic mean of the rates
of interest publicly announced by each bank named on the Reuters Screen NYMF
Page as such bank's prime rate or base lending rate as in effect for such Prime
Interest Determination Date. If fewer than four such rates but more than one
such rate appear on the Reuters Screen NYMF Page for such Prime Interest
Determination Date, the Prime Rate will be determined by the Calculation Agent
and will be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by 360 as of the close of business on
such Prime Interest Determination Date by four major money center banks in The
City of New York selected by the Calculation Agent after consultation with the
Company. If fewer than two such rates appear on the Reuters Screen NYMF Page,
the Prime Rate will be calculated by the Calculation Agent and will be the
arithmetic mean of the prime rates in effect for such Prime Interest
Determination Date as furnished in The City of New York by at least three
substitute banks or trust companies organized and doing business under the laws
of the United States, or any state thereof, in each case having total equity
capital of at least $500,000,000 and being subject to supervision or examination
by federal or state authority, selected by the Calculation Agent after
consultation with the Company to provide such rate or rates; provided, however,
that if the banks or trust companies selected as aforesaid are not quoting as
mentioned in this sentence, the Prime Rate for the applicable period will be the
Prime Rate in effect on such Prime Interest Determination Date.
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<PAGE>
TREASURY RATE NOTES
A Treasury Rate Note will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
specified in the Treasury Rate Note and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Treasury Interest Determination Date, the rate
for the auction held on such Treasury Interest Determination Date of direct
obligations of the United States ("Treasury bills") having the applicable Index
Maturity as published in H.15(519) under the heading "U.S. Government
Securities--Treasury bills--auction average (investment)" or, if not so
published by 9:00 A.M., New York City time, on the Calculation Date pertaining
to such Treasury Interest Determination Date, the auction average rate
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the Treasury
Department. In the event that the results of the auction of Treasury bills
having the applicable Index Maturity are not published or reported as provided
above by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Treasury Interest Determination Date, then the Treasury
Rate shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City time,
on such Treasury Interest Determination Date, of three leading primary United
States government securities dealers selected by the Calculation Agent after
consultation with the Company for the issue of Treasury bills with a remaining
maturity closest to the applicable Index Maturity; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Treasury Rate for the applicable period will be
the Treasury Rate in effect on such Treasury Interest Determination Date.
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<PAGE>
CURRENCY INDEXED NOTES
GENERAL
The Company may from time to time offer Notes the principal amount payable
at Maturity and/or the interest rate of which is determined by reference to the
rate of exchange between the currency or composite currency in which such Notes
(the "Currency Indexed Notes") are denominated (the "Denominated Currency") and
the other currency or composite currency specified as the Indexed Currency (the
"Indexed Currency") in the applicable Pricing Supplement, or as determined in
such other manner as may be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Holders of
Currency Indexed Notes will be entitled to receive (i) an amount exceeding the
stated face amount of the principal (the "Face Amount") of, and/or interest
calculated at the stated rate of interest on, their Currency Indexed Notes if,
at Maturity or upon the relevant Interest Payment Date, as the case may be, the
rate at which the Denominated Currency can be exchanged for the Indexed Currency
exceeds the rate of such exchange designated as the Base Exchange Rate,
expressed in units of the Indexed Currency per one unit of the Denominated
Currency, in the applicable Pricing Supplement (the "Base Exchange Rate") or
(ii) an amount less than such Face Amount and/or interest calculated at such
stated interest rate if, at Maturity or upon the relevant Interest Payment Date,
as the case may be, the rate at which the Denominated Currency can be exchanged
for the Indexed Currency is less than such Base Exchange Rate, in each case
determined as described below under "Payment of Principal and Interest."
Information as to the relative historical value (which information is not
necessarily indicative of relative future value) of the applicable Denominated
Currency against the applicable Indexed Currency, any exchange controls
applicable to such Denominated Currency or Indexed Currency and certain tax
consequences to Holders of Currency Indexed Notes will be set forth in the
applicable Pricing Supplement.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, the payment
of principal at Maturity and interest on each Interest Payment Date (until the
principal thereof is paid or made available for payment) will be payable in the
Denominated Currency (except as otherwise described under "Payment Currency") in
amounts calculated in the manner described below.
Unless otherwise specified in the applicable Pricing Supplement, principal
at Maturity, if indexed, will be payable in an amount equal to the Face Amount
of the Currency Indexed Note, plus or minus an amount determined by reference to
the difference between the Base Exchange Rate specified in the applicable
Pricing Supplement and the rate at which the Denominated Currency can be
exchanged for the Indexed Currency on the second Exchange Rate Day (the
"Determination Date") prior to the Maturity date of such Currency Indexed Note,
as determined by the determination agent specified in the applicable Pricing
Supplement (the "Determination Agent"). Such rate of exchange shall be based
upon the arithmetic mean of the open market spot offer quotations for the
Indexed Currency (spot bid quotations for the Denominated Currency) obtained by
the Determination Agent from the Reference Dealers in The City of New York at
approximately 11:00 A.M., New York City time, on the Determination Date, for an
amount of Indexed Currency equal to the aggregate Face Amount of such Currency
Indexed Notes multiplied by the Base Exchange Rate, with settlement on the
Maturity date to be in the Denominated Currency (such rate of exchange, as so
determined and expressed in units of the Indexed Currency per one unit of the
Denominated Currency, is hereafter referred to as the "Spot Rate"). If such
quotations from the Reference Dealers are not available on the Determination
Date due to circumstances beyond the control of the Company or the Determination
Agent, the Spot Rate will be determined on the basis of the most recently
available quotations from the Reference Dealers. As used herein, the term
"Reference Dealers" shall mean the three banks or firms specified as such in the
applicable Pricing Supplement, or if any of them shall be unwilling or unable to
provide the requested quotations, such other major money center bank or banks in
The City of New York selected by the Company, in consultation with the
Determination Agent, to act as Reference Dealer or Dealers in replacement
therefor. The principal
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amount of and interest on the Currency Indexed Notes determined by the
Determination Agent to be payable will be payable to the Holders thereof in the
manner set forth herein and in the applicable Pricing Supplement. In the absence
of manifest error, the determination by the Determination Agent of the Spot Rate
and of the amount of principal and interest payable in respect of Currency
Indexed Notes shall be final and binding on the Company and the Holders of such
Currency Indexed Notes.
Unless otherwise specified in the applicable Pricing Supplement, on the
basis of the aforesaid determination by the Determination Agent and the formulas
and limitations set forth below, (i) if the Base Exchange Rate equals the Spot
Rate for any Currency Indexed Note, then the principal amount of such Currency
Indexed Note payable at Maturity would be equal to the Face Amount of such
Currency Indexed Note; (ii) if the Spot Rate exceeds the Base Exchange Rate
(i.e., the Denominated Currency has appreciated against the Indexed Currency
during the term of the Currency Indexed Note), then the principal amount so
payable would be greater than the Face Amount of such Currency Indexed Note;
(iii) if the Spot Rate is less than the Base Exchange Rate (i.e., the
Denominated Currency has depreciated against the Indexed Currency during the
term of the Currency Indexed Note) but is greater than one-half of the Base
Exchange Rate, then the principal amount so payable would be less than the Face
Amount of such Currency Indexed Note; and (iv) if the Spot Rate is less than or
equal to one-half of the Base Exchange Rate, then the Spot Rate will be deemed
to be one-half of the Base Exchange Rate and no principal amount of the Currency
Indexed Note would be payable at Maturity.
With respect to the payment of interest on each Interest Payment Date, if
indexed, the amount will be the Face Amount multiplied by the relevant interest
rate, indexed as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
formulas to be used by the Determination Agent to determine the principal amount
of a Currency Indexed Note payable at Maturity and the interest payable on each
Interest Payment Date will be as follows:
As to principal, if the Spot Rate equals or exceeds the Base Exchange Rate,
the principal amount of a Currency Indexed Note payable at Maturity shall equal:
<TABLE>
<S> <C>
Spot Rate - Base Exchange Rate
Face Amount + (Face Amount X ------------------------------
Spot Rate );
</TABLE>
and if the Base Exchange Rate exceeds the Spot Rate, the principal amount of a
Currency Indexed Note payable at Maturity (which shall, in no event, be less
than zero) shall equal:
<TABLE>
<S> <C>
Base Exchange Rate - Spot Rate
Face Amount - (Face Amount X ------------------------------
Spot Rate ).
</TABLE>
As to interest, the amount of interest payable on any Interest Payment Date
on a Currency Indexed Note shall equal:
<TABLE>
<S> <C>
Spot Rate
Face Amount X Stated Interest Rate X -------------------
Base Exchange Rate.
</TABLE>
Unless otherwise specified in the applicable Pricing Supplement, in the
event of any redemption or repayment of a Currency Indexed Note prior to its
Stated Maturity, the phrases "Maturity date" and "at Maturity" used above would
refer to the redemption or repayment date of such Currency Indexed Note.
OTHER INDEXED NOTES AND CERTAIN TERMS APPLICABLE TO ALL INDEXED NOTES
The Notes may be issued as Indexed Notes, other than Currency Indexed Notes,
the principal amount payable at Maturity and/or the interest rate of which may
be determined by reference to the relationship between two or more currencies,
to the price of one or more specified securities or commodities, to one or
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more securities or commodities exchange indices or other indices or by other
similar methods or formulas (each an "applicable Index"). The Pricing Supplement
relating to such an Indexed Note will describe, as applicable, the method by
which the amount of interest payable on any Interest Payment Date and the amount
of principal payable at Maturity in respect of such Indexed Note will be
determined, certain special tax consequences of the purchase, ownership or
disposition of such Indexed Notes, certain risks associated with an investment
in such Indexed Notes and other information relating to such Indexed Notes.
Unless otherwise specified in the applicable Pricing Supplement, the maximum
principal amount payable at Maturity in respect of any Indexed Note will be an
amount equal to twice the face amount thereof and the minimum principal amount
so payable would be zero.
Unless otherwise specified in the applicable Pricing Supplement, (a) for the
purpose of determining whether Holders of the requisite principal amount of Debt
Securities outstanding under the Indenture have made a demand or given a notice
or waiver or taken any other action, the outstanding principal amount of Indexed
Notes will be deemed to be the face amount thereof and (b) if the payment of
principal of and interest on any Indexed Note is accelerated in accordance with
the provisions described under "Description of Debt Securities--Events of
Default" in the Prospectus, then the Company shall pay to the Holder of such
Indexed Note on the date of acceleration the principal amount determined by
reference to the formula by which the principal amount of such Indexed Note
would be determined on the Stated Maturity date thereof, as if the date of
acceleration were the Stated Maturity date.
An investment in Indexed Notes entails significant risks, including wide
fluctuations in market value as well as in the amounts of payments due
thereunder, that are not associated with a similar investment in a conventional
debt security. Such risks depend on a number of factors including supply and
demand for the particular commodity and economic and political events over which
the Company has no control. Fluctuations in the price of any particular security
or commodity, in the rates of exchange between particular currencies or in
particular indices that have occurred in the past are not necessarily
indicative, however, of fluctuations in the price or rates of exchange that may
occur during the term of any Indexed Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in Indexed Notes. Indexed Notes are not an appropriate
investment for investors who are unsophisticated with respect to securities,
commodities and/or foreign currency transactions.
DUAL CURRENCY NOTES
GENERAL
The Company may from time to time offer Notes (the "Dual Currency Notes") as
to which the Company has a one time option, exercisable on any one of the dates
specified in the applicable Pricing Supplement (each an "Option Election Date")
in whole, but not in part, with respect to all Dual Currency Notes issued on the
same day and having the same terms (a "Tranche"), of thereafter making all
payments of principal, premium, if any, and interest (which payments would
otherwise be made in the Specified Currency of such Notes) in the optional
currency specified in the applicable Pricing Supplement (the "Optional Payment
Currency"). Information as to the relative value of the Specified Currency
compared to the Optional Payment Currency will be set forth in the applicable
Pricing Supplement.
The Pricing Supplement for each issuance of Dual Currency Notes will
specify, among other things, the Specified Currency and Optional Payment
Currency of such issuance and the Designated Exchange Rate for such issuance,
which will be a fixed exchange rate used for converting amounts denominated in
the Specified Currency into amounts denominated in the Optional Payment
Currency. The Pricing Supplement will also specify the Option Election Dates and
Interest Payment Dates for the related issuance of Dual Currency Notes. Each
Option Election Date will be a certain number of days before an Interest Payment
Date or the Stated Maturity date, as set forth in the applicable Pricing
Supplement, and
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will be the date on which the Company may select whether to make all scheduled
payments due thereafter in the Optional Payment Currency rather than in the
Specified Currency.
If the Company makes such an election, the amount payable in the Optional
Payment Currency shall be determined using the exchange rate specified in the
applicable Pricing Supplement (the "Designated Exchange Rate"). If such election
is made, notice of such election shall be mailed in accordance with the terms of
the applicable Tranche of Dual Currency Notes within five Business Days of the
Option Election Date and shall state (i) the first date, whether an Interest
Payment Date and/or the Stated Maturity date, on which scheduled payments in the
Optional Payment Currency will be made and (ii) the Designated Exchange Rate.
Any such notice by the Company, once given, may not be withdrawn. The equivalent
value in the Specified Currency of payments made after such an election may be
less, at the then current exchange rate, than if the Company had made such
payment in the Specified Currency.
For further information regarding certain tax consequences to Holders of
Dual Currency Notes, see "United States Taxation--Dual Currency Debt Securities"
in the accompanying Prospectus.
PAYMENT DUE UPON EARLY MATURITY
Unless otherwise specified in the applicable Pricing Supplement,
notwithstanding any prior election made by the Company, if a Note is a Dual
Currency Note, the amount payable on such Note in the event of any optional
redemption by the Company, any repayment at the option of the Holder, any
acceleration of the Maturity of such Note or other prepayment of such Note prior
to the Stated Maturity of such Note shall be an amount equal to the Face Amount
thereof plus accrued interest to but excluding the date of Maturity minus the
Total Option Value multiplied by a fraction, the numerator of which is the Face
Amount of such Dual Currency Note and the denominator of which is the aggregate
Face Amount of all Dual Currency Notes of the same Tranche, provided, however,
that if such Dual Currency Note is also an Original Issue Discount Note, the
aggregate Face Amount of all Dual Currency Notes of the same Tranche upon
acceleration will be deemed to be the principal amount of an original issue
discount note payable upon acceleration as described below under "Original Issue
Discount Notes." Notwithstanding any prior election made by the Company, such
payment shall be made in the Specified Currency unless otherwise provided in the
applicable Pricing Supplement.
In no event will payment of principal of any Dual Currency Note upon
acceleration be less than zero.
All determinations with respect to Dual Currency Notes made by the Exchange
Rate Agent or the Option Value Calculation Agent shall be at their sole
discretion (except to the extent it is expressly provided that any determination
is subject to approval by the Company) and, in the absence of manifest error,
shall be conclusive for all purposes and binding on the Holder thereof, and
neither the Exchange Rate Agent nor the Option Value Calculation Agent shall
have any liability therefor.
AMORTIZING NOTES
The Company may from time to time offer Fixed Rate Notes for which payments
combining principal and interest are made in installments over the life of the
Notes ("Amortizing Notes"). Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of a
360-day year of twelve 30-day months. Payments with respect to Amortizing Notes
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. Further information concerning
additional terms and conditions of any issue of Amortizing Notes will be
provided in the applicable Pricing Supplement. A table setting forth repayment
information in respect of each Amortizing Note will be included in the
applicable Pricing Supplement and set forth on such Notes.
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ORIGINAL ISSUE DISCOUNT NOTES
The Company may from time to time offer Original Issue Discount Notes. The
applicable Pricing Supplement to certain Original Issue Discount Notes may
provide that Holders of such Notes will not receive periodic payments of
interest.
Notwithstanding anything in this Prospectus Supplement to the contrary,
unless otherwise specified in the applicable Pricing Supplement, if a Note is an
Original Issue Discount Note, the amount payable on such Note in the event of
Maturity prior to its Stated Maturity shall be the Amortized Face Amount of such
Note as of the date of Maturity. The "Amortized Face Amount" of an Original
Issue Discount Note shall be the amount equal to (i) the issue price set forth
in the applicable Pricing Supplement plus (ii) that portion of the difference
between the issue price and the principal amount of such Note that has accrued
at the yield to maturity set forth in the Pricing Supplement (computed in
accordance with generally accepted United States bond yield computation
principles) by such date of Maturity, but in no event shall the Amortized Face
Amount of an Original Issue Discount Note exceed its principal amount.
OTHER PROVISIONS
Any provisions with respect to the determination of an interest rate basis,
the specification of interest rate basis, calculation of the interest rate
applicable to, or the principal payable at Maturity on, any Note, its Interest
Payment Dates or any other matter relating thereto may be modified by the terms
as specified under "Other Provisions" on the face of such Note, or in an
addendum relating thereto if so specified on the face thereof, and in the
applicable Pricing Supplement.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same terms may be represented
by a single Global Security. Each Global Security representing Book-Entry Notes
will be deposited with, or on behalf of, The Depository Trust Company, New York,
New York (the "Depository"), and registered in the name of a nominee of the
Depository. The Depository currently only accepts Notes denominated in U.S.
dollars.
So long as the Depository or its nominee is the registered owner of any
Global Security, the Depository or its nominee, as the case may be, will be
considered the sole owner or Holder of the Book-Entry Note or Notes represented
by such Global Security for all purposes under the Indenture.
The Depository has advised the Company and the Agent as follows: The
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of section 17A of the
Securities Exchange Act of 1934, as amended. The Depository was created to hold
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
Agent), banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. See
"Description of Debt Securities--Global Securities" in the accompanying
Prospectus.
REDEMPTION AND REPAYMENT
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will not be redeemable prior to their Stated Maturity. If so specified in an
applicable Pricing Supplement with respect to a Note or Notes, such Note or
Notes will be redeemable on or after the date or dates set forth in such Pricing
Supplement, either in whole or from time to time in part, at the option of the
Company, at a redemption
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price equal to 100% of the principal amount to be redeemed or at such other
price or prices set forth in such Pricing Supplement, together with interest
accrued thereon to the date of redemption, on notice given not more than 60 nor
less than 30 days prior to the date of redemption. If less than all of the Notes
with like tenor and terms are to be redeemed, the Notes to be redeemed shall be
selected by the Trustee by such method as the Trustee shall deem fair and
appropriate. The Notes, other than Amortizing Notes, will not be subject to any
sinking fund, unless otherwise specified in an applicable Pricing Supplement.
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will not be repayable prior to their Stated Maturity. If so specified in an
applicable Pricing Supplement with respect to a Note or Notes, such Note or
Notes will be repayable at the option of the Holder on a date or dates specified
prior to their Stated Maturity at a price or prices set forth in the applicable
Pricing Supplement, together with accrued interest to the date of repayment.
In order for a Note to be repaid, the Paying Agent must receive at least 30
days but not more than 45 days prior to the repayment date (i) the Note with the
form entitled "Option to Elect Repayment" on the reverse of the Note duly
completed or (ii) a telegram, telex, facsimile transmission or letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company in
the United States setting forth the name of the Holder of the Note, the
principal amount of the Note, the principal amount of the Note to be repaid, the
certificate number or a description of the tenor and terms of the Note, a
statement that the option to elect repayment is being exercised thereby and a
guarantee that the Note to be repaid with the form entitled "Option to Elect
Repayment" on the reverse of the Note duly completed will be received by the
Paying Agent not later than five Business Days after the date of such telegram,
telex, facsimile transmission or letter and such Note and form duly completed
are received by the Paying Agent by such fifth Business Day. Exercise of the
repayment option by the Holder of a Note shall be irrevocable. The repayment
option may be exercised by the Holder of a Note for less than the entire
principal amount of the Note provided that the principal amount of the Note
remaining outstanding after repayment is an authorized denomination. Upon any
partial repayment of a Note, such Note will be cancelled and a new Note or Notes
for the remaining principal amount shall be issued in the name of the Holder of
the partially repaid Note.
If a Note is represented by a Global Security, the Depository's nominee will
be the Holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depository's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depository of its desire to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a Note in
order to ascertain the cut-off time by which such an instruction must be given
in order for timely notice to be delivered to the Depository.
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes purchased by the Company may, at its discretion, be held,
resold or surrendered to the Trustee for cancellation.
SUBSEQUENT INTEREST PERIODS
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to reset the interest rate, in
the case of a Fixed Rate Note, or to reset the Spread or Spread Multiplier, in
the case of a Floating Rate Note, and, if so, the date or dates on which such
interest rate or such Spread or Spread Multiplier, as the case may be, may be
reset (each an "Optional Reset Date"). If the Company has such option with
respect to any Note, the following procedures shall apply, unless modified as
set forth in the applicable Pricing Supplement.
The Company may exercise such an option with respect to a Note by notifying
the Trustee in writing of such exercise at least 45 but not more than 60 days
prior to an Optional Reset Date for such Note. Not
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later than five Business Days after receipt thereof, the Trustee will mail to
the Holder of such Note a notice (the "Reset Notice"), first class, postage
prepaid, setting forth (i) the election of the Company to reset the interest
rate, in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in
the case of a Floating Rate Note, (ii) such new interest rate or such new Spread
or Spread Multiplier, as the case may be, and (iii) the provisions, if any, for
redemption during the period from such Optional Reset Date to the next Optional
Reset Date or, if there is no such next Optional Reset Date, to the Stated
Maturity of such Note (each such period a "Subsequent Interest Period"),
including the date or dates on which or the period or periods during which and
the price or prices at which such redemption may occur during such Subsequent
Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to an Optional
Reset Date for a Note, the Company may, at its option, revoke the interest rate,
in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in the
case of a Floating Rate Note, provided for in the Reset Notice and establish a
higher interest rate or higher Spread or Spread Multiplier, as the case may be,
for the Subsequent Interest Period commencing on such Optional Reset Date by
causing the Trustee to mail notice of such higher interest rate or higher Spread
or Spread Multiplier, as the case may be, first class, postage prepaid, to the
Holder of such Note. Such notice shall be irrevocable and shall be mailed by the
Trustee within five Business Days after receipt thereof. All Notes with respect
to which the interest rate or Spread or Spread Multiplier is reset on an
Optional Reset Date will bear such higher interest rate, in the case of a Fixed
Rate Note, or higher Spread or Spread Multiplier, in the case of a Floating Rate
Note, whether or not tendered for repayment.
If the Company resets the interest rate or the Spread or Spread Multiplier
of a Note, the Holder of such Note will have the option to elect repayment of
such Note, or any portion thereof, by the Company on an Optional Reset Date at a
price equal to the principal amount thereof to be repaid plus any accrued
interest to such Optional Reset Date. In order for a Note to be so repaid on an
Optional Reset Date, the Holder thereof must follow the procedures set forth
above under "Redemption and Repayment" for optional repayment except that the
period for delivery of such Note or notification to the Trustee shall be at
least 25 but not more than 35 days prior to such Optional Reset Date and except
that a Holder who has tendered a Note for repayment pursuant to a Reset Notice
may, by written notice to the Trustee, revoke any such tender for repayment
until the close of business on the tenth day prior to such Optional Reset Date;
provided, however, that if such day is not a Business Day, then such notice may
be given on the next succeeding Business Day.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note will indicate whether the
Company has the option with respect to such Note to extend the Stated Maturity
of such Note, and, if so, the number of periods of from one to five whole years
(each an "Extension Period") for which the Maturity of such Note is extendible
and the date beyond which such Maturity may not be extended (the "Final
Maturity"). If the Company has such option with respect to any Note, the
following procedures shall apply, unless modified as set forth in the applicable
Pricing Supplement.
The Company may exercise such an option with respect to a Note by notifying
the Trustee of such exercise at least 45 but not more than 60 days prior to the
Stated Maturity of such Note in effect prior to the exercise of such option (the
"Original Stated Maturity"). Not later than five Business Days after receipt
thereof, the Trustee will mail to the Holder of such Note a notice (the
"Extension Notice"), first class, postage prepaid setting forth (i) the election
of the Company to extend the Stated Maturity of such Note, (ii) the new Stated
Maturity, (iii) in the case of a Fixed Rate Note, the interest rate applicable
to the Extension Period or, in the case of a Floating Rate Note, the Spread or
Spread Multiplier applicable to the Extension Period, and (iv) the provisions,
if any, for redemption during the Extension Period, including the date on which
or the period or periods during which and the price at which such redemption may
occur during the Extension Period. Upon the mailing by the Trustee of an
Extension Notice to the Holder of a
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Note, the Stated Maturity of such Note shall be extended automatically, and,
except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms as prior to the mailing of such
Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the Original
Stated Maturity for a Note, the Company may, at its option, revoke the interest
rate, in the case of a Fixed Rate Note, or the Spread or Spread Multiplier, in
the case of a Floating Rate Note, provided for in the Extension Notice and
establish a higher interest rate or a higher Spread or Spread Multiplier, as the
case may be, for the Extension Period by causing the Trustee to mail notice of
such higher interest rate or higher Spread or Spread Multiplier, as the case may
be, first class, postage prepaid, to the Holder of such Note. Such notice shall
be irrevocable and shall be mailed by the Trustee within three Business Days
after receipt thereof. All Notes with respect to which the Stated Maturity is
extended will bear such higher interest rate, in the case of a Fixed Rate Note,
or higher Spread or Spread Multiplier, in the case of a Floating Rate Note, for
the Extension Period, whether or not tendered for repayment.
If the Company extends the Stated Maturity of a Note, the Holder of such
Note will have the option to elect repayment by the Company of such Note, or of
any portion thereof, on the Original Stated Maturity at a price equal to the
principal amount thereof to be repaid plus any accrued interest to such date. In
order for a Note to be so repaid on the Original Stated Maturity, the Holder
thereof must follow the procedures set forth above under "Redemption and
Repayment" for optional repayment, except that the period for delivery of such
Note or notification to the Trustee shall be at least 25 but not more than 35
days prior to the Original Stated Maturity and except that a Holder who has
tendered a Note for repayment pursuant to an Extension Notice may, by written
notice to the Trustee, revoke any such tender for repayment until the close of
business on the tenth day prior to the Original Stated Maturity; provided,
however, that if such day is not a Business Day, then such notice may be given
on the next succeeding Business Day.
RENEWABLE NOTES
The Company may from time to time offer Notes which will mature on an
Interest Payment Date specified in the applicable Pricing Supplement occurring
in or prior to the twelfth month following the Issue Date of such Notes (the
"Initial Maturity Date") unless the maturity of all or any portion of any such
Note (a "Renewable Note") is extended in accordance with the procedures
described below.
On each Election Date (the "Election Date") specified in the applicable
Pricing Supplement prior to the Initial Maturity Date of a Renewable Note, the
Maturity of such Renewable Note may be extended by the Holder thereof to the
Interest Payment Date occurring in the twelfth month after the Interest Reset
Date next succeeding such Election Date, or such other date as may be specified
in the applicable Pricing Supplement (the "Extended Maturity Date"), as
described below. If a Holder does not elect to extend the maturity of any
portion of the principal amount of a Renewable Note during the specified period
prior to any Election Date, such portion will become due and payable on the
Extended Maturity Date specified at the prior Election Date.
A Holder of a Renewable Note may elect to extend the Maturity of such
Renewable Note, or if so specified in the applicable Pricing Supplement, any
portion thereof, by delivering a notice to such effect to the Trustee (or any
duly appointed Paying Agent) at the Corporate Trust Office not less than 3 nor
more than 15 days prior to such Election Date (unless another period is
specified in the applicable Pricing Supplement as the "Special Election
Period"). Such election will be irrevocable and will be binding upon each
subsequent Holder of such Renewable Note. An election to extend the Maturity of
a Renewable Note may be exercised with respect to less than the entire principal
amount of such Renewable Note only if so specified in the applicable Pricing
Supplement and only in such principal amount, or any integral multiple in excess
thereof, as is specified in the applicable Pricing Supplement. Notwithstanding
the foregoing, the maturity of the Renewable Notes may not be extended beyond
the Stated Maturity Date specified for such Renewable Notes in the applicable
Pricing Supplement.
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COMBINATION OF PROVISIONS
If so specified in the applicable Pricing Supplement, any Note may be
subject to all of the provisions, or any combination of the provisions,
described above under "Redemption and Repayment," "Subsequent Interest Periods,"
"Extension of Maturity" and "Renewable Notes."
IMPORTANT CURRENCY INFORMATION
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for each Note in the Specified Currency for such Note.
Currently, there are limited facilities in the United States for conversion of
U.S. dollars into Foreign Currencies and vice versa, and most banks do not
currently offer non-U.S. dollar denominated checking or savings account
facilities in the United States. However, if requested by a prospective
purchaser of Notes denominated in a Foreign Currency, the Agent will arrange for
the conversion of U.S. dollars into such Foreign Currency to enable the
purchaser to pay for such Notes. Such requests must be made on or before the
fifth Business Day preceding the date of delivery of the Notes, or by such other
date as may be determined by the Agent. Each such conversion will be made by the
Agent on such terms and subject to such conditions, limitations and charges as
the Agent may from time to time establish in accordance with its regular foreign
exchange practice. All costs of exchange will be borne by the purchaser of such
Notes.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Notes that are denominated in, or the payment of which is
to be made in or determined with reference to, a Foreign Currency entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks generally depend on factors
over which the Company has no control and include, without limitation, the
possibility of significant changes in rates of exchange between the U.S. dollar
and the Foreign Currency. Currency exchange rates are determined by, among other
factors: changing supply and demand for a particular currency; trade, fiscal,
monetary, foreign investment and exchange control programs and policies of
governments; U.S. and foreign political and economic events and policies, rates
of inflation or interest rates; restrictions on U.S. or foreign exchanges or
markets; changes in balances of payment and trade; and currency devaluations and
regulations. In recent years, rates of exchange between U.S. dollars and certain
foreign currencies have been highly volatile and such volatility may be expected
to continue in the future. Fluctuations in any particular exchange rate that
have occurred in the past are not necessarily indicative, however, of
fluctuations in the rate that may occur during the term of any Note.
Depreciation of the Foreign Currency in which a Note is denominated against
the U.S. dollar would result in a decrease in the effective yield of such Note
below its coupon rate and, in certain circumstances, could result in a loss to
the investor on a U.S. dollar basis. Similarly, depreciation of the Denominated
Currency with respect to an Indexed Note against the applicable Index would
result in the principal amount payable with respect to such Note at the date of
Maturity being less than the Face Amount of such Note which, in turn, would
decrease the effective yield of such Note below its applicable interest rate and
could also result in a loss to the investor.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Foreign Currency for making payments with respect to a Note denominated in
such currency. There can be no assurances that exchange controls will not
restrict or prohibit payments of principal or interest in any currency or
currency unit. Even if there are no actual exchange controls, it is possible
that on an Interest Payment Date with respect to, or at the Maturity of, any
particular Note, the Foreign Currency for such Note would not be available to
the Company to make payments of interest and principal then due. In that event,
the Company will make such payments in the manner described under "Description
of Notes--Payment Currency." In the event of an official redenomination of the
Specified Currency (including without limitation, an official redenomination
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of a Specified Currency that is a composite currency) the obligations of the
Company with respect to payments on Notes denominated in such currency shall be
deemed, in all cases, immediately following such redenomination to provide for
the payment of that amount of redenominated currency specified in the applicable
Pricing Supplement representing the amount of such obligations immediately
before such redenomination. See "Description of Notes--Payment Currency."
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT AND ANY
PRICING SUPPLEMENT WILL NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES
DENOMINATED IN, OR THE PAYMENT OF WHICH IS TO BE MADE IN OR IS RELATED TO THE
VALUE OF, A CURRENCY (INCLUDING ANY COMPOSITE CURRENCY) OTHER THAN U.S. DOLLARS,
AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS OF
SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE DATE
OF ANY PRICING SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN SUCH NOTES, WHICH ARE NOT AN
APPROPRIATE INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers of Notes who are residents of the United States, and the
Company disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase or holding of, or receipt of payments of principal,
premium or interest in respect of, Notes. Such persons should consult their own
counsel with regard to such matters.
Pricing Supplements relating to Notes denominated in a Foreign Currency will
contain information concerning historical exchange rates for such Foreign
Currency against the U.S. dollar, a description of the currency and any exchange
controls as of the date of the applicable Pricing Supplement affecting such
currency.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than U.S. dollars.
Under New York law, any judgment with respect to a Note denominated in a Foreign
Specified Currency will be rendered in such Foreign Currency and converted into
U.S. dollars at a rate of exchange prevailing on the date of entry of the
judgment or decree. In the event an action based on Notes denominated in a
Foreign Currency were commenced in a court in the United States outside New
York, the currency of judgment and/or applicable exchange rate may differ. The
Indenture provides that if it is necessary for the purpose of obtaining a
judgment in any court to convert any currency into any other currency, such
conversion shall be made at a rate of exchange prevailing on the date the
Company makes payment to any person in satisfaction of the judgment. If pursuant
to any judgment conversion is to be made on a date other than the payment date,
the Indenture provides that the Company shall pay any additional amounts
necessary to indemnify such person for any change between the rate of exchange
prevailing on the payment date and the rate of exchange prevailing on such other
date.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Notes as of the date hereof. Except where
noted, it deals only with Notes held as capital assets by United States Holders
and does not deal with special situations, such as those of dealers in
securities, financial institutions, life insurance companies or United States
Holders whose "functional currency" is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986 (the "Code") and regulations, rulings and judicial decisions thereunder as
of the date hereof, and such authorities may be repealed, revoked or modified so
as to result in federal income tax consequences different from those discussed
below. For a discussion of certain United States federal income tax consequences
of the ownership of Notes to United States Holders and Non-United States Holders
see "United States Taxation" in the accompanying Prospectus and the discussion
set forth below. Any special United States federal income tax considerations
relevant to a particular issue of the Notes will be provided in the applicable
financing supplement. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION
OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. AS USED HEREIN, A
"UNITED STATES HOLDER" OF A NOTE MEANS (I) A CITIZEN OR RESIDENT OF THE UNITED
STATES, (II) A CORPORATION OR PARTNERSHIP CREATED OR ORGANIZED IN OR UNDER THE
LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, ALTHOUGH THE
INTERNAL REVENUE SERVICE (THE "IRS") HAS BEEN GRANTED REGULATORY AUTHORITY TO
AMEND THE DEFINITION OF A PARTNERSHIP ON A PROSPECTIVE BASIS, (III) AN ESTATE
OR, FOR TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 1997, A TRUST THE INCOME OF
WHICH IS SUBJECT TO UNITED STATES FEDERAL INCOME TAXATION REGARDLESS OF ITS
SOURCE OR (IV) FOR TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1996, A TRUST
WHICH IS SUBJECT TO THE SUPERVISION OF A COURT WITHIN THE UNITED STATES AND THE
CONTROL OF ONE OR MORE UNITED STATES PERSONS AS DEFINED 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
Notes issued with "original issue discount" ("OID") will be referred to as
"Original Issue Discount Notes". For a discussion of the principal United States
federal income tax consequences of the ownership of Original Issue Discount
Notes by United States Holders, see "United States Taxation" in the accompanying
Prospectus. Notice will be given in the applicable Pricing Supplement when the
Company determines that a particular Note will be an Original Issue Discount
Note.
Persons considering the purchase of Original Issue Discount Notes that may
be redeemed prior to their Maturity at the option of the Company and/or at the
option of the Holder should carefully examine the applicable Pricing 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 such Notes.
INDEXED NOTES
The tax treatment of a United States Holder of an Indexed Note including a
Currency-Indexed Note, will depend on factors including the specific index or
indices used to determine indexed payments on the Note and the amount and timing
of any contingent payments of principal and interest. Persons considering the
purchase of Indexed Notes should carefully examine the applicable Pricing
Supplement and should consult their own tax advisors regarding the United States
federal income tax consequences of the holding and disposition of such Notes.
NON-UNITED STATES HOLDERS
The discussion under "United States Taxation" in the accompanying Prospectus
does not address the United States tax consequences of purchasing and owning
Index Notes or any other Notes that might be
S-24
<PAGE>
deemed to be contingent principal debt instruments. United States tax
consequences applicable to the purchase, ownership and disposition of Notes
bearing contingent interest, contingent principal or Index Notes will be
discussed in an applicable Pricing Supplement.
PLAN OF DISTRIBUTION OF NOTES
The Notes are offered on a continuing basis by the Company through Lehman
Brothers Inc. ("Lehman Brothers"), as Agent, which will use its reasonable best
efforts to solicit offers to purchase the Notes. The Company will pay the Agent
a commission of from .125% to .625% of the principal amount of each Note,
depending on its Maturity, sold through the Agent. The Company will have the
sole right to accept offers to purchase Notes and may reject any such offer in
whole or in part. The Agent shall have the right, in its discretion reasonably
exercised, without notice to the Company, to reject any offer to purchase Notes
received by it, in whole or in part. The Company also may sell Notes to the
Agent, acting as principal, at a discount to be agreed upon at the time of sale,
for resale to one or more investors at varying prices related to prevailing
market prices at the time of such resale, as determined by the Agent. The
Company has also reserved the right to sell Notes directly on its own behalf or
to or through one or more underwriters or additional agents.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of each Note will be required to be made in the Specified
Currency of such Note.
The Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Act").
The Agent may sell Notes to or through dealers who may resell to investors.
The Agent may pay all or part of its discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the Act.
The Company has been advised by the Agent that it may from time to time
purchase and sell Notes in the secondary market, but that it is not obligated to
do so. No assurance can be given that there will be a secondary market for the
Notes.
This Prospectus Supplement, together with the accompanying Prospectus, may
also be used by Lehman Brothers in connection with offers and sales of the Notes
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
This offering, and all members of the NASD participating in this offering,
will comply with the applicable requirements of Rule 2720 of the NASD.
GLOSSARY
Set forth below are definitions of some of the terms used in this Prospectus
Supplement and not defined in the related Prospectus.
"Business Day" means with respect to any Note, unless otherwise specified in
the applicable Pricing Supplement, any day, other than a Saturday or Sunday,
that meets each of the following applicable requirements: such day is (a) not a
day on which banking institutions in the Borough of Manhattan, The City of New
York are authorized or required by law, regulation or executive order to close;
(b) if the Note is denominated in a Foreign Currency other than the ECU, (x) not
a day on which banking institutions are authorized or required by law or
regulation to close in the principal financial center of the country issuing the
Foreign Currency and (y) a day on which banking institutions in such principal
financial center are carrying out transactions in such Foreign Currency; (c) if
the Note is denominated in ECU, (x) not a day on which banking institutions are
authorized or required by law or regulation to close in Luxembourg and
S-25
<PAGE>
(y) an ECU clearing day, as determined by the ECU Banking Association in Paris;
and (d) if such Note is a LIBOR Note, a London Banking Day.
"Calculation Agent" means the agent appointed by the Company to calculate
interest rates for Floating Rate Notes. Unless otherwise provided in a Pricing
Supplement, the Calculation Agent will be Citibank, N.A.
"Calculation Date" means the date, if any, on which the Calculation Agent is
to calculate an interest rate for a Floating Rate Note, which shall be the tenth
calendar day after the related Interest Determination Date for such Note or if
such day is not a Business Day, the next succeeding Business Day, unless
otherwise specified in such Note and the related Pricing Supplement.
"Composite Quotations" means the daily statistical release entitled
"Composite 3:30 P.M. Quotations for U.S. Government Securities," or any
successor publication, published by the Federal Reserve Bank of New York.
"Corporate Trust Office" means the office of the Trustee at 111 Wall Street,
5th Floor, New York, New York 10043, or such other office of the Trustee or of
any duly appointed Paying Agent as may be specified in the applicable Pricing
Supplement.
"Exchange Rate Day" means any day which is a Business Day in The City of New
York, and if such term is used with reference to a Denominated Currency or
Indexed Currency that is a Foreign Currency, in the principal financial center
of the country of such Denominated Currency or Indexed Currency.
"H.15(519)" means the publication entitled "Statistical Release H.15(519),
Selected Interest Rates," or any successor publication, published by the Board
of Governors of the Federal Reserve System.
"Indenture" means the Indenture, dated as of September 1, 1987 between the
Company and the Trustee, as supplemented and amended by Supplemental Indentures
dated as of November 25, 1987, as of November 27, 1990, as of September 13,
1991, as of October 4, 1993, as of October 1, 1995 and as of June 26, 1997.
"Index Maturity" means the period of time designated as the representative
maturity of the commercial paper, the certificates of deposit, the U.S. dollar
deposits or the Treasury bills, respectively, by reference to transactions in
which the Commercial Paper Rate, the CD Rate, LIBOR and the Treasury Rate,
respectively, or any other interest rate index in effect from time to time with
respect to a Note, are to be calculated as set forth in a Note bearing interest
at one of those rates and the related Pricing Supplement.
"Initial Interest Rate" means the rate at which a Floating Rate Note will
bear interest from the Issue Date to the first Interest Reset Date, as set forth
in the Note and the related Pricing Supplement.
"Interest Determination Date" means the date as of which the interest rate
for a Floating Rate Note is to be calculated, to be effective as of the
following Interest Reset Date and calculated on the related Calculation Date
(except in the case of LIBOR and Prime Rate, which are calculated on the
Interest Determination Date) as described under the heading "Floating Rate
Notes" or as otherwise set forth in a Floating Rate Note and the related Pricing
Supplement.
"Interest Payment Date" means the date on which payments of interest on a
Note (other than payments on Maturity) are to be made, which will be on February
15 and August 15 of each year in the case of Fixed Rate Notes and will be the
dates described under the heading "Floating Rate Notes" in the case of Floating
Rate Notes, unless otherwise specified in the Note and the related Pricing
Supplement.
"London Banking Day" means any day on which dealings in deposits in the
Specified Currency are transacted in the London interbank market.
S-26
<PAGE>
"Maturity" means the date on which the principal of a Note becomes due and
payable, whether at the Stated Maturity or by declaration of acceleration or
otherwise.
"Non-United States Holder" means any holder of a Note other than a United
States Holder.
"Option Value" means, with respect to an Interest Payment Date or Stated
Maturity date, the amount calculated by the Option Value Calculation Agent to be
the arithmetic average of the prices quoted on the date of calculation by three
reference banks (which banks shall be selected by the Option Value Calculation
Agent and shall be reasonably acceptable to the Company) for the right on the
Option Election Date immediately preceding such Interest Payment Date or Stated
Maturity date to purchase for value on such Interest Payment Date or Stated
Maturity date from such reference banks (A) the aggregate amount of the
Specified Currency due on such Interest Payment Date or Stated Maturity date
with respect to all of the Dual Currency Notes of the same Tranche in exchange
for (B) the amount of the Optional Payment Currency that would be received if
the amount in clause (A) were converted into the Optional Payment Currency at
the Designated Exchange Rate.
"Option Value Calculation Agent" means, with respect to any Dual Currency
Note, the option value calculation agent designated in the applicable Pricing
Supplement.
"Original Issue Discount Note" means any Note issued with OID.
"Regular Record Date" means the date on which a Note must be held in order
for the holder to receive an interest payment on the next Interest Payment Date.
Unless otherwise specified in a Note and the related Pricing Supplement, the
Regular Record Dates for Fixed Rate Notes shall be the February 1 and August 1
next preceding such Interest Payment Date, and, in the case of Floating Rate
Notes, shall be the fifteenth day prior to the Interest Payment Date.
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
the Reuters Monitor Money Rates Service, or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank offered
rates of major banks.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on
the Reuters Monitor Money Rates Service, or such other page as may replace the
NYMF page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks.
"Security Register" means the register maintained at the Corporate Trust
Office of the Trustee.
"Spread" means the constant amount, if any, to be added to the Commercial
Paper Rate, the Federal Funds Effective Rate, the CD Rate, LIBOR, the Prime
Rate, the Treasury Rate or any other interest rate index in effect from time to
time with respect to a Note, which amount will be set forth in such Note and the
related Pricing Supplement.
"Spread Multiplier" means the constant amount by which the Commercial Paper
Rate, the Federal Funds Effective Rate, the CD Rate, LIBOR, the Prime Rate, the
Treasury Rate or any other interest rate index in effect from time to time with
respect to a Note is to be multiplied, which amount will be set forth in such
Note and the related Pricing Supplement.
"Stated Maturity" means the date specified in a Note as the date on which
principal of such Note is due and payable.
"Telerate Page 3740" means the display designated as page "3740" on the
Telerate Service, or such other page as may replace the 3740 page on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for deposits in Australian Dollars, French Francs, Canadian Dollars,
Italian Lira, Spanish Pesetas and Dutch Guilders.
S-27
<PAGE>
"Telerate Page 3750" means the display designated as page "3750" on the
Telerate Service, or such other page as may replace the 3750 page on that
service or such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank offered
rates for deposits in U.S. Dollars, British Pounds Sterling, German Deutsche
Marks, Swiss Francs, Japanese Yen and ECU.
"Total Option Value" means, with respect to any Dual Currency Note on any
date, an amount (calculated, as of such date, by the Option Value Calculation
Agent) equal to the sum of the Option Values (calculated as of such date by the
Option Value Calculation Agent) for all Interest Payment Dates occurring after
the date of calculation up to and including the Stated Maturity date.
"Treasury Department" means the United States Department of the Treasury.
"Treasury Regulations" means final, temporary or proposed Treasury
Department regulations.
"Trustee" means Citibank, N.A.
In addition, definitions for the following terms are set forth in this
Prospectus Supplement at the pages indicated:
<TABLE>
<CAPTION>
LOCATION
DEFINED TERM OF DEFINITION
- -------------------------------------------------------------------------------- ---------------
<S> <C>
Act............................................................................. S-26
Agency Agreement................................................................ S-25
Agent........................................................................... S-1
Amortized Face Amount........................................................... S-18
Amortizing Notes................................................................ S-17
applicable Index................................................................ S-16
Base Exchange Rate.............................................................. S-14
Book-Entry Note................................................................. S-1
CD Interest Determination Date.................................................. S-9
CD Rate......................................................................... S-11
CD Rate Note.................................................................... S-7
Certificated Note............................................................... S-1
Code............................................................................ S-24
Commercial Paper Interest Determination Date.................................... S-9
Commercial Paper Rate........................................................... S-10
Commercial Paper Rate Note...................................................... S-7
Company......................................................................... S-1
Currency Indexed Notes.......................................................... S-14
Denominated Currency............................................................ S-14
Depository...................................................................... S-18
Designated Exchange Rate........................................................ S-17
Determination Agent............................................................. S-14
Determination Date.............................................................. S-14
Dual Currency Notes............................................................. S-16
ECU............................................................................. S-1
Exchange Rate Agent............................................................. S-4
Extended Maturity Date.......................................................... S-21
Extension Notice................................................................ S-20
Extension Period................................................................ S-20
Face Amount..................................................................... S-14
Federal Funds Effective Rate.................................................... S-10
Federal Funds Effective Rate Note............................................... S-7
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
LOCATION
DEFINED TERM OF DEFINITION
- -------------------------------------------------------------------------------- ---------------
<S> <C>
Federal Funds Interest Determination Date....................................... S-9
Final Maturity.................................................................. S-20
Fixed Rate Note................................................................. S-7
Floating Rate Note.............................................................. S-7
Foreign Currency................................................................ S-1
Foreign Currency Note........................................................... S-31
Foreign Specified Currency...................................................... S-2
Global Security................................................................. S-1
Indexed Currency................................................................ S-14
Indexed Note.................................................................... S-1
Initial Maturity Date........................................................... S-21
Interest Reset Date............................................................. S-8
Issue Date...................................................................... S-2
LIBOR........................................................................... S-11
LIBOR Interest Determination Date............................................... S-9
LIBOR Note...................................................................... S-7
LIBOR Reuters................................................................... S-11
LIBOR Telerate.................................................................. S-11
Market Exchange Rate............................................................ S-5
NASD............................................................................ S-19
New Notes....................................................................... S-24
Notes........................................................................... S-1
OID............................................................................. S-24
Old Notes....................................................................... S-24
Option Election Date............................................................ S-16
Optional Payment Currency....................................................... S-16
Optional Reset Date............................................................. S-19
Original Stated Maturity........................................................ S-20
Pricing Supplement.............................................................. S-1
Prime Interest Determination Date............................................... S-9
Prime Rate...................................................................... S-12
Prime Rate Note................................................................. S-7
Renewable Note.................................................................. S-21
Reset Notice.................................................................... S-20
Revised Terms................................................................... S-24
Special Election Period......................................................... S-21
Specified Currency.............................................................. S-1
Spot Rate....................................................................... S-14
Subsequent Interest Period...................................................... S-20
Tranche......................................................................... S-16
Treasury bills.................................................................. S-13
Treasury Interest Determination Date............................................ S-9
Treasury Rate................................................................... S-13
Treasury Rate Note.............................................................. S-7
United States Holder............................................................ S-24
</TABLE>
S-29
<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 $6,608,437,312 (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 $6,608,437,312 at the
time of initial offering or (ii) at an original issue discount, such greater
amount as shall result in aggregate gross proceeds of $6,608,437,312).
(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.
------------------------
May 4, 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"). Holdings' 8 3/4% Notes Due 2002 and
8.30% Quarterly Income Capital Securities Due December 31, 2035 are listed on
the NYSE. Holdings' $55 Million Serial Zero Coupon Senior Notes Due May 16,
1998, Global Telecommunications Stock Upside Note Securities(SM) Due 2000,
Select Technology Index Call Warrants Expiring May 15, 1998 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 Commission on February 27, 1998;
(2) Holdings' Quarterly Report on Form 10-Q for the quarterly period
ended February 28, 1998, filed with the Commission on April 14, 1998; and
(3) Holdings' Current Reports on Form 8-K, filed with the Commission on
January 7, 1998, March 28, 1998 and April 6, 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 three months
ended February 28, 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED NOVEMBER 30 THREE MONTHS
DECEMBER 31, NOVEMBER 30, ------------------------------------------------- ENDED FEBRUARY
1993 1994 1995 1996 1997 28, 1998
- --------------- ----------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
1.00 1.03 1.03 1.06 1.07 1.08
</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 three months ended February 28, 1998:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER ENDED YEAR ENDED NOVEMBER 30 THREE MONTHS
31, NOVEMBER 30, ------------------------------------------------- ENDED FEBRUARY
1993 1994 1995 1996 1997 28, 1998
- ------------------- ----------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
* 1.02 1.03 1.05 1.06 1.07
</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.
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<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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<PAGE>
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
8
<PAGE>
purchase price of any property or business, and (d) all deferrals, renewals,
extensions and refundings of any such indebtedness or obligation; except that
the following does not constitute Senior Debt: (i) indebtedness evidenced by the
Subordinated Debt, (ii) indebtedness which is expressly made equal in right of
payment with the Subordinated Debt or subordinate and subject in right of
payment to the Subordinated Debt, (iii) indebtedness for goods or materials
purchased in the ordinary course of business or for services obtained in the
ordinary course of business or indebtedness consisting of trade payables or (iv)
indebtedness which is subordinated to any obligation of Holdings of the type
specified in clauses (a) through (d) above. The effect of clause (iv) is that
Holdings may not issue, assume or guaranty any indebtedness for money borrowed
which is junior to the Senior Debt and senior to the Subordinated Debt.
(Subordinated Indenture Section 1401). The Prospectus Supplement related to a
particular series of Subordinated Debt will set forth the amount of Senior Debt
then outstanding. The Subordinated Indenture does not limit the amount of Senior
Debt or other indebtedness that may be issued.
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of Holdings or a substantial part of its property, (b) that (i) a
default shall have occurred with respect to the payment of principal of or
interest on or other monetary amounts due and payable on any Senior Debt or (ii)
there shall have occurred an event of default (other than a default in the
payment of principal of or interest or other monetary amounts due and payable)
with respect to any Senior Debt, as defined therein or in the instrument under
which the same is outstanding, permitting the holder or holders thereof to
accelerate the maturity thereof (with notice or lapse of time, or both), and
such event of default shall have continued beyond the period of grace, if any,
in respect thereof, and such default or event of default shall not have been
cured or waived or shall not have ceased to exist, or (c) that the principal of
and accrued interest on the Subordinated Debt shall have been declared due and
payable upon an Event of Default under the Subordinated Indenture and such
declaration shall not have been rescinded and annulled as provided therein, then
the holders of all Senior Debt shall first be entitled to receive payment of the
full amount unpaid thereon in cash before the holders of any of the Subordinated
Debt are entitled to receive a payment on account of the principal, premium, if
any, or interest, if any, on such Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Debt Securities will be issuable as Registered Securities without
coupons and in denominations of $1,000 or any integral multiple thereof, unless
an applicable Prospectus Supplement provides with respect to a series of Debt
Securities that such series of Debt Securities will be issued in whole or in
part as Bearer Securities and/or in different denominations. Debt Securities of
a series may be issuable in whole or in part in the form of one or more Global
Securities, as described below under "Global Securities." One or more Global
Securities will be issued in a denomination or aggregate denominations equal to
the aggregate principal amount of Debt Securities of the series to be
represented by such Global Security or Securities. If so provided with respect
to a series of Debt Securities, Debt Securities of such series will be issuable
solely as Bearer Securities with coupons attached or as both Registered
Securities and Bearer Securities. (Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold) no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the applicable Indenture, to the effect that such Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is owned by or on behalf of a United States
person, that such United States person (i) acquired and holds the Bearer
Security through a foreign branch of a United States financial institution, (ii)
is a foreign branch of a United States financial institution
9
<PAGE>
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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<PAGE>
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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<PAGE>
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 February 28, 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 December
31, 1997, 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") and 1,000 shares of Redeemable Voting Preferred Stock (the "Redeemable
Preferred Stock") issued and outstanding.
SERIES A PREFERRED STOCK. The shares of Series A Preferred Stock are
entitled to receive preferential dividends, as and when declared by the Board of
Directors out of funds legally available therefor, in an amount equal to $1.955
per share per annum, payable quarterly on a cumulative basis. The liquidation
preference of the Series A Preferred Stock is equal to $39.10 plus accumulated
and unpaid dividends. Holdings may redeem shares of Series A Preferred Stock in
cumulative annual increments of 10,400,000 shares, subject to adjustment for
shares theretofore converted, at a price per share equal to $39.10, but only if
there is a public market for the Holdings' common stock and the average market
price of shares of Holdings' common stock exceeds the conversion price on the
date notice of redemption is given.
Each share of Series A Preferred Stock is convertible, at any time prior to
the date of redemption, into 0.3178313 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.
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
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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.
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
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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.
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
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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. 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.
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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.
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.
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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.
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.
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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 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.
44
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND
THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY AGENT OR UNDERWRITER. NEITHER THIS PROSPECTUS NOR THE
ACCOMPANYING PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS AND
THE ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes...................................................... S-3
Important Currency Information............................................ S-22
Currency Risks............................................................ S-22
Certain United States Federal Income Tax Consequences..................... S-24
Plan of Distribution of Notes............................................. S-25
Glossary.................................................................. S-25
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.................................................... 32
Capital Requirements...................................................... 42
Plan of Distribution...................................................... 43
ERISA Matters............................................................. 44
Legal Opinions............................................................ 44
Independent Accountants................................................... 44
</TABLE>
$6,608,437,312
LEHMAN BROTHERS
HOLDINGS INC.
MEDIUM-TERM NOTES, SERIES E
--------------------------------
PROSPECTUS SUPPLEMENT
MAY 4, 1998
--------------------------------
LEHMAN BROTHERS
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