SECURITIES AND EXCHANGE COMMISSION
Form 10-K
|
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934. |
|
| For the fiscal year ended December 31, 2002 | ||
| OR | ||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
|
For the transition period from to
Commission File Number: 1-14947
95-4719745
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
520 Madison Avenue, 12th Floor
10022
(Zip Code)
Registrant’s telephone number, including area code: (212) 284-2550
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $909,713,935 as of June 28, 2002.
Indicate the number of shares outstanding of the registrant’s class of common stock, as of the latest practicable date. 27,406,458 shares as of the close of business March 24, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant’s Definitive Proxy Statement with
respect to the 2003 Annual Meeting of Stockholders to be held on
May 5, 2003 is incorporated by reference into Part I and
Part III of this Form 10-K.
LOCATION OF EXHIBIT INDEX
JEFFERIES GROUP, INC.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Exhibit Index located on page 51 of
this report.
Table of Contents
Page
PART I
Business
1
Properties
7
Legal Proceedings
7
Submission of Matters to a Vote of Security
Holders
7
PART II
Market for the Registrant’s Common Stock and
Related Stockholder Matters
8
Selected Financial Data
9
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
10
Quantitative and Qualitative Disclosures About
Market Risk
19
Financial Statements and Supplementary Data
21
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
50
PART III
Directors and Executive Officers of the Registrant
50
Executive Compensation
50
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
50
Certain Relationships and Related Transactions
50
Controls and Procedures
50
PART IV
Exhibits, Financial Statements, Schedules and
Reports on Form 8-K
50
Table of Contents
PART I
ITEM 1. BUSINESS.
Jefferies Group, Inc. and its subsidiaries (the “Company”) operate as a full-service investment bank and institutional securities firm focused on the middle market. The Company offers financial advisory, capital raising, mergers and acquisitions, and restructuring services to small and mid-cap companies and provides trade execution in equity, high yield, convertible and international securities, as well as fundamental research and asset management capabilities, to institutional investors. The Company also offers correspondent clearing, prime brokerage, private client services and securities lending services. The Company maintains offices throughout the world, including New York, Atlanta, Boston, Chicago, Dallas, Hong Kong, London, Los Angeles, Paris, San Francisco, Tokyo, Washington, D.C., and Zurich.
As of December 31, 2002, the Company had 1,357 employees. The Company’s executive offices are located at 520 Madison Avenue, New York, New York 10022. The telephone number is (212) 284-2550 and its Internet address is www.jefco.com.
The Company makes available free of charge on its Internet website the following reports, including amendments, as soon as reasonably practicable after such materials are filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended:
| • | Annual report on Form 10-K; | |
| • | Quarterly reports on Form 10-Q; and | |
| • | Current reports on Form 8-K |
Jefferies & Company, Inc.
Jefferies & Company, Inc. (“Jefferies”) was founded in 1962 and is engaged in equity, convertible debt and high yield securities brokerage and trading and investment banking. Jefferies is one of the leading national firms engaged in the distribution and trading of blocks of equity securities both on the national securities exchanges and in the “third market.” The term “third market” refers to transactions in listed equity securities effected away from national securities exchanges. Jefferies’ revenues are derived primarily from commission revenues and market making or trading as principal in equity, high yield, convertible securities, options, futures and international securities with or on behalf of institutional investors, with the balance generated by investment banking and other activities. Jefferies currently provides fundamental equity and/or high yield research to its customers in the areas of: Aerospace; Apparel & Textile; Biotechnology; Consumer; Energy; Financial Services; Food Products & Restaurants; Gaming & Leisure; Government IT; Healthcare; Home Building; Industrial; Knowledge Services; Printing, Packaging & Printing-Related Industries; Maritime/ Shipping; Media & Entertainment; Retail; Special Situations; Technology & Information; and Telecommunications.
Jefferies International Limited and Jefferies Pacific Limited
Jefferies International Limited (“JIL”), a broker-dealer subsidiary, was incorporated in 1986 in England. JIL is a member of The International Stock Exchange and The Securities and Futures Authority. JIL introduces customers trading in U.S. securities to Jefferies and also trades as a broker-dealer in international equity and convertible securities and American Depositary Receipts (“ADRs”). In 1995, JIL formed a wholly owned Swiss subsidiary, Jefferies (Switzerland) Ltd. In 1996, JIL formed a wholly owned English subsidiary, Jefferies (Japan) Limited, which maintains a branch office in Tokyo.
Jefferies Pacific Limited (“JPL”), a broker subsidiary, was incorporated in 1992 in Hong Kong. JPL presently introduces foreign customers trading in U.S. securities to Jefferies.
1
Helfant Group, Inc.
On September 28, 2001, the Company acquired Lawrence Helfant Inc. (“Helfant”), which owned 100% of Lawrence Helfant LLC (“Helfant LLC”), a New York Stock Exchange (“NYSE”) member firm. On January 14, 2002, the Company merged W & D Securities, Inc. (“W & D”), another NYSE member firm in which the Company had an ownership interest, with Lawrence Helfant, Inc. and Helfant LLC to create Helfant Group, Inc. (“Helfant Group”).
Quarterdeck Investment Partners, LLC
The Company acquired Quarterdeck Investment Partners, LLC (“Quarterdeck”) in the fourth quarter of 2002. Quarterdeck is an investment banking firm specializing in mergers and acquisitions in the global aerospace, defense, and federal information technology industries.
Separation of Investment Technology Group, Inc. from Jefferies Group, Inc.
The Company was originally incorporated in 1998 as a holding company under the name JEF Holding Company, Inc. At the time of its incorporation, JEF Holding Company, Inc. was a wholly owned subsidiary of a predecessor company also named Jefferies Group, Inc. (“Old Group”). On April 20, 1999, the stockholders of Old Group approved and adopted the Agreement and Plan of Merger (the “Merger Agreement”) between Old Group and Old Group’s approximately 80.5% owned subsidiary, Investment Technology Group, Inc. (“ITGI”).
On April 27, 1999, Old Group and ITGI consummated the transactions (the “Transactions”) that resulted in the separation of ITGI from the other Old Group businesses. On April 22, 1999, Old Group transferred all non-ITGI assets and liabilities to JEF Holding Company, Inc., a holding company. Old Group then distributed all of the common stock of JEF Holding Company, Inc. to Old Group stockholders through a tax-free spin-off. After the transfers, Old Group’s 15 million shares of ITGI became its only asset. The spin-off was immediately followed by a tax-free merger of ITGI with and into Old Group. Following the merger, Old Group was renamed Investment Technology Group, Inc. and JEF Holding Company, Inc. was renamed Jefferies Group, Inc., the Registrant in this annual report.
The Transactions were treated for financial reporting purposes as if Old Group had spun-off its entire 80.5% stake in ITGI to Old Group stockholders. Accordingly, since the results of ITGI were previously consolidated with Old Group, all financial information for the periods prior to April 27, 1999 have been restated to reflect the results of ITGI as a discontinued operation. The net assets of ITGI have been segregated for prior periods from the other assets and liabilities of Old Group. For financial reporting purposes, the net assets of ITGI as of April 27, 1999 have been treated as a distribution to Old Group stockholders.
Commission Business
A substantial portion of the Company’s revenues is derived from customer commissions on brokerage transactions in equity (primarily listed) and debt securities for domestic and international investors such as investment advisors, banks, mutual funds, insurance companies and pension and profit sharing plans. These investors normally purchase and sell securities in block transactions, the execution of which requires special marketing and trading expertise. Jefferies is one of the leading national firms in the execution of equity block transactions, and believes that its institutional customers are attracted by the quality of its execution (with respect to considerations of quantity, timing and price) and its competitive commission rates, which are negotiated on the basis of market conditions, the size of the particular transaction and other factors. In addition to domestic equity securities, Jefferies executes transactions in high yield securities, domestic and international convertible securities, international equity securities, ADRs, options, preferred stocks, financial futures and other similar products. Recently, Jefferies started a Private Client Services group to focus on transactions with retail customers, including high net worth clients, which typically involve a greater risk of litigation than would normally be assumed in Jefferies’ traditional institutional activities.
2
All of Jefferies’ institutional equity account executives are electronically interconnected through systems permitting simultaneous verbal and graphic communication of trading and order information by all participants. Jefferies believes that its execution capability is significantly enhanced by this system, which permits its account executives to respond to each other and to negotiate order indications directly with customers rather than through a separate trading department.
Principal Transactions
In the regular course of its business, Jefferies takes securities positions as a market maker to facilitate customer transactions and for investment purposes. In making markets and when trading for its own account, Jefferies exposes its own capital to the risk of fluctuations in market value. Trading profits (or losses) depend primarily upon the skills of the employees engaged in market making and position taking, the amount of capital allocated to positions in securities and the general trend of prices in the securities markets.
Jefferies monitors its risk by maintaining its securities positions at or below certain pre-established levels. These levels reduce certain opportunities to realize profits in the event that the value of such securities increases. However, they also reduce the risk of loss in the event of a decrease in such value and result in controlled interest costs incurred on funds provided to maintain such positions. Jefferies also attempts to minimize risk with respect to its principal transactions thereby reducing the need to hold securities inventory positions for even short periods of time.
Equities. The Equities Division of Jefferies makes markets in over 2,000 over-the-counter equity securities and ADRs, and trades securities for its own account, as well as to facilitate customer transactions. As a result of the move to decimal trading in the Nasdaq Stock Market, which began for all stocks in April 2001, narrowing bid-ask spreads and smaller price increments are being experienced and are resulting in a decrease in trading revenue earned from the Company’s market making operations. To compensate for the narrowing of bid-ask spreads, the Company began charging commissions on certain Nasdaq trades. As more firms start charging commissions on Nasdaq trades, the Company believes clients will be more willing to pay these commissions, and the Company believes these commissions will begin to offset the decrease the Company has experienced in this revenue from the effects of decimal trading. During 2002, Jefferies acquired a group of traders who specialize in trading OTC Bulletin Board and pink sheet securities. These securities are typically more illiquid, have smaller capitalizations and may involve more risk than Nasdaq traded securities.
High Yield. The High Yield Division of Jefferies principally trades non-investment grade public and private debt securities, as well as distressed securities and bank debt. The Division specializes in trading and making markets in over 300 unrated or less than investment grade corporate debt securities and accounts for these positions at market value. At December 31, 2002, the aggregate long and short market value of these positions was $144.4 million and $2.9 million, respectively. Risk of loss upon default by the borrower is significantly greater with respect to unrated or less than investment grade corporate debt securities than with other corporate debt securities. These securities are generally unsecured and are often subordinated to other creditors of the issuer. These issuers usually have high levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. There is a limited market for some of these securities and market quotes are available only from a small number of dealers.
Three funds managed by Jefferies invest on a pari passu basis in all trading and investment activities (with limited exceptions) undertaken by the High Yield Division. Two of these funds, the Jefferies Partners Opportunity Funds, are principally capitalized with equity contributions from institutional and high net worth investors. The third fund, Jefferies Employees Opportunity Fund (and collectively with the two Jefferies Partners Opportunity Funds, the “High Yield Funds”), is principally capitalized with equity investments from Jefferies employees. Jefferies’ senior management (including the Company’s chief executive officer, president and chief financial officer) and certain Jefferies employees have direct investments in all three funds on terms identical to other fund participants. Jefferies has a 16% aggregate interest in the funds, senior management has a 3% interest and all employees (exclusive of senior management) have an 8% interest. The High Yield Division and each of the funds share gains or losses on all trading and investment activities of the High Yield
3
Convertible Securities. Jefferies trades domestic and international convertible securities and assists corporate and institutional clients in identifying attractive investments in these securities.
Other Proprietary Trading. Jefferies trades investment grade corporate bonds, U.S. treasury securities, and U.S. government agency securities through its Bonds Direct Securities, LLC subsidiary, engages in structured trading within its securities loaned activities and has investments in partnerships and mutual funds as well as other relationships with independent management firms, which contribute to revenues from principal transactions.
Investment Banking
Jefferies’ Investment Banking Division offers corporations (primarily middle-market growth companies) a full range of financial advisory services as well as debt, equity, and convertible financing services. Products include acquisition financing, bridge and senior loan financing, private placements and public offerings of debt and equity securities, debt refinancings, restructuring, merger and acquisition and exclusive sales advice, structured financings and securitizations, consent and waiver solicitations, and company and bondholder representations in corporate restructurings. Investment banking activity involves both economic and regulatory risks. An underwriter may incur losses if it is unable to sell the securities it is committed to purchase or if it is forced to liquidate its commitments at less than the agreed upon purchase price. In addition, under the Securities Act and other laws and court decisions with respect to underwriters’ liability and limitations on indemnification of underwriters by issuers, an underwriter is subject to substantial potential liability for material misstatements or omissions in prospectuses and other communications with respect to underwritten offerings. Further, underwriting commitments constitute a charge against net capital and Jefferies’ underwriting commitments may be limited by the requirement that it must, at all times, be in compliance with the Uniform Net Capital Rule 15c3-1 of the Securities and Exchange Commission (the “Commission”).
Jefferies intends to continue to pursue opportunities for its corporate customers, which may require it to finance and/or underwrite the issuance of securities. Under circumstances where Jefferies is required to act as an underwriter or to take a position in the securities of its customers, Jefferies may assume greater risk than would normally be assumed in its normal trading activity.
Interest
Jefferies derives a substantial portion of its interest revenues, and incurs a substantial portion of its interest expenses, in connection with its securities borrowed/ securities loaned activity. Jefferies also earns interest on its securities portfolio, on its operating and segregated balances, on its margin lending activity and on certain of its investments, including its investment in short-term bond funds. Jefferies also incurs interest expense on its long-term debt, bank loans and free credit balances in the accounts of customers. Jefferies has a fair value hedge using interest rate swaps in order to convert $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 into floating rates based upon LIBOR.
Securities Borrowed/ Securities Loaned. In connection with both its trading and brokerage activities, Jefferies borrows securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lends securities to other brokers and dealers for similar purposes. Jefferies has an active securities borrowed and lending matched book business (“Matched Book”),
4
Margin Lending. Customers’ transactions are executed on either a cash or margin basis. In a margin transaction, Jefferies extends credit to the customer, collateralized by securities and cash in the customer’s account, for a portion of the purchase price, and receives income from interest charged on such extensions of credit.
In permitting a customer to purchase securities on margin, Jefferies is subject to the risk that a market decline could reduce the value of its collateral below the amount of the customer’s indebtedness and that the customer might otherwise be unable to repay the indebtedness.
In addition to monitoring the creditworthiness of its customers, Jefferies also considers the trading liquidity and volatility of the securities it accepts as collateral for its margin loans. Trading liquidity and volatility may be dependent, in part, upon the market in which the security is traded, the number of outstanding shares of the issuer, events affecting the issuer and/or securities markets in general, and whether or not there are any legal restrictions on the sale of the securities. Certain types of securities have historical trading patterns, which may assist Jefferies in making its evaluation. Historical trading patterns, however, may not be good indicators over relatively short time periods or in markets which are affected by unusual or unexpected developments. Jefferies considers all of these factors at the time it agrees to extend credit to customers and continues to review its extensions of credit on an ongoing basis.
The majority of Jefferies’ margin loans are made to United States citizens or to corporations which are domiciled in the United States. Jefferies may extend credit to investors or corporations who are citizens of foreign countries or who may reside outside the United States. Jefferies believes that should such foreign investors default upon their loans and should the collateral for those loans be insufficient to satisfy the investors’ obligations, it may be more difficult to collect such investors’ outstanding indebtedness than would be the case if investors were citizens or residents of the United States.
Although Jefferies attempts to minimize the risk associated with the extension of credit in margin accounts, there is no assurance that the assumptions on which Jefferies bases its decisions will be correct or that it is in a position to predict factors or events which will have an adverse impact on any individual customer or issuer, or the securities markets in general.
Asset Management
The Company receives asset management fees from its management of six funds domestically and twenty funds internationally. The domestic funds consist of three High Yield Funds and three employee funds (two funds of funds and a venture capital fund). Investors include institutional investors, employees of Jefferies and Jefferies itself.
The three High Yield Funds, consisting of two Jefferies Partners Opportunity funds and an employee fund, invest on a pari passu basis in all trading and investment activities (with limited exceptions) undertaken by Jefferies’ High Yield Division. See “Principal Transactions — High Yield.” The funds have a revolving credit facility that is collateralized by their investments which is non-recourse to the Company. Jefferies receives a management fee from the Jefferies Partners Opportunity funds in an amount equal to 1% per annum of the market value of the funds’ investments and is entitled to a carried interest of 20% of all distributions once investors have received a certain threshold return. Jefferies Employees Opportunity Fund pays Jefferies a
5
The Company manages the investments of the other funds based on their particular investment strategies, and fund activities are not tied to any particular trading activities of the Company. The Company receives a management fee for its services from each of these funds.
The Company intends to expand its asset management efforts by building the amount of assets under management, increasing its retail brokerage services and developing a new WRAP product for its clients.
Competition
All aspects of the business of the Company are intensely competitive. The Company competes directly with numerous other brokers and dealers, investment banking firms and banks. In addition to competition from firms currently in the securities business, there has been increasing competition from others offering financial services. These developments and others have resulted, and may continue to result, in significant additional competition for the Company.
Regulation
The securities industry in the United States is subject to extensive regulation under both federal and state laws. The Commission is the federal agency responsible for the administration of federal securities laws. In addition, self-regulatory organizations, principally the NASD and the securities exchanges, are actively involved in the regulation of broker-dealers. These self-regulatory organizations conduct periodic examinations of member broker-dealers in accordance with rules they have adopted and amended from time to time, subject to approval by the Commission. Securities firms are also subject to regulation by state securities commissions and state attorneys general in those states in which they do business.
Broker-dealers are subject to regulations which cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure of securities firms, record-keeping and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the Commission and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules, may directly affect the mode of operation and profitability of broker-dealers. The Commission, self-regulatory organizations, state securities commissions and state attorneys general may conduct administrative proceedings which can result in censure, fine, suspension, expulsion of a broker-dealer, its officers or employees, or revocation of broker-dealer licenses. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets, rather than protection of creditors and stockholders of broker-dealers.
As registered broker-dealers, Jefferies and Helfant Group are required by law to belong to the Securities Investor Protection Corporation (“SIPC”). In the event of a member’s insolvency, the SIPC fund provides protection for customer accounts up to $500,000 per customer, with a limitation of $100,000 on claims for cash balances. Jefferies carries an excess policy that provides additional protection for securities of up to $4,500,000 per customer.
Net Capital Requirements. Every U.S. registered broker-dealer doing business with the public is subject to the Commission’s Uniform Net Capital Rule (the “Rule”), which specifies minimum net capital requirements. Jefferies Group, Inc. is not a registered broker-dealer and is therefore not subject to the Rule; however, its United States broker-dealer subsidiaries are registered and are subject to the Rule.
The Rule provides that a broker-dealer doing business with the public shall not permit its aggregate indebtedness to exceed 15 times its adjusted net capital (the “basic method”) or, alternatively, that it not permit its adjusted net capital to be less than 2% of its aggregate debit balances (primarily receivables from customers and broker-dealers) computed in accordance with such Rule (the “alternative method”). Jefferies and Helfant Group use the alternative method of calculation.
6
Compliance with applicable net capital rules could limit operations of Jefferies, such as underwriting and trading activities, that require the use of significant amounts of capital, and may also restrict loans, advances, dividends and other payments by Jefferies or Helfant Group to the Company. As of December 31, 2002, Jefferies’ and Helfant Group’s net capital was $284.2 million and $7.0 million, respectively, which exceeded minimum net capital requirements by $276.2 million and $6.8 million, respectively. See note 14 of Notes to Consolidated Financial Statements.
Risk Management
As an international investment bank and securities firm, risk is an inherent part of the Company’s business. Global markets, by their nature, are prone to uncertainty and subject participants to a variety of risks. The Company has developed policies and procedures to identify, measure and monitor the risks involved in its trading, brokerage and investment banking activities on an international basis. The Company devotes significant resources to the measurement, management and analysis of risk, including investments in personnel, information technology infrastructure and systems. Since 1997, the Company has retained the services of Ernst & Young LLP (“E&Y”) to perform internal audit procedures on an outsource basis for the benefit of the Company’s management and Audit Committee. In this capacity, E&Y coordinates the scope and results of internal audit procedures with the Company’s management and Audit Committee. The Company’s independent auditors, KPMG LLP, consider the internal audit work performed by E&Y, among other things, in determining the scope of the annual audit of the Company’s consolidated financial statements.
ITEM 2. PROPERTIES.
The Company maintains offices in New York, Atlanta, Boston, Chicago, Dallas, Hong Kong, Houston, Jersey City, London, Los Angeles, Nashville, New Orleans, Richmond, Paris, San Francisco, Short Hills, Stamford, Tokyo, Washington, D.C. and Zurich. In addition, the Company maintains back-up facilities with redundant technologies in Dallas. The Company leases all of its office space which management believes is adequate for its business. For information concerning leasehold improvements and rental expense, see notes 1, 5 and 11 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
Many aspects of the Company’s business involve substantial risks of liability. In the normal course of business, the Company and its subsidiaries have been named as defendants or co-defendants in lawsuits involving primarily claims for damages. The Company’s management believes that pending litigation should not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
7
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. |
The Company’s Common Stock trades on the
NYSE under the symbol JEF. The following table sets forth for
the periods indicated the range of high and low prices per share
for the Common Stock as reported by the NYSE.
High
Low
$
45.25
$
33.14
48.44
33.62
51.00
40.01
52.10
40.01
$
43.21
$
31.00
37.87
26.00
34.86
26.15
33.90
24.60
There were approximately 445 holders of record of the Company’s Common Stock at February 14, 2003.
In 1988, the Company instituted a policy of
paying regular quarterly cash dividends. There are no
restrictions on the Company’s present ability to pay
dividends on Common Stock, other than the applicable provisions
of the Delaware General Corporation Law.
Dividends per Common Share (declared and paid):
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
$
.05
$
.05
$
.05
$
.05
$
.05
$
.05
$
.05
$
.05
Information with respect to Securities Authorized for Issuance Under Equity Compensation Plans will be contained in the Proxy Statement for the 2003 Annual Meeting of Stockholders, which is incorporated herein by reference.
On September 30, 2002 and December 31, 2002, the Company credited to deferral accounts of certain officers and qualified employees of the Company and its subsidiaries an aggregate of approximately 242,864 deferred shares of common stock and options to purchase 79,899 shares of common stock pursuant to deferral of compensation and notional dividend reinvestments under the Company’s Deferred Compensation Plan. From inception of the Company’s Deferred Compensation Plan in 2001 through December 31, 2002, the Company has credited an aggregate of approximately 1,062,177 deferred shares of common stock and options to purchase 351,955 shares of common stock under the Company’s Deferred Compensation Plan. These deferrals generally do not constitute the sale of a security or a public offering, and, if any sale of a security were deemed to be involved, the transaction would be exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On December 17, 2002, the Company issued 150,000 shares of restricted common stock to Quarterdeck Investment Partners, Inc. as partial consideration for the acquisition of Quarterdeck Investment Partners, LLC. The securities were issued in a transaction not involving a public offering and were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
8
| ITEM 6. | SELECTED FINANCIAL DATA. |
The selected data presented below as of and for
each of the years in the five-year period ended
December 31, 2002, are derived from the consolidated
financial statements of Jefferies Group, Inc. and its
subsidiaries, which financial statements have been audited by
KPMG LLP, the Company’s independent auditors. The data
should be read in connection with the consolidated financial
statements including the related notes contained on
pages 23 through 49. Certain reclassifications have been
made to the prior period amounts to conform to the current
period’s presentation.
Year Ended December 31,
2002
2001
2000
1999
1998
(In Thousands, Except Per Share Amounts)
$
268,984
$
233,860
$
221,471
$
202,803
$
190,870
235,281
273,736
264,130
232,239
177,189
139,828
124,099
90,743
80,749
126,651
92,027
131,408
172,124
115,425
91,024
12,026
17,687
9,560
1,973
926
6,630
4,201
3,835
6,958
3,955
754,776
784,991
761,863
640,147
590,615
80,087
114,709
144,460
96,496
75,153
674,689
670,282
617,403
543,651
515,462
385,585
400,159
376,571
329,769
321,943
54,681
47,451
36,908
33,815
32,425
52,216
44,583
45,398
42,427
47,210
26,156
22,916
19,193
16,003
14,036
22,973
21,349
18,432
16,676
17,710
29,386
31,172
25,508
20,866
22,945
570,997
567,630
522,010
459,556
456,269
103,692
102,652
95,393
84,095
59,193
41,121
43,113
40,412
35,256
22,992
62,571
59,539
54,981
48,839
36,201
—
—
—
12,888
33,481
$
62,571
$
59,539
$
54,981
$
61,727
$
69,682
$
2.54
$
2.42
$
2.30
$
2.05
$
1.62
—
—
—
0.55
1.50
$
2.54
$
2.42
$
2.30
$
2.60
$
3.12
$
2.27
$
2.28
$
2.26
$
2.04
$
1.58
—
—
—
0.51
1.38
$
2.27
$
2.28
$
2.26
$
2.55
$
2.96
24,616
24,612
23,912
23,778
22,346
27,510
26,132
24,335
23,992
22,954
$
0.200
$
0.200
$
0.200
$
0.200
$
0.200
$
6,898,691
$
5,344,737
$
3,957,869
$
2,896,252
$
2,617,864
$
452,606
$
153,797
$
152,545
$
149,485
$
149,387
$
628,517
$
565,656
$
458,447
$
396,577
$
334,775
$
23.32
$
21.08
$
18.57
$
16.52
$
15.77
26,952
26,836
24,688
24,000
21,230
4.5X
7.0X
6.9X
6.6X
5.1X
| (1) | The ratio of earnings to fixed charges is computed by dividing (a) income from continuing operations before income taxes plus fixed charges by (b) fixed charges. Fixed charges consist of interest expense on all long-term indebtedness and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of operating lease rentals). |
9
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
There are included or incorporated by reference in this report statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements about the Company’s future and statements that are not historical facts. These forward-looking statements are usually preceded by the words “believes,” “intends,” “may,” “will,” or similar expressions, whether in the negative or affirmative. These forward-looking statements represent only the Company’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in this report, particularly under the heading “Factors Affecting the Company’s Business” and in documents incorporated by reference in this report. The Company does not assume any obligation to update any forward-looking statement it makes.
Critical Accounting Policies
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Actual results will inevitably differ from estimates. These differences could be material to the financial statements.
The Company believes its application of accounting policies and the estimates required therein are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, the Company has found its application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
Management believes its critical accounting policies (policies that are both material to the financial condition and results of operations and require management’s most difficult, subjective or complex judgments) are its valuation methodologies applied to investments and to securities positions.
Investments are stated at estimated fair value as determined in good faith by management. Generally, the Company initially values these investments at cost and requires that changes in value be established by meaningful third-party transactions or a significant impairment in the financial condition or operating performance of the issuer, unless meaningful developments occur that otherwise warrant a change in the valuation of an investment. Factors considered in valuing individual investments include, without limitation, available market prices, reported net asset values, type of security, purchase price, purchases of the same or similar securities by other investors, marketability, restrictions on disposition, current financial position and operating results, and other pertinent information.
Furthermore, judgment is used to value certain securities (e.g., private securities, 144A securities, less liquid securities), if quoted market prices are not available. These valuations are made with consideration for various assumptions, including time value, yield curve, volatility factors, liquidity, market prices on comparable securities and other factors. The subjectivity involved in this process makes these valuations inherently less reliable than quoted market prices. The Company believes that its comprehensive risk management policies and procedures serve to monitor the appropriateness of the assumptions used. The use of different assumptions, however, could produce materially different estimates of fair value.
Analysis of Financial Condition
Total assets increased $1,554.0 million from $5,344.7 million at December 31, 2001 to $6,898.7 million at December 31, 2002. The increase in total assets mostly relates to net increases of $1,232.4 million in securities borrowed and $165.5 million in investments.
10
Total liabilities increased $1,491.1 million from $4,779.1 million at December 31, 2001 to $6,270.2 million at December 31, 2002. The increase in total liabilities mostly relates to net increases of $899.9 million in securities loaned, $168.1 million in payable to customers and the issuance of $325.0 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012. During this period, the Company also retired $50.0 million aggregate principal amount of 8 7/8% senior notes due 2004 and repaid $50.0 million in bank loans.
The increase in securities borrowed and
securities loaned is mostly related to the Company’s
Matched Book business. See “Business —
Interest.”
Revenues by Source
The earnings of the Company are subject to wide
fluctuations since many factors over which the Company has
little or no control, particularly the overall volume of trading
and the volatility and general level of market prices, may
significantly affect its operations. The following provides a
summary of revenues by source for the past three years.
Year Ended December 31,
2002
2001
2000
% of
% of
% of
Total
Total
Total
Amount
Revenues
Amount
Revenues
Amount
Revenues
(Dollars in Thousands)
$
327,835
43
%
$
336,981
43
%
$
337,681
44
%
74,853
10
62,797
8
79,523
11
34,070
5
57,264
7
36,411
5
29,684
4
34,091
4
25,030
3
29,310
4
11,509
1
1,757
—
8,513
1
4,954
1
5,199
1
504,265
67
507,596
64
485,601
64
139,828
18
124,099
16
90,743
12
92,027
12
131,408
17
172,124
23
12,026
2
17,687
2
9,560
1
6,630
1
4,201
1
3,835
—
$
754,776
100
%
$
784,991
100
%
$
761,863
100
%
2002 Compared to 2001
Revenues, net of interest expense, increased $4.4 million, or 1%, in 2002 as compared to 2001. The increase was due primarily to a $15.7 million, or 13%, increase in investment banking revenues, partially offset by a $5.7 million, or 32%, decrease in asset management revenues, a $3.3 million, or 1%, decrease in trading revenues (commissions and principal transactions) and a $4.8 million, or 28%, decrease in net interest income (interest revenues less interest expense). Principal transaction revenues include the Company’s proportionate share of the results of the High Yield Funds, which are described under “Business — Principal Transactions — High Yield”. For 2002, the Company’s share of these funds accounted for $7.2 million of revenues, down from $10.2 million for 2001. Trading revenues decreased mostly due to the High Yield Division. Investment banking revenues increased due mostly to an increase in advisory fees. Net interest income was down largely due to decreased interest rates and a reduction in the spread on the securities borrowed and loaned matched book business. Asset management revenues include management fees and a 20% “carried” interest from the Jefferies Partners Opportunity funds (Jefferies Employees Opportunity Fund does not have a 20% “carried” interest), and management fees for certain other funds. Asset management revenues decreased
11
Total non-interest expenses increased slightly in 2002 as compared to 2001. Compensation and benefits decreased $14.6 million, or 4%. The Company was able to reduce its compensation/ net revenues ratio to approximately 57% from approximately 60% in 2001. This was possible even with the increased headcount, due to the variable nature of the Company’s compensation plans and a reduction in the management bonuses and a voluntary reduction in executive officer bonuses payable under the plan previously approved by the Compensation Committee of the Board of Directors. Compensation and benefits is net of amounts reimbursed to Jefferies by the High Yield Funds. Technology and communications increased $7.6 million, or 17%, mostly due to the addition of Helfant and negotiated refunds in the 2001 period. Floor brokerage and clearing fees increased $7.2 million, or 15%, primarily due to additional volume related to Helfant. Occupancy and equipment rental increased $3.2 million, or 14%, mostly due to office expansion. Other expense decreased $1.8 million, or 6%, primarily due to a decrease in charitable contributions, because of special contributions in 2001 related to the September 11 incident. Business development expenses increased $1.6 million, or 8%, largely due to increased advertising and promotion.
As a result of the above, earnings before income taxes increased $1.0 million, or 1%. The effective tax rate was approximately 40% in 2002 and approximately 42% in 2001. The mix of business (geographically and by product) favorably impacted the effective tax rate for 2002. Net earnings were up $3.0 million to $62.6 million, compared to $59.5 million in 2001.
Basic net earnings per share were $2.54 in 2002 on 24.6 million shares compared to $2.42 in 2001 on 24.6 million shares. Diluted earnings per share were $2.27 in 2002 on 27.5 million shares compared to $2.28 in 2001 on 26.1 million shares.
2001 Compared to 2000
Revenues, net of interest expense, increased $52.9 million, or 9%, in 2001 as compared to 2000. The increase was due primarily to a $33.4 million, or 37%, increase in investment banking revenues, a $22.0 million, or 5%, increase in trading revenues (commissions and principal transactions), an $8.1 million, or 85%, increase in asset management revenues, partially offset by a $11.0 million, or 40%, decrease in net interest income (interest revenues less interest expense). Principal transaction revenues include the Company’s proportionate share of the results of the High Yield Funds, which are described under “Business — Principal Transactions — High Yield”. For 2001, the Company’s share of these funds accounted for $10.2 million of revenues, up from $5.1 million for 2000. Trading revenues increased mostly due to the High Yield Division. Investment banking revenues increased due mostly to an increase in advisory fees. Net interest income was down largely due to decreased interest rates and a reduction in the spread on the securities borrowed and loaned matched book business. Asset management revenues include management fees and a 20% “carried” interest from the Jefferies Opportunity Funds (Jefferies Employees Opportunity Fund does not have a 20% “carried” interest), and management fees for certain other funds. Asset management revenues increased due to the increase in revenue attributable to the High Yield Funds, which contributed $14.8 million for 2001, up from $7.4 million for 2000 when the funds began trading.
Total non-interest expenses increased $45.6 million, or 9%, in 2001 as compared to 2000. Compensation and benefits increased $23.6 million, or 6%, mostly due to an increase in incentive based compensation accruals, as well as increased headcount. Compensation expense is net of amounts reimbursed to Jefferies by the High Yield Funds. Floor brokerage and clearing fees increased $10.5 million, or 29%, due to increased volume of business executed on the various exchanges, including additional volume related to Helfant, which was acquired on September 28, 2001. Other expense increased $5.7 million or 22%, primarily due to an increase in charitable contributions and legal expense. Occupancy and equipment rental increased $3.7 million, or 19%, mostly due to office expansion. Business development expenses increased $2.9 million, or 16%, primarily due to higher expenses associated with business travel. Technology and communications remained relatively unchanged from the prior year.
12
As a result of the above, earnings before income taxes increased $7.3 million, or 8%. The effective tax rate was approximately 42% in 2001 and 2000. Net earnings were up $4.6 million to $59.5 million, compared to $55.0 million in 2000.
Basic net earnings per share were $2.42 in 2001
on 24.6 million shares compared to $2.30 in 2000 on
23.9 million shares. Diluted earnings per share were $2.28
in 2001 on 26.1 million shares compared to $2.26 in 2000 on
24.3 million shares.
Liquidity and Capital Resources
A substantial portion of the Company’s
assets is liquid, consisting of cash or assets readily
convertible into cash. The majority of securities positions
(both long and short) in the Company’s trading accounts are
readily marketable and actively traded. Receivables from brokers
and dealers are primarily current open transactions or
securities borrowed transactions, which can be settled or closed
out within a few days. Receivables from customers, officers and
directors include margin balances and amounts due on uncompleted
transactions. Most of the Company’s receivables are secured
by marketable securities.
The Company’s assets are funded by equity
capital, senior debt, subordinated debt, securities loaned,
customer free credit balances, bank loans and other payables.
Bank loans represent temporary (usually overnight) secured and
unsecured short-term borrowings, which are generally payable on
demand. The Company has arrangements with banks for unsecured
financing of $215.0 million. Secured bank loans are
collateralized by a combination of customer, non-customer and
firm securities. The Company has always been able to obtain
necessary short-term borrowings in the past and believes that it
will continue to be able to do so in the future. Additionally,
the Company has $40.4 million in letters of credit
outstanding, which are used in the normal course of business
mostly to satisfy various collateral requirements in lieu of
depositing cash or securities.
Jefferies and Helfant Group are subject to the
net capital requirements of the Commission and other regulators,
which are designed to measure the general financial soundness
and liquidity of broker-dealers. Jefferies and Helfant Group
have consistently operated in excess of the minimum
requirements. As of December 31, 2002, Jefferies’ and
Helfant Group’s net capital was $284.2 million and
$7.0 million, respectively, which exceeded minimum net
capital requirements by $276.2 million and
$6.8 million, respectively. Jefferies and Helfant Group use
the alternative method of calculation.
During 2002, the Company issued
$325.0 million aggregate principal amount of 7 3/4%
senior notes due March 15, 2012 and retired
$50.0 million aggregate principal amount of 8 7/8%
senior notes due 2004.
During 2002, the Company purchased 1,495,344
shares of common stock for $59.1 million, at prices ranging
from $33.00 to $48.56 per share. During 2001, the Company
purchased 522,300 shares of common stock for $16.7 million,
at prices ranging from $26.21 to $42.47 per share. These shares
were treated as treasury shares.
As of December 31, 2002, the Company had
outstanding guarantees of $35.6 million primarily relating to
undrawn bank credit obligations of two affiliated investment
funds in which the Company has an interest. Also, the Company
has guaranteed collateralized obligations of JIL to various
banks which provide clearing and credit services to JIL and to
countparties of JIL in JIL’s securities borrowed business.
In addition, as of December 31, 2002, the Company had
commitments to invest up to $11.2 million in various
investments.
The table below provides information about the
Company’s commitments related to debt obligations, interest
rate swaps, leases, guarantees, letters of credit and
investments. For debt obligations, leases and investments, the
table presents principal cash flows with expected maturity
dates. For interest rate swaps, guarantees and letters of
credit, the table presents notional amounts with expected
maturity dates.
13
Effects of Changes in Foreign Currency
Rates
The Company maintains a foreign securities
business in its foreign offices (Hong Kong, London, Paris, Tokyo
and Zurich) as well as in some of its domestic offices. Most of
these activities are hedged by related foreign currency
liabilities or by forward exchange contracts. However, the
Company is still subject to some foreign currency risk. A change
in the foreign currency rates could create either a foreign
currency transaction gain/ loss (recorded in the Company’s
Consolidated Statements of Earnings) or a foreign currency
translation adjustment to the stockholders’ equity section
of the Company’s Consolidated Statements of Financial
Condition.
Effects of Inflation
Based on today’s modest inflationary rates
and because the Company’s assets are primarily monetary in
nature, consisting of cash and cash equivalents, securities and
receivables, the Company believes that its assets are not
significantly affected by inflation. The rate of inflation,
however, can affect various expenses, including employee
compensation, communications and technology and occupancy, which
may not be readily recoverable in charges for services provided
by us.
Risk Management
Risk is an inherent part of the Company’s
business and activities. The extent to which the Company
properly and effectively identifies, assesses, monitors and
manages each of the various types of risk involved in its
activities is critical to the Company’s soundness and
profitability. The Company seeks to identify, assess, monitor
and manage the following principal risks involved in its
business activities: market, credit, operational and legal. Risk
management at the Company is a multi-faceted process that
requires communication, judgment and knowledge of financial
products and markets. Senior management takes an active role in
the risk management process and requires specific administrative
and business functions to assist in the identification,
assessment and control of various risks. The Company’s risk
management policies, procedures and methodologies are fluid in
nature and are subject to ongoing review and modification.
Market Risk.
The
potential for changes in the value of the financial instruments
the Company owns is referred to as market risk. The
Company’s market risk generally represents the risk of loss
that may result from a change in the value of a financial
instrument as a result of fluctuations in interest rates, credit
spreads, equity prices and the correlation among them, along
with the level of volatility. Interest rate risks result
primarily from exposure to changes in the yield curve, the
volatility of interest rates, and credit spreads. Equity price
risks result from exposure to changes in prices and volatilities
of individual equities, equity baskets and equity indices. The
Company makes dealer markets in equity and debt securities. To
facilitate customer order flow, the company may be required to
own equity and debt securities in its trading and inventory
accounts. The majority of the Company’s trading and
inventory accounts consist of fixed income debt instruments. The
14
Credit Risk.
Credit
risk represents the loss that the Company would incur if a
client, counterparty or issuer of securities or other
instruments held by the Company fails to perform its contractual
obligations. The Company follows industry practice to reduce
credit risk related to various investing and financing
activities by obtaining and maintaining collateral. The Company
adjusts margin requirements if it believes the risk exposure is
not appropriate based on market conditions.
Operational Risk.
Operational risk generally refers to the risk of loss resulting
from the Company’s operations, including, but not limited
to, improper or unauthorized execution and processing of
transactions, deficiencies in its operating systems, business
disruptions and inadequacies or breaches in its internal control
processes. The Company operates in diverse markets and it is
reliant on the ability of its employees and systems to process
high numbers of transactions often within short time frames. In
the event of a breakdown or improper operation of systems, human
error or improper action by employees, the Company could suffer
financial loss, regulatory sanctions or damage to its
reputation. In order to mitigate and control operational risk,
the Company has developed and continues to enhance policies and
procedures that are designed to identify and manage operational
risk at appropriate levels. September 11 heightened the
need for comprehensive disaster recovery plans. Disaster
recovery plans exist for the Company’s critical systems,
and redundancies are built into the systems as deemed
appropriate. The Company believes that its disaster recovery
program, including off-site back-up technology and operational
facilities, is adequate to handle a reasonable business
disruption. However, there can be no assurances that a disaster
directly affecting the Company’s headquarters or its
operations center would not have a material adverse impact.
Insurance and other safeguards might only partially reimburse
the Company for its losses. The Company also uses periodic
self-assessments, internal audit reviews and independent
consultants as a further check on operational risk and exposure.
Legal Risk.
Legal
risk includes the risk of non-compliance with applicable legal
and regulatory requirements. The Company is subject to extensive
regulation in the different jurisdictions in which it conducts
its business. The Company has various procedures addressing
issues such as regulatory capital requirements, sales and
trading practices, use of and safekeeping of customer funds,
credit granting, collection activities, money-laundering and
record keeping.
Recent Accounting Developments
Accounting Standards on Business Combinations
and Goodwill and Other Intangible Assets.
Financial Accounting Standards Board
(“FASB”) No. 141, “Business
Combinations”, and FASB No. 142, “Goodwill and
Other Intangible Assets” changed the accounting for
business combinations and goodwill in two significant ways.
First, FASB No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after
June 30, 2001. Use of the pooling-of-interests method is
now prohibited. Second, FASB No. 142 changed the accounting
for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill
recorded in past business combinations, ceased upon adoption of
that Statement, which, for companies with calendar year ends,
was January 1, 2002. The implementation of these statements
did not have a material impact on the Company.
New Accounting Standards on Accounting for
Asset Retirement Obligations.
FASB
No. 143, “Accounting for Asset Retirement
Obligations”, addresses financial accounting and reporting
for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
This Statement is effective for financial statements issued for
fiscal years beginning after June 15, 2002. The
implementation of this statement is not expected to have a
material impact on the Company.
New Accounting Standards on Accounting for the
Impairment or Disposal of Long-Lived
Assets.
FASB No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets”, addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This Statement
supersedes FASB
15
Rescission of FASB No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections.
FASB No. 145,
“Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections”, addresses certain rescissions, amendments and
technical corrections to previously issued statements. This
Statement rescinds FASB Statement No. 4, Reporting Gains
and Losses from Extinguishment of Debt, and an amendment of that
Statement, FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also
rescinds FASB Statement No. 44, Accounting for Intangible
Assets of Motor Carriers. This Statement amends FASB Statement
No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of this Statement
related to the rescission of Statement 4 shall be applied
in fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet
the criteria in Opinion 30 for classification as an
extraordinary item shall be reclassified. Early application of
the provisions of this Statement related to the rescission of
Statement 4 is encouraged. The provisions in
paragraphs 8 and 9(c) of this Statement related to
Statement 13 shall be effective for transactions occurring
after May 15, 2002, with early application encouraged. All
other provisions of this Statement shall be effective for
financial statements issued on or after May 15, 2002, with
early application encouraged. On December 31, 2002, the
Company implemented this statement without a material impact on
the Company.
New Accounting Standards on Accounting for
Costs Associated with Exit or Disposal Activities.
FASB No. 146, “Accounting
for Costs Associated with Exit or Disposal Activities”,
addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3,
“Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).” This Statement
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
This statement also clarifies that an entity’s commitment
to a plan, by itself, does not create a present obligation to
others that meets the definition of a liability. This Statement
also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement
are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged.
On December 31, 2002, the Company implemented this
statement without a material impact on the Company.
New Amendment of FASB Statement No. 123
on Stock Based Compensation.
FASB
No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure —
an amendment of FASB Statement No. 123”, amends FASB
No. 123, “Accounting for Stock-Based
Compensation”, to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of FASB
No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. On February 5, 2003, the Company
announced that it will adopt the fair-value-based method of
recording stock-based compensation contained in FASB
No. 123, “Accounting for Stock-Based
Compensation”. However, the Company has not yet determined
which transition method it will use. For more information
concerning stock-based compensation, see note 1 of Notes to
Consolidated Financial Statements.
16
New Accounting Standards and Disclosures on
Guarantees.
In November 2002, the FASB
issued Interpretation No. 45, Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on
the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a
guarantor is required to recognize, at inception of a guarantee,
a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified
after December 31, 2002 and are not expected to have a material
effect on the Company’s financial statements. The
disclosure requirements are effective for financial statements
of interim and annual periods ending after December 31,
2002.
New Accounting Standards on Consolidations.
In January 2003, the FASB issued
Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business
enterprises of variable interest entities as defined in the
Interpretation. The Interpretation applies immediately to
variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable
interest entities obtained after January 31, 2003. For
variable interest entities created before February 1, 2003,
the Interpretation is applied to the enterprise no later than
the end of the first reporting period beginning after
June 15, 2003. The application of this Interpretation is
not expected to have a material effect on the Company’s
financial statements. The Interpretation requires certain
disclosures in financial statements issued after
January 31, 2003 if it is reasonably possible that the
Company will consolidate or disclose information about variable
interest entities when the Interpretation becomes effective.
Factors Affecting the Company’s
Business
In addition to the factors mentioned in the rest
of this report, the Company is also affected by changes in
general economic and business conditions, acts of war, terrorism
and natural disasters.
Changing Conditions in Financial Markets
and the Economy Could Result in Decreased
Revenues.
As an investment banking and securities firm,
changes in the financial markets or economic conditions, in the
United States and elsewhere in the world, could adversely affect
the Company in many ways, including the following:
Reduced Spreads in Securities Pricing and
Levels of Trading Activities Could Harm Our
Business.
Since early 2001, bid, ask and sale prices for
stocks traded on the national securities exchanges and in the
Nasdaq Stock Market have been quoted in decimal or cent format,
rather than in fractions of a dollar. Decimalization has
narrowed the differences, or spreads, between bid and ask prices
on equity securities and has also reduced price increments for
those securities. Decimalization has reduced the revenue per
transaction earned from the Company’s market-making and
trading operations in which it acts as a principal.
Market-Making and Trading Activities Expose
the Company to Risk of Loss.
A significant amount of the Company’s
revenues are derived from market-making and trading in which it
acts as a principal. The Company may incur trading losses
relating to the purchase, sale or short sale of securities for
its own account. In any period, the Company may experience
losses as a result of losses in its
17
Increased Competition May Adversely Affect
the Company’s Revenues and Profitability.
All aspects of the Company’s business are
intensely competitive. The Company competes directly with
numerous other brokers and dealers, investment banking firms and
banks. In addition to competition from firms currently in the
securities business, there has been increasing competition from
others offering financial services, including automated trading
and other services based on technological innovations.
Competition also extends to the hiring and retention of highly
skilled employees. A competitor may be successful in hiring away
an employee or group of employees, which may result in the
Company losing business formerly serviced by such employee or
employees. Competition can also raise the Company’s costs
of hiring and retaining the key employees it needs to
effectively execute its business plan.
The Company’s Business is
Substantially Dependent on Key Personnel.
The Company’s future success depends to a
significant degree on the skills, experience and efforts of
Richard B. Handler, the Company’s Chief Executive Officer.
The Company does not have an employment agreement with Mr.
Handler. The loss of his services could compromise the
Company’s ability to effectively operate its business. In
addition, in the event that Mr. Handler ceases to actively
manage the three funds that invest on a
pari passu
basis
with the Company’s High Yield Division, investors in those
funds would have the right to withdraw from the funds. Although
the Company has substantial key man life insurance covering
Mr. Handler, the proceeds from the policy may not be
sufficient to offset any loss in business.
In addition, if the number of accounts and
transaction volume increase significantly over current volume,
the Company could be compelled to hire additional personnel. At
that time, there could be a shortage of qualified and, in some
cases, licensed personnel whom the Company could hire. This
could cause a backlog in the Company’s handling of
investment banking transactions or the processing of brokerage
orders, all of which could harm the Company’s business,
financial condition and operating results.
Extensive Regulation of the Company’s
Business Limits its Activities and, if it Violates These
Regulations, May Subject it to Significant
Penalties.
The securities industry in the United States is
subject to extensive regulation under both federal and state
laws. The Securities and Exchange Commission is the federal
agency responsible for the administration of federal securities
laws. In addition, self-regulatory organizations, principally
NASD and the securities exchanges, are actively involved in the
regulation of broker-dealers. Securities firms are also subject
to regulation by state securities commissions and state
attorneys general in those states in which they do business.
Broker-dealers are subject to regulations which cover all
aspects of the securities business, including sales methods,
trade practices among broker-dealers, use and safekeeping of
customers’ funds and securities, capital structure of
securities firms, record-keeping and the conduct of directors,
officers and employees. The Commission, self-regulatory
organizations, state securities commissions and state attorneys
general may conduct administrative proceedings which can result
in censure, fine, suspension, expulsion of a broker-dealer, its
officers or employees, or revocation of broker-dealer licenses.
Additional legislation, changes in rules promulgated by the
Commission and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may
directly affect the Company’s mode of operation and its
profitability.
18
Legal Liability May Harm the Company’s
Business.
Many aspects of the Company’s business
involve substantial risks of liability, and in the normal course
of business, the Company has been named as a defendant or
co-defendant in lawsuits involving primarily claims for damages.
Some of these risks include potential liability under securities
or other laws for materially false or misleading statements made
in connection with securities and other transactions, potential
liability for the advice the Company provides to participants in
corporate transactions and disputes over the terms and
conditions of complex trading arrangements. These risks often
may be difficult to assess or quantify and their existence and
magnitude often remain unknown for substantial periods of time.
Substantial legal liability against the Company could have a
material financial effect or cause significant reputational harm
to the Company, which in turn could seriously harm its business
prospects.
Operational Risks May Disrupt the
Company’s Business, Result in Regulatory Action Against it
or Limit its Growth.
The Company faces operational risks arising from
mistakes made in the confirmation or settlement of transactions
or from transactions not being properly recorded, evaluated or
accounted. The Company’s business is highly dependent on
its ability to process, on a daily basis, a large number of
transactions across numerous and diverse markets, and the
transactions it processes have become increasingly complex.
Consequently, the Company relies heavily on its financial,
accounting and other data processing systems. If any of these
systems do not operate properly or are disabled, the Company
could suffer financial loss, a disruption of our business,
liability to clients, regulatory intervention or reputational
damage. The inability of the Company’s systems to
accommodate an increasing volume of transactions could also
constrain its ability to expand its business.
Table of Contents
Expected Maturity Date
2003
2004
2005
2006
2007
After 2007
Total
(Dollars in Thousands)
—
—
—
—
$
100,000
$
325,000
$
425,000
$
1,000
$
300
—
—
—
—
$
1,300
—
—
—
—
—
$
200,000
$
200,000
$
18,030
$
17,559
$
17,639
$
16,479
$
13,590
$
57,173
$
140,470
315
299
280
247
62
—
$
1,203
$
17,715
$
17,260
$
17,359
$
16,232
$
13,528
$
57,173
$
139,267
$
35,612
—
—
—
—
—
$
35,612
$
40,413
—
—
—
—
—
$
40,413
—
—
$
1,020
$
150
—
$
10,030
$
11,200
Table of Contents
Table of Contents
Table of Contents
•
a further market downturn could lead to a decline
in the volume of transactions executed for customers and,
therefore, to a decline in the revenues received from
commissions and spreads; and
•
unfavorable financial or economic conditions
would likely reduce the number and size of transactions in
underwriting, financial advisory and other services. Investment
banking revenues, in the form of financial advisory and
underwriting fees, are directly related to the number and size
of the transactions in which the Company participates and would
therefore be adversely affected by a sustained market downturn.
Table of Contents
Table of Contents
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Company maintains equity securities inventories in exchange-listed, Nasdaq, OTC Bulletin Board, pink sheet and private securities on both a long and short basis as well as various partnership interests. The fair value of these securities at December 31, 2002, was $293 million in long positions and $84 million in short positions. The potential loss in fair value, using a hypothetical 10% decline in prices, is estimated to be approximately $21 million due to the offset of losses in long positions with gains in short positions. In addition, the Company generally enters into exchange-traded option and index futures contracts to hedge against potential losses in inventory positions, thus reducing this potential loss exposure. This hypothetical 10% decline in prices would not be material to the Company’s financial condition.
The Company also invests in money market funds, high-yield, corporate and U.S. Government agency debt and mutual bond funds. Money market funds do not have maturity dates and do not present a material market risk. The fair value of the Company’s high yield, corporate and U.S. Government agency debt at December 31, 2002 was $352 million in long positions and $153 million in short positions. Mutual bond funds do not have maturity dates; the Company’s position in these funds totaled $193 million at December 31, 2002. The potential loss in fair value of the high-yield, corporate and U.S. Government agency debt and the mutual bond funds, using a hypothetical 5% decline in value, is estimated to be approximately $20 million due to the offset of losses in long positions with gains in short positions. This hypothetical 5% decline in value would not be material to the Company’s financial condition.
At December 31, 2002, the Company had $425.0 million aggregate principal amount of Senior Notes outstanding, with fixed interest rates. The Company has entered into a fair value hedge with no ineffectiveness using interest rate swaps in order to convert $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 into floating rates based upon LIBOR. The effective interest rate on the $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes, after giving effect to the swaps, is 3.57%. The fair value of the mark to market of the swaps was positive $30.3 million as of December 31, 2002, which was recorded as an increase in the book value of the debt and an increase in other assets.
19
At December 31, 2002, the Company had $3.3 million aggregate principal amount of zero coupon Euro denominated Convertible Loan Notes. The Company has no cash flow exposure regarding these Notes because of the zero coupon.
The table below provides information about the
Company’s derivative financial instruments and other
financial instruments that are sensitive to changes in interest
rates, exchange rates and stock price movements. For debt
obligations and reverse repurchase agreements, the table
presents principal cash flows with expected maturity dates. For
interest rate swaps, foreign exchange forward contracts, index
futures contracts and option contracts, the table presents
notional amounts with expected maturity dates.
Expected Maturity Date
After
Fair
2003
2004
2005
2006
2007
2007
Total
Value
(Dollars in Thousands)
—
—
—
—
—
$
325,000
$
325,000
$
340,438
—
—
—
—
$
100,000
—
$
100,000
$
104,250
$
1,000
$
300
—
—
—
—
$
1,300
$
1,300
—
—
—
—
—
$
200,000
$
200,000
$
30,280
$
233,000
—
—
—
—
—
$
233,000
$
233,000
$
14,365
—
—
—
—
—
$
14,365
$
151
$
1,131
—
—
—
—
—
$
1,131
$
33
$
11,895
$
31,830
$
175
—
—
—
$
43,900
$
5,086
$
2,311
$
24,750
—
—
—
—
$
27,061
$
2,795
| (1) | Included in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations. |
20
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
INDEX TO FINANCIAL STATEMENTS
| Page | ||||
|
|
||||
|
Consolidated Financial Statements of Jefferies
Group, Inc. and Subsidiaries Independent Auditors’ Report
|
22 | |||
|
Consolidated Statements of Financial Condition as
of December 31, 2002 and 2001.
|
23 | |||
|
Consolidated Statements of Earnings for Each of
the Years in the Three-Year Period Ended December 31, 2002.
|
24 | |||
|
Consolidated Statements of Changes in
Stockholders’ Equity and Comprehensive Income (Loss) for
Each of the Years in the Three-Year Period Ended
December 31, 2002.
|
25 | |||
|
Consolidated Statements of Cash Flows for Each of
the Years in the Three-Year Period Ended December 31, 2002.
|
26 | |||
|
Notes to Consolidated Financial Statements
|
28 | |||
21
Independent Auditors’ Report
The Board of Directors and Stockholders
We have audited the accompanying consolidated
statements of financial condition of Jefferies Group, Inc. and
subsidiaries (the “Company”) as of December 31,
2002 and 2001 and the related consolidated statements of
earnings, changes in stockholders’ equity and comprehensive
income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Jefferies Group, Inc. and
subsidiaries as of December 31, 2002 and 2001 and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United States of America.
Los Angeles, California
22
JEFFERIES GROUP, INC.:
KPMG LLP
Table of Contents
JEFFERIES GROUP, INC.
Consolidated Statements of Financial
Condition
2002
2001
Assets
$
39,948
$
188,106
288,576
154,989
5,119,352
3,886,918
102,371
177,708
206,329
136,605
452,375
285,372
56,348
100,262
334,361
168,863
49,355
48,436
54,472
34,756
195,204
162,722
$
6,898,691
$
5,344,737
Liabilities and Stockholders’
Equity
$
12,000
$
50,000
4,738,938
3,838,999
109,077
46,843
481,346
313,207
239,285
150,146
236,922
226,089
5,817,568
4,625,284
3,319
2,817
449,287
150,980
452,606
153,797
6,270,174
4,779,081
—
—
3
3
226,787
159,018
496,418
439,195
(90,817
)
(27,856
)
1,895
(2,403
)
(5,769
)
(2,301
)
(3,874
)
(4,704
)
628,517
565,656
$
6,898,691
$
5,344,737
See accompanying notes to consolidated financial statements.
23
JEFFERIES GROUP, INC.
Consolidated Statements of Earnings
2002
2001
2000
$
268,984
$
233,860
$
221,471
235,281
273,736
264,130
139,828
124,099
90,743
92,027
131,408
172,124
12,026
17,687
9,560
6,630
4,201
3,835
754,776
784,991
761,863
80,087
114,709
144,460
674,689
670,282
617,403
385,585
400,159
376,571
54,681
47,451
36,908
52,216
44,583
45,398
26,156
22,916
19,193
22,973
21,349
18,432
29,386
31,172
25,508
570,997
567,630
522,010
103,692
102,652
95,393
41,121
43,113
40,412
$
62,571
$
59,539
$
54,981
$
2.54
$
2.42
$
2.30
$
2.27
$
2.28
$
2.26
24,616
24,612
23,912
27,510
26,132
24,335
See accompanying notes to consolidated financial statements.
24
JEFFERIES GROUP, INC.
Consolidated Statements of Changes in
Stockholders’ Equity and Comprehensive Income
(Loss)
Accumulated
Other
Additional
Comprehensive
Net
Common
Paid-in
Retained
Treasury
Income
Stockholders’
Stock
Capital
Earnings
Stock
(Loss)
Equity
$
2
$
62,367
$
334,742
$
(587
)
$
53
$
396,577
—
1,410
—
—
—
1,410
—
—
—
(9,544
)
—
(9,544
)
—
5,678
—
—
—
5,678
1
14,421
—
(252
)
—
14,170
—
2,128
—
—
—
2,128
—
—
54,981
—
—
54,981
—
—
—
—
(1,121
)
(1,121
)
—
—
—
—
(955
)
(955
)
(2,076
)
(2,076
)
52,905
—
—
(4,877
)
—
—
(4,877
)
3
86,004
384,846
(10,383
)
(2,023
)
458,447
—
1,963
—
—
—
1,963
—
—
—
(16,663
)
—
(16,663
)
—
6,015
—
—
—
6,015
—
61,714
—
(810
)
—
60,904
—
3,322
—
—
—
3,322
—
—
59,539
—
—
59,539
—
—
—
—
(1,518
)
(1,518
)
—
—
—
—
(1,163
)
(1,163
)
(2,681
)
(2,681
)
56,858
—
—
(5,190
)
—
—
(5,190
)
$
3
$
159,018
$
439,195
$
(27,856
)
$
(4,704
)
$
565,656
—
8,470
—
—
—
8,470
—
—
—
(59,134
)
—
(59,134
)
—
5,649
—
—
—
5,649
—
49,443
—
(3,827
)
—
45,616
—
4,207
—
—
—
4,207
—
—
62,571
—
—
62,571
—
—
—
—
4,298
4,298
—
—
—
—
(3,468
)
(3,468
)
830
830
63,401
—
—
(5,348
)
—
—
(5,348
)
$
3
$
226,787
$
496,418
$
(90,817
)
$
(3,874
)
$
628,517
See accompanying notes to consolidated financial statements.
25
JEFFERIES GROUP, INC.
Consolidated Statements of Cash
Flows
2002
2001
2000
$
62,571
$
59,539
$
54,981
20,281
17,230
13,039
(16,360
)
(27,316
)
(16,545
)
(133,587
)
52,357
(188,127
)
(1,232,434
)
(1,240,177
)
(800,297
)
75,337
39,784
(94,911
)
(69,724
)
117,957
(28,113
)
(167,003
)
(60,346
)
151,768
43,914
(3,938
)
(96,324
)
9,159
(59,297
)
(36,911
)
899,939
1,436,471
786,035
62,234
25,883
(26,502
)
168,139
(188,579
)
229,975
89,139
(21,539
)
(14,735
)
22,818
(971
)
37,504
(165,577
)
147,058
(29,163
)
(169,593
)
(32,816
)
(16,947
)
(16,481
)
(16,489
)
(14,421
)
(17,927
)
—
—
—
(15,281
)
—
(204,001
)
(64,586
)
(31,368
)
(38,000
)
50,000
—
315,315
1,300
2,963
(49,861
)
—
—
(59,134
)
(16,663
)
(9,544
)
(5,348
)
(5,190
)
(4,877
)
8,470
1,963
1,410
—
—
(349
)
39,316
44,876
14,170
5,649
6,015
5,678
216,407
82,301
9,451
5,013
(1,663
)
(1,121
)
(148,158
)
163,110
(52,201
)
188,106
24,996
77,197
Cash and cash equivalents at end of year
$
39,948
$
188,106
$
24,996
26
JEFFERIES GROUP, INC.
Consolidated Statements of Cash
Flows — (Continued)
2002
2001
2000
$
75,118
$
124,095
$
139,438
38,688
54,510
23,377
$
25,134
(907
)
(6,300
)
17,927
9,947
$
7,980
$
34,604
(3,295
)
(16,028
)
15,281
1,259
$
14,022
Supplemental disclosure of non-cash financing activities:
| In 2000, the additional minimum pension liability included in stockholders’ equity of $1,138 resulted from a increase of $955 to accrued expenses and other liabilities and an offsetting decrease in stockholders’ equity. In 2001, the additional minimum pension liability included in stockholders’ equity of $2,301 resulted from an increase of $1,163 to accrued expenses and other liabilities and an offsetting decrease in stockholders’ equity. In 2002, the additional minimum pension liability included in stockholders’ equity of $5,769 resulted from an increase of $3,468 to accrued expenses and other liabilities and an offsetting decrease in stockholders’ equity. |
See accompanying notes to consolidated financial statements.
27
JEFFERIES GROUP, INC.
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Jefferies Group, Inc. and all its subsidiaries (“Company”), including Jefferies & Company, Inc. (“Jefferies”) and Helfant Group, Inc. (“Helfant Group”). The Company and its subsidiaries operate and are managed as a single business segment, that of a institutional securities broker-dealer, which includes several types of financial services, such as principal and agency transactions in equity, high yield, convertible and international securities, as well as investment banking, fundamental research and asset management activities. Since the Company’s services are provided using the same distribution channels, support services and facilities and all are provided to meet client needs, the Company does not identify assets or allocate all expenses to any service, or class of service as a separate business segment.
All significant intercompany accounts and transactions are eliminated in consolidation.
Securities Transactions
All transactions in securities, commission revenues and related expenses are recorded on a trade-date basis.
Securities owned, securities pledged to creditors, and securities sold, not yet purchased, are valued at market, and unrealized gains or losses are reflected in revenues from principal transactions.
Investment Banking
Underwriting revenues and fees for merger and acquisition advisory services are recognized when services for the transactions are determined to be completed.
Investments
Partnership interests are stated at estimated fair value as determined in good faith by management. Generally, the Company initially values these investments at cost and requires that changes in value be established by meaningful third-party transactions or a significant impairment in the financial condition or operating performance of the issuer, unless meaningful developments occur that otherwise warrant a change in the valuation of an investment. Factors considered in valuing individual investments include, without limitation, available market prices, reported net asset values, type of security, purchase price, purchases of the same or similar securities by other investors, marketability, restrictions on disposition, current financial position and operating results, and other pertinent information.
Debt and equity investments, which consist largely of mutual funds and other money under management by outsiders, are valued at market, based on available quoted prices.
Equity and debt interests in affiliates, which consist primarily of the Company’s interest in the three high yield funds that the Company manages, are recorded under either the equity or cost method depending on the Company’s level of ownership and control.
Receivable from, and Payable to, Customers
Receivable from, and payable to, customers includes amounts receivable and payable on cash and margin transactions. Securities owned by customers and held as collateral for these receivables are not reflected in the accompanying consolidated financial statements. Receivable from officers and directors represents balances
28
Notes to Consolidated Financial Statements — (Continued)
arising from their individual security transactions. These transactions are subject to the same regulations as customer transactions.
Fair Value of Financial Instruments
Substantially all of the Company’s financial instruments are carried at fair value or amounts approximating fair value. Assets, including cash and cash equivalents, securities borrowed or purchased under agreements to sell, and certain receivables, are carried at fair value or contracted amounts, which approximate fair value due to the short period to maturity. Similarly, liabilities, including bank loans, securities loaned or sold under agreements to repurchase and certain payables, are carried at amounts approximating fair value. Long-term debt is carried at face value less unamortized discount, except for the $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 hedged by interest rate swaps. Securities owned and securities sold, not yet purchased, are valued at quoted market prices, if available. For securities without quoted prices, the reported fair value is estimated using various sources of information, including quoted prices for comparable securities.
In addition to the interest rate swaps mentioned above, the Company has derivative financial instrument positions in option contracts, foreign exchange forward contracts and index futures contracts, which are measured at fair value with gains and losses recognized in earnings. The gross contracted or notional amount of these contracts is not reflected in the consolidated statements of financial condition (see note 12 of the notes to consolidated financial statements.)
Premises and Equipment
Premises and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to ten years). Leasehold improvements are amortized using the straight-line method over the term of related leases or the estimated useful lives of the assets, whichever is shorter.
Goodwill
Goodwill represents the excess of cost over net assets acquired and is included in other assets. Financial Accounting Standards Board (“FASB”) No. 141, “Business Combinations”, and FASB No. 142, “Goodwill and Other Intangible Assets” changed the accounting for business combinations and goodwill in two significant ways. First, FASB No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is now prohibited. Second, FASB No. 142 changed the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of the Statement, which, for companies with calendar year ends, was January 1, 2002. While goodwill is no longer amortized, it is tested for impairment annually by comparing the fair value of a reporting unit with its carrying amount, including goodwill.
Income Taxes
The Company files a consolidated U.S. Federal income tax return, which includes all qualifying subsidiaries. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
29
Notes to Consolidated Financial Statements — (Continued)
in tax rates is recognized in income in the period that includes the enactment date. Deferred income taxes are provided for temporary differences in reporting certain items, principally state income taxes, depreciation, deferred compensation and unrealized gains and losses on securities owned. Tax credits are recorded as a reduction of income taxes when realized.
Cash Equivalents
The Company generally invests its excess cash in money market funds and other short-term investments. At December 31, 2002 and 2001, cash equivalents amounted to $15,797,000 and $138,644,000, respectively. Cash equivalents are part of the cash management activities of the Company and generally mature within 90 days.
Securities Borrowed and Securities Loaned
In connection with both its trading and brokerage activities, Jefferies borrows securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lends securities to other brokers and dealers for similar purposes. Jefferies has an active securities borrowed and lending matched book business (“Matched Book”), in which Jefferies borrows securities from one party and lends them to another party. When Jefferies borrows securities, Jefferies provides cash to the lender as collateral, which is reflected in the Company’s consolidated financial statements as receivable from brokers and dealers. Jefferies earns interest revenues on this cash collateral. Similarly, when Jefferies lends securities to another party, that party provides cash to Jefferies as collateral, which is reflected in the Company’s consolidated financial statements as payable to brokers and dealers. Jefferies pays interest expense on the cash collateral received from the party borrowing the securities. A substantial portion of Jefferies’ interest revenues and interest expenses results from the Matched Book activity. The initial collateral advanced or received approximates or is greater than, the fair value of the securities borrowed or loaned. Jefferies monitors the fair value of the securities borrowed and loaned on a daily basis and requests additional collateral or returns excess collateral, as appropriate.
Repurchase and Reverse Repurchase Agreements
Repurchase agreements consist of sales of U.S. Treasury notes under agreements to repurchase. They are treated as collateralized financing transactions and are recorded at their contracted repurchase amount.
Reverse repurchase agreements consist of purchases of U.S. Treasury notes under agreements to re-sell. They are treated as collateralized financing transactions and are recorded at their contracted re-sale amount.
The Company monitors the fair value of the securities purchased and sold under these agreements daily versus the related receivable or payable balances. Should the fair value of the securities purchased decline or the fair value of the securities sold increase, additional collateral is requested or excess collateral is returned, as appropriate.
Earnings per Common Share
Basic earnings per share of common stock are computed by dividing net earnings by the average number of shares outstanding and certain other shares committed to be, but not yet issued. Diluted earnings per share of common stock are computed by dividing net earnings by the average number of shares outstanding of common stock and all dilutive common stock equivalents outstanding during the period.
30
Notes to Consolidated Financial
Statements — (Continued)
Additional Paid in Capital
The following is a summary of additional paid in
capital as of December 31, 2002 and 2001 (in thousands of
dollars):
2002
2001
$
272,020
$
200,564
(45,233
)
(39,229
)
—
(2,317
)
$
226,787
$
159,018
The deferred compensation relates to unvested restricted stock grants.
Stock-Based Compensation
At December 31, 2002, the Company had seven
stock-based compensation plans, which are described in
note 9 of the notes to consolidated financial statements.
The Company applied APB Opinion No. 25 in accounting for
its plans. Accordingly, no compensation cost has been recognized
for fixed stock option plans. Had compensation cost for the
Company’s stock-based compensation plans been determined
consistent with SFAS 123, the Company’s net earnings and
earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands of dollars, except per
share amounts):
2002
2001
2000
$
62,571
$
59,539
$
54,981
27,274
18,387
8,227
(34,385
)
(26,024
)
(11,993
)
$
55,460
$
51,902
$
51,215
$
2.54
$
2.42
$
2.30
$
2.25
$
2.11
$
2.14
$
2.27
$
2.28
$
2.26
$
2.00
$
1.99
$
2.10
New Accounting Standards on Accounting for Asset Retirement Obligations
FASB No. 143, “Accounting for Asset Retirement Obligations”, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The implementation of this statement is not expected to have a material impact on the Company.
New Accounting Standards on Accounting for the Impairment or Disposal of Long-Lived Assets
FASB No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB
31
Notes to Consolidated Financial Statements — (Continued)
No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” This Statement also eliminates the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The provisions of this Statement generally are to be applied prospectively. The implementation of this statement is not expected to have a material impact on the Company.
Rescission of FASB No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
FASB No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, addresses certain rescissions, amendments and technical corrections to previously issued statements. This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement related to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item shall be reclassified. Early application of the provisions of this Statement related to the rescission of Statement 4 is encouraged. The provisions in paragraphs 8 and 9(c) of this Statement related to Statement 13 are effective for transactions occurring after May 15, 2002, with early application encouraged. All other provisions of this Statement are effective for financial statements issued on or after May 15, 2002, with early application encouraged. On December 31, 2002, the Company implemented this statement without a material impact on the Company.
New Accounting Standards on Accounting for Costs Associated with Exit or Disposal Activities
FASB No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This statement also clarifies that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. On December 31, 2002, the Company implemented this statement without a material impact on the Company.
New Amendment of FASB Statement No. 123 on Stock Based Compensation
FASB No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123”, amends FASB No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of
32
Notes to Consolidated Financial Statements — (Continued)
accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of FASB No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. On February 5, 2003, the Company announced that it will adopt the fair-value-based method of recording stock-based compensation contained in FASB No. 123, “Accounting for Stock-Based Compensation”. However, the Company has not yet determined which transition method it will use.
New Accounting Standards and Disclosures on Guarantees
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34”. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material effect on the Company’s financial statements. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 31, 2002.
New Accounting Standards on Consolidations
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51”. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For variable interest entities created before February 1, 2003, the Interpretation is applied to the enterprise no later than the end of the first reporting period beginning after June 15, 2003. The application of this Interpretation is not expected to have a material effect on the Company’s financial statements. The Interpretation requires certain disclosures in financial statements issued after January 31, 2003 if it is reasonably possible that the Company will consolidate or disclose information about variable interest entities when the Interpretation becomes effective.
Foreign Currency Translation
The Company’s foreign revenues and expenses are translated at average current rates during each reporting period. Foreign currency transaction gains and losses are included in the consolidated statements of earnings. Gains and losses resulting from translation of financial statements are excluded from the consolidated statements of earnings and are recorded directly to accumulated other comprehensive income (loss) in stockholders’ equity.
Reclassifications
Certain reclassifications have been made to the prior years’ amounts to conform to the current year’s presentation.
33
Notes to Consolidated Financial Statements — (Continued)
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
(2) Receivable from, and Payable to, Customers
The following is a summary of the major
categories of receivables from customers as of December 31,
2002 and 2001 (in thousands of dollars):
2002
2001
$
200,406
$
134,903
5,923
1,702
$
206,329
$
136,605
Receivable from officers and directors represents standard margin loan balances arising from their individual security transactions. These transactions are subject to the same regulations as customer transactions.
Interest is paid on free credit balances in accounts of customers who have indicated that the funds will be used for investment at a future date. The rate of interest paid on free credit balances varies between the thirteen-week treasury bill rate and 1% below that rate, depending upon the size of the customers’ free credit balances.
(3) Securities Owned, Securities Pledged to Creditors and Securities Sold, Not Yet Purchased
The following is a summary of the market value of
major categories of securities owned and securities sold, not
yet purchased, as of December 31, 2002 and 2001 (in
thousands of dollars):
2002
2001
Securities
Securities
Sold,
Sold,
Securities
Not Yet
Securities
Not Yet
Owned
Purchased
Owned
Purchased
$
115,895
$
83,769
$
61,475
$
75,859
144,388
2,858
111,223
1,481
176,067
117,072
97,143
61,951
10,939
32,791
14,826
10,653
5,086
2,795
705
202
$
452,375
$
239,285
$
285,372
$
150,146
34
Notes to Consolidated Financial
Statements — (Continued)
The following is a summary of the market value of
major categories of securities pledged to creditors as of
December 31, 2002 and 2001 (in thousands of dollars):
2002
2001
$
35,774
$
15,960
2,602
39,472
17,972
44,830
$
56,348
$
100,262
(4) Investments
The following is a summary of the major
categories of investments, as of December 31, 2002 and 2001
(in thousands of dollars):
2002
2001
$
192,660
$
—
36,246
50,700
7,304
19,374
98,151
98,789
$
334,361
$
168,863
Included in equity and debt interests in affiliates as of December 31, 2002 and 2001 is $63,100,000 and $55,621,000, respectively, relating to the Company’s interest in the three high yield funds that the Company manages. Included in principal transactions for the years ended December 31, 2002 and 2001 is $7,180,000 and $10,237,000, respectively, relating to the associated income from the Company’s interest in the three high yield funds.
(5) Premises and Equipment
The following is a summary of premises and
equipment as of December 31, 2002 and 2001 (in thousands of
dollars):
2002
2001
$
95,773
$
80,352
35,477
34,366
131,250
114,718
81,895
66,282
$
49,355
$
48,436
Depreciation and amortization expense amounted to $15,613,000, $12,510,000 and $9,903,000 for the years ended December 31, 2002, 2001 and 2000, respectively.
(6) Bank Loans
Bank loans represent short-term borrowings that are payable on demand and generally bear interest at the brokers’ call loan rate. At December 31, 2002 there were $12,000,000 in unsecured bank loans outstanding with an average interest rate of 1.56%. At December 31, 2001 there were $50,000,000 in unsecured bank loans outstanding with an average interest rate of 2.18%.
35
Notes to Consolidated Financial
Statements — (Continued)
(7) Long-Term Convertible Debt and
Long-Term Debt
The following summarizes long-term debt
outstanding at December 31, 2002 and 2001 (in thousands of
dollars):
2002
2001
$
3,319
$
2,817
—
49,837
99,870
99,843
348,117
—
1,000
1,000
300
300
$
449,287
$
150,980
In March 2002, the Company issued $325.0 million aggregate principal amount of unsecured 7 3/4% senior notes due 2012, with a yield of 8.09%.
In May 2002, the Company retired $50.0 million aggregate principal amount of 8 7/8% senior notes due 2004. This resulted in an after tax loss of $480,000.
The Company has entered into a fair value hedge with no ineffectiveness using interest rate swaps in order to convert $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012 into floating rates based upon LIBOR. The effective interest rate on the $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes, after giving effect to the swaps, is 3.57%. The fair value of the mark to market of the swaps was positive $30.3 million as of December 31, 2002, which was recorded as an increase in the book value of the debt and an increase in derivative assets classified as part of other assets.
The Company acquired The Europe Company Ltd. in the third quarter of 2000, with a combination of restricted stock, zero coupon unsecured Euro denominated convertible loan notes and cash totaling approximately $18.0 million. The acquisition was accounted for as a purchase and resulted in approximately $13.0 million in goodwill.
The approximately $2.8 million in zero coupon unsecured Euro denominated convertible loan notes mature in 2010 and have been classified on the consolidated statement of financial condition as long-term convertible debt. The conversion price for the notes is approximately 28.80 Euros (as of December 31, 2002, this was equivalent to approximately $30.24) per common share until August 4, 2003 and the closing stock price on the date of conversion subsequent to that date.
36
Notes to Consolidated Financial
Statements — (Continued)
(8) Income Taxes
Total income taxes for the years ended
December 31, 2002, 2001 and 2000 were allocated as follows
(in thousands of dollars):
2002
2001
2000
$
41,121
$
43,113
$
40,412
(7,739
)
(3,356
)
(525
)
$
33,382
$
39,757
$
39,887
Income taxes (benefits) for the years ended
December 31, 2002, 2001 and 2000 consist of the following
(in thousands of dollars):
2002
2001
2000
$
47,084
$
53,863
$
45,745
10,397
16,566
11,212
57,481
70,429
56,957
(12,716
)
(21,015
)
(13,454
)
(3,644
)
(6,301
)
(3,091
)
(16,360
)
(27,316
)
(16,545
)
$
41,121
$
43,113
$
40,412
Income taxes differed from the amounts computed
by applying the Federal income tax rate of 35% for 2002, 2001
and 2000 as a result of the following (in thousands of dollars):
2002
2001
2000
Amount
%
Amount
%
Amount
%
$
36,292
35.0
%
$
35,928
35.0
%
$
33,388
35.0
%
4,390
4.3
6,672
6.5
5,279
5.5
1,213
1.2
1,165
1.1
1,259
1.3
—
—
455
0.5
191
0.2
(485
)
(0.5
)
117
0.1
1,372
1.5
—
—
(91
)
(0.1
)
(116
)
(0.1
)
(289
)
(0.3
)
(1,133
)
(1.1
)
(961
)
(1.0
)
$
41,121
39.7
%
$
43,113
42.0
%
$
40,412
42.4
%
37
Notes to Consolidated Financial
Statements — (Continued)
The cumulative tax effects of temporary
differences that give rise to significant portions of the
deferred tax assets and liabilities at December 31, 2002
and 2001 are presented below (in thousands of dollars):
2002
2001
$
50,450
$
36,479
3,969
4,686
1,623
3,197
1,689
1,503
3,940
1,927
14,285
9,893
75,956
57,685
—
—
$
75,956
$
57,685
There was no valuation allowance for deferred tax assets as of December 31, 2002, 2001 and 2000.
Management believes it is more likely than not that the Company will realize the deferred tax asset.
(9) Benefit Plans
Pension Plan
The Company has a defined benefit pension plan which covers certain employees of the Company and its subsidiaries. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. Benefits are based on years of service and the employee’s career average pay. The Company’s funding policy is to contribute to the plan at least the minimum amount that can be deducted for Federal income tax purposes.
The following tables set forth the plan’s
funded status and amounts recognized in the Company’s
accompanying consolidated statements of financial condition and
consolidated statements of earnings (in thousands of dollars):
December 31
2002
2001
$
32,568
$
27,086
18,127
19,810
14,441
7,276
229
(125
)
(13,590
)
(7,279
)
9,380
4,002
$
10,460
$
3,874
38
Notes to Consolidated Financial
Statements — (Continued)
Year ended December 31
2002
2001
2000
$
1,321
$
1,251
$
1,266
2,033
1,803
1,786
(1,694
)
(1,620
)
(1,709
)
—
—
653
439
205
48
$
2,099
$
1,639
$
2,044
Year ended December 31
2002
2001
$
19,810
$
19,093
1,600
1,772
(1,706
)
(824
)
(1,577
)
(231
)
$
18,127
$
19,810
Year ended December 31
2002
2001
$
27,086
$
24,208
1,321
1,251
2,033
1,803
3,490
648
344
—
(1,706
)
(824
)
$
32,568
$
27,086
The plan assets consist of approximately 50% equities and 50% fixed income securities.
The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 6.75% and 4.75%, respectively, in 2002, 7.25% and 5.25%, respectively, in 2001 and 7.50% and 4.00%, respectively, in 2000. The expected long-term rate of return on assets was 8.40% in 2002, 2001 and 2000.
Incentive Plan
The Company has an Incentive Compensation Plan (“Incentive Plan”) which allows awards in the form of incentive stock options (within the meaning of Section 422 of the Internal Revenue code), nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, performance awards, dividend equivalents or other stock based awards. The plan imposes a limit on the number of shares of common stock of the Company that may be subject to awards. An award relating to shares may be granted if the aggregate number of shares subject to then-outstanding awards plus the number of shares subject to the award being granted do not exceed 25% of the number of shares issued and outstanding immediately prior to the grant. Under the Incentive Plan, the exercise price of each option is generally not less than the market price of the Company’s stock on the date of grant and the option’s maximum term is ten years.
39
Notes to Consolidated Financial Statements — (Continued)
Restricted Stock. The Incentive Plan allows for grants of restricted stock awards, whereby employees are granted restricted shares of common stock subject to forfeiture until the restrictions lapse or terminate. With certain exceptions, the employee must remain with the Company for a period of years after the date of grant to receive the full number of shares granted.
During 2002, 2001 and 2000, employees were awarded an aggregate of 1,163,318 shares, 1,900,847 shares and 676,223 shares, respectively, with a corresponding market value of $46,118,000, $56,908,000 and $15,781,000, respectively. A portion of the market value of the restricted stock related to current service is expensed in the applicable year and that portion relating to future service is amortized over its vesting period, generally one to three years. The compensation cost was $38,597,000, $27,902,000 and $11,721,000 in 2002, 2001 and 2000, respectively. As of December 31, 2002, 2001 and 2000, restricted stock shares outstanding were 3,007,337 shares, 2,462,064 shares and 1,042,299 shares, respectively.
Included above are awards for employees with annual compensation below $200,000. During 2002 and 2001 employees with annual compensation below $200,000 were awarded 150 and 250 restricted shares each of common stock as of January 1, 2002 and 2001, respectively. During 2002 and 2001, there were awards of 75,300 shares and 87,250 shares, respectively, with a corresponding market value of $3,186,000 and $2,727,000, respectively. The compensation cost associated with these awards is being amortized over the three-year vesting period of the awards. The compensation cost related to these awards was $1,985,000 and $909,000 in 2002 and 2001, respectively.
Performance-based Stock Options. While the Incentive Plan allows for the granting of performance-based stock options, no such options were granted during 2002, 2001 and 2000, and no such options were outstanding at December 31, 2002, 2001 and 2000.
Director Plan
The Company also has a Directors’ Stock Compensation Plan (“Directors’ Plan”) which provides for an annual grant to each non-employee director of an option to purchase 4,500 shares of the Company’s common stock. These grants will be made automatically on the date directors are elected or reelected at the Company’s annual meeting. In addition, the Directors’ Plan provides for the automatic grant to a non-employee director, at the time he or she is first elected or appointed, of an option to purchase 5,000 shares of the Company’s common stock. These options are exercisable 90 days after the date of grant.
Additionally, the Directors’ Plan permits each non-employee director to elect to be paid annual retainer fees and annual fees for service as chairman of a Board committee in the form of stock options and to defer receipt of any director fees in an interest-bearing cash account or as deferred shares in a deferred share account.
A total number of 500,000 shares of the Company’s common stock are reserved under the Directors’ Plan. Under the Directors’ Plan, the exercise price of each option equals the market price of the Company’s stock on the date of grant and the option’s maximum term is ten years.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“ESPP”) which qualifies under Section 423 of the U.S. Internal Revenue Code. All regular full-time employees and employees who work part-time over 20 hours per week are eligible for the ESPP. Employee contributions are voluntary and are made via payroll deduction. The employee contributions are used to purchase the Company’s common stock. The stock purchase price is based on the lower of 85 percent of the stock price at the beginning or end of the period. The stock price used is the Volume Weighted Average Price (“VWAP”) for the particular day. The difference
40
Notes to Consolidated Financial Statements — (Continued)
between the employees’ stock purchase price and the market value of the stock is considered a Company contribution. The Company’s contribution vests after a minimum of one year. The Company does not recognize compensation cost related to its ESPP contributions.
In addition, the Company has a Supplemental Stock Purchase Plan (“SSPP”) which is a non-qualified plan that is similar to the Company’s ESPP. The Company recognizes compensation cost related to its SSPP contributions.
In the past, the Company’s stock purchase plan matched employee contributions at a rate of 15% (more, if profits exceeded targets set by the Company’s Board of Directors). The Company recognized compensation cost related to its matching.
The compensation cost related to these plans was $139,000, $162,000 and $84,000 in 2002, 2001 and 2000, respectively.
Deferred Compensation Plan
The Company has a Deferred Compensation Plan, which was established in 2001. In 2001 and 2002, employees with annual compensation of $200,000 or more were eligible to defer compensation and to invest in the Company’s stock, stock options and other activities on an attractive pre-tax basis through the plan. The compensation cost related to this plan was $2,162,000 and $317,000 in 2002 and 2001, respectively.
Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan (“ESOP”) which was established in 1988. In 1999, the Company re-established annual contributions to the ESOP. In 1999, 278,744 shares of common stock were purchased for $6,487,000, which was funded by a loan from the Company. The loan was repaid over 4 years at an annual interest rate of 5.22%. The Company makes contributions to the ESOP sufficient to fund principal and interest payments and may make additional contributions at the discretion of the Board of Directors. As of December 31, 2002, the loan balance had been paid in full. Additionally, during 2002, 2000, and 1999, 3,256, 18,000, and 100,000 shares of common stock, respectively, were purchased for $127,000, $349,000, and $2,441,000, respectively. These shares were paid for substantially through a Company contribution. The compensation cost related to this plan was $4,333,000, $3,321,000 and $2,478,000 in 2002, 2001 and 2000, respectively.
Profit Sharing Plan
The Company has a profit sharing plan, covering substantially all employees, which includes a salary reduction feature designed to qualify under Section 401(k) of the Internal Revenue Code. The compensation cost related to this plan was $1,742,000, $1,945,000 and $2,640,000 in 2002, 2001 and 2000, respectively.
Options Issued Under All Plans
The fair value of all option grants for all the Company’s plans are estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for all fixed option grants in 2002, 2001 and 2000, respectively: dividend yield of 0.5%, 0.7%, and 0.9%; expected volatility of 34.8%, 40.9%, and 42.0%; risk-free interest rates of 3.7%, 4.6%, and 6.4%; and expected lives of 5.1 years, 5.1 years, and 5.1 years.
41
Notes to Consolidated Financial
Statements — (Continued)
A summary of the status of Company stock options
in all its stock-based plans as of December 31, 2002, 2001
and 2000 and changes during the years then ended is presented
below:
2002
2001
2000
Weighted
Weighted
Weighted
Average
Average
Average
Exercise
Exercise
Exercise
Shares
Price
Shares
Price
Shares
Price
3,329,069
$
23.90
2,251,759
$
20.08
2,277,165
$
20.04
1,103,050
43.65
1,326,398
30.16
574,694
21.49
(309,461
)
16.73
(79,256
)
19.72
(76,793
)
15.08
(176,367
)
27.68
(169,832
)
23.96
(523,307
)
22.22
3,946,291
$
29.82
3,329,069
$
23.90
2,251,759
$
20.08
2,406,806
$
25.46
2,096,708
$
22.67
1,172,964
$
17.85
$
15.55
$
12.19
$
9.17
The following table summarizes information about
stock options outstanding at December 31, 2002:
Options Outstanding
Options Exercisable
Number
Weighted
Number
Outstanding
Average
Weighted
Exercisable
Weighted
At
Remaining
Average
At
Average
December 31,
Contractual
Exercise
December 31,
Exercise
Range of Exercise Prices
2002
Life (Years)
Price
2002
Price
39,730
3.6
$
7.12
39,730
$
7.12
492,940
0.5
16.53
492,940
16.53
1,898,680
2.2
24.15
1,374,374
23.83
401,413
4.0
34.88
122,010
34.38
1,113,528
4.5
44.36
377,752
42.11
3,946,291
2.9
$
29.82
2,406,806
$
25.46
42
Notes to Consolidated Financial
Statements — (Continued)
(10) Earnings per Share
The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings
per share computations for the years 2002, 2001 and 2000 (in
thousands, except per share amounts):
Year Ended December 31,
2002
2001
2000
$
62,571
$
59,539
$
54,981
24,616
24,612
23,912
825
550
240
2,069
970
183
27,510
26,132
24,335
$
2.54
$
2.42
$
2.30
$
2.27
$
2.28
$
2.26
The Company had no anti-dilutive securities during 2002, 2001 and 2000.
(11) Leases
As lessee, the Company leases certain premises
and equipment under noncancelable agreements expiring at various
dates through 2017. Future minimum lease payments for all
noncancelable operating leases at December 31, 2002 are as
follows (in thousands of dollars):
Gross
Sub-leases
Net
$
18,030
$
315
$
17,715
17,559
299
17,260
17,639
280
17,359
16,479
247
16,232
13,590
62
13,528
57,173
—
57,173
Rental expense amounted to $18,110,000, $15,315,000 and $12,535,000, in 2002, 2001 and 2000, respectively.
(12) Financial Instruments
Off-Balance Sheet Risk
The Company has contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to sell, securities sold but not yet purchased, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis, options contracts, futures index contracts, and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby the market values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon the Company’s consolidated financial statements.
43
Notes to Consolidated Financial Statements — (Continued)
In the normal course of business, the Company had letters of credit outstanding aggregating $40,413,000 at December 31, 2002 mostly to satisfy various collateral requirements in lieu of depositing cash or securities. All of these letters of credit were issued prior to December 31, 2002 and the current carrying amount of the aggregate liability is $0.
Derivative Financial Instruments
The Company has derivative financial instrument positions in foreign exchange forward contracts, option contracts, and index futures contracts, all of which are measured at fair value with realized and unrealized gains and losses recognized in earnings. The foreign exchange forward contract positions are generally taken to lock in the dollar cost of proceeds of foreign currency commitments associated with unsettled foreign denominated securities purchases or sales. The average maturity of the forward contracts is generally less than two weeks. The option positions taken are generally part of a strategy in which offsetting equity positions are taken. The index futures positions are taken as a hedge against securities positions. The Company also has interest rate swaps, which are a fair value hedge against $200.0 million aggregate principal amount of unsecured 7 3/4% senior notes due March 15, 2012.
The gross contracted or notional amount of index
futures contracts, commodities futures contracts, options
contracts, foreign exchange forward contracts and interest rate
swaps, which are not reflected in the consolidated statement of
financial condition, is set forth in the table below (in
thousands of dollars) and provide only a measure of the
Company’s involvement in these contracts at
December 31, 2002 and 2001. They do not represent amounts
subject to market risk and, in many cases, serve to reduce the
Company’s overall exposure to market and other risks.
Notional or contracted amount
2002
2001
Purchase
Sale
Purchase
Sale
$
—
$
1,131
$
—
$
1,410
43,900
27,061
9,687
1,765
10,515
3,850
6,655
16,121
200,000
—
—
—
| Fair Value of Derivative Financial Instruments |
FASB No. 133, “Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value.
44
Notes to Consolidated Financial
Statements — (Continued)
The following is an aggregate summary of the
average 2002 and 2001 and December 31, 2002 and 2001 fair
values of derivative financial instruments (in thousands of
dollars):
2002
2001
Average
End of period
Average
End of period
$
68
$
33
$
58
$
—
6
—
34
26
2,202
5,086
976
705
1,037
2,795
150
202
52
151
(114
)
205
18,005
30,280
—
—
Credit Risk
In the normal course of business, the Company is involved in the execution, settlement and financing of various customer and principal securities transactions. Customer activities are transacted on a cash, margin or delivery-versus-payment basis. Securities transactions are subject to the risk of counterparty or customer nonperformance. However, transactions are collateralized by the underlying security, thereby reducing the associated risk to changes in the market value of the security through settlement date or to the extent of margin balances.
The Company seeks to control the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral and transaction levels daily. The Company may require counterparties to deposit additional collateral or return collateral pledged. In the case of aged securities failed to receive, the Company may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any losses from the counterparty.
Concentration of Credit Risk
As a securities firm, the Company’s activities are executed primarily with and on behalf of other financial institutions, including brokers and dealers, banks and other institutional customers. Concentrations of credit risk can be affected by changes in economic, industry or geographical factors. The Company seeks to control its credit risk and the potential risk concentration through a variety of reporting and control procedures, including those described in the preceding discussion of credit risk.
(13) Other Comprehensive Income
The following summarizes other comprehensive loss
and accumulated other comprehensive loss at December 31,
2002 and for the year then ended (in thousands of dollars):
Before-Tax
Income Tax
Net-of-Tax
Amount
or Benefit
Amount
$
4,298
$
—
$
4,298
(5,379
)
1,911
(3,468
)
$
(1,081
)
$
1,911
$
830
45
Notes to Consolidated Financial
Statements — (Continued)
Minimum
Accumulated
Currency
Pension
Other
Translation
Liability
Comprehensive
Adjustments
Adjustment
Loss
$
(2,403
)
$
(2,301
)
$
(4,704
)
4,298
(3,468
)
830
$
1,895
$
(5,769
)
$
(3,874
)
The following summarizes other comprehensive loss
and accumulated other comprehensive loss at December 31,
2001 and for the year then ended (in thousands of dollars):
Before-Tax
Income Tax
Net-of-Tax
Amount
or Benefit
Amount
$
(1,518
)
$
—
$
(1,518
)
(2,023
)
860
(1,163
)
$
(3,541
)
$
860
$
(2,681
)
Minimum
Accumulated
Currency
Pension
Other
Translation
Liability
Comprehensive
Adjustments
Adjustment
Loss
$
(885
)
$
(1,138
)
$
(2,023
)
(1,518
)
(1,163
)
(2,681
)
$
(2,403
)
$
(2,301
)
$
(4,704
)
The following summarizes other comprehensive loss
and accumulated other comprehensive loss at December 31,
2000 and for the year then ended (in thousands of dollars):
Before-Tax
Income Tax
Net-of-Tax
Amount
or Benefit
Amount
$
(1,121
)
$
—
$
(1,121
)
(1,666
)
711
(955
)
$
(2,787
)
$
711
$
(2,076
)
Accumulated
Minimum
Other
Currency
Pension
Comprehensive
Translation
Liability
Income
Adjustments
Adjustment
(Loss)
$
236
$
(183
)
$
53
(1,121
)
(955
)
(2,076
)
$
(885
)
$
(1,138
)
$
(2,023
)
(14) Net Capital Requirements
As registered broker-dealers, Jefferies and Helfant Group are subject to the Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. Jefferies and Helfant Group have elected to use the alternative method permitted by the Rule, which requires that they each maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of the aggregate debit balances arising from customer transactions, as defined.
46
Notes to Consolidated Financial Statements — (Continued)
At December 31, 2002, Jefferies’ and Helfant Group’s net capital was $284,180,000, and $7,033,000, respectively, which exceeded minimum net capital requirements by $276,210,000 and $6,783,000, respectively.
(15) Contingencies and Commitments
Many aspects of the Company’s business involve substantial risks of liability. In the normal course of business, the Company and its subsidiaries have been named as defendants or co-defendants in lawsuits involving primarily claims for damages. The Company’s management believes that pending litigation will not have a material adverse effect on the Company.
As of December 31, 2002, the Company had outstanding guarantees of $35.6 million primarily relating to undrawn bank credit obligations of two affiliated investment funds in which the Company has an interest. Also, the Company has guaranteed all obligations of Jefferies International Limited (“JIL”) to various banks, which provide clearing and credit services to JIL. In addition, as of December 31, 2002, the Company had commitments to invest up to $11.2 million in various investments.
(16) Segment Reporting
The Company’s operations have been classified into a single business segment, a securities broker-dealer, which includes several types of financial services. This segment includes the traditional securities brokerage and investment banking activities of the Company. The Company’s business is predominantly in the United States with under 10% of revenues and under 2% of assets attributable to international operations.
(17) Goodwill
The following is a summary of goodwill as of
December 31, 2002 and the impact of goodwill amortization
on earnings for the years ended December 31, 2001 and 2000
(in thousands of dollars):
Excess of
Excess of
Purchase
Purchase
Price Over
Price Over
Net
Net
Assets
Assets
Accumulated
Acquired
Acquisition
Acquisition
Acquired
Amortization
Remaining
Date
$
12,986
$
1,863
$
11,123
Aug. 2000
26,040
—
26,040
Sept. 2001
300
—
300
June 2002
17,009
—
17,009
Dec. 2002
$
56,335
$
1,863
$
54,472
2002
2001
2000
$
62,571
$
59,539
$
54,981
—
1,301
562
$
62,571
$
60,840
$
55,543
There was no goodwill impairment as of December 31, 2002, 2001 and 2000.
47
Notes to Consolidated Financial Statements — (Continued)
Quarterdeck Investment Partners, LLC
The Company acquired Quarterdeck Investment Partners, LLC (“Quarterdeck”) for approximately $30 million in stock and cash, which includes its initial 2001 investment as well as amounts paid under the earn-out provision of the agreement. The acquisition was accounted for as a purchase and resulted in approximately $17.0 million in goodwill. There is also a five-year contingency for additional consideration.
The shares related to the stock were included in the denominator of the basic earnings per share calculation.
Helfant Group, Inc.
The Company acquired Lawrence Helfant, Inc. in the third quarter of 2001, with a combination of stock and cash totaling approximately $33.7 million. The acquisition was accounted for as a purchase and resulted in approximately $26.0 million in goodwill. On January 14, 2002, the Company merged W & D Securities, Inc. with Lawrence Helfant, Inc. to create Helfant Group, Inc.
At December 31, 2002 and 2001, excess of purchase price over net assets acquired remaining was $26.0 million and $23.4 million, respectively.
The shares related to the stock were included in the denominator of the basic earnings per share calculation.
The Europe Company
The Company acquired The Europe Company Ltd. in the third quarter of 2000, with a combination of restricted stock, zero coupon unsecured Euro denominated convertible loan notes and cash totaling approximately $18.0 million. The acquisition was accounted for as a purchase and resulted in approximately $13.0 million in goodwill.
At December 31, 2002 and 2001, excess of purchase price over net assets acquired remaining was $11.1 million and $11.3 million, respectively, net of accumulated amortization of $1.9 million and $1.9 million, respectively.
The approximately $2.8 million in zero coupon unsecured Euro denominated convertible loan notes mature in 2010 and have been classified on the consolidated statement of financial condition as long-term convertible debt. The conversion price for the notes is approximately 28.80 Euros (as of December 31, 2002, this was equivalent to approximately $30.24) per common share until August 4, 2003 and the closing stock price on the date of conversion subsequent to that date.
The shares and share equivalents related to both the restricted stock and zero coupon unsecured Euro denominated convertible loan notes were included in the denominator of the basic earnings per share calculation.
48
Notes to Consolidated Financial
Statements — (Continued)
(18) Asset Management
The following summarizes asset management
revenues for the years 2002, 2001 and 2000 (in thousands of
dollars):
2002
2001
2000
$
5,660
$
12,146
$
5,919
3,265
2,641
1,514
343
334
143
2,758
2,566
1,984
$
12,026
$
17,687
$
9,560
(19) Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly
statements of earnings for the years ended December 31,
2002 and 2001 (in thousands of dollars, except per share
amounts):
March
June
September
December
Year
$
195,342
$
200,877
$
179,151
$
179,406
$
754,776
29,964
29,897
19,314
24,517
103,692
17,672
17,615
11,782
15,502
62,571
$
0.71
$
0.72
$
0.48
$
0.63
$
2.54
$
0.65
$
0.64
$
0.43
$
0.56
$
2.27
$
209,708
$
215,897
$
165,644
$
193,742
$
784,991
27,131
28,574
18,389
28,558
102,652
15,684
16,552
10,632
16,671
59,539
$
0.65
$
0.68
$
0.43
$
0.66
$
2.42
$
0.63
$
0.65
$
0.40
$
0.61
$
2.28
49
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None
PART III
| ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. |
Information with respect to this item will be contained in the Proxy Statement for the 2003 Annual Meeting of Stockholders, which is incorporated herein by reference.
| ITEM 11. | EXECUTIVE COMPENSATION. |
Information with respect to this item will be contained in the Proxy Statement for the 2003 Annual Meeting of Stockholders, which is incorporated herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to this item will be contained in the Proxy Statement for the 2003 Annual Meeting of Stockholders, which is incorporated herein by reference.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. |
Information with respect to this item will be contained in the Proxy Statement for the 2003 Annual Meeting of Stockholders, which is incorporated herein by reference.
| ITEM 14. | CONTROLS AND PROCEDURES |
Within 90 days prior to the filing of this annual report, the Company conducted an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Company’s disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON FORM 8-K.
Pages
Financial Statements
Included in Part II of this report:
Independent Auditors’ Report
22
Consolidated Statements of Financial
Condition
23
Consolidated Statements of Earnings
24
Consolidated Statements of Changes in
Stockholders’ Equity
and
Comprehensive Income (Loss)
25
Consolidated Statements of Cash Flows
26
Notes to Consolidated Financial
Statements
28
50
(a)2. All Schedules are omitted because they are not applicable or because the required information is shown in the financial statements or notes thereto.
(a)3.
Exhibits
(3
.1)
Registrant’s Amended and Restated
Certificate of Incorporation is incorporated by reference to
Exhibit 3.1 of the Registrant’s Form 8-K filed on
April 30, 1999.
(3
.2)*
Registrant’s By-Laws.
(4
.1)
Indenture dated as of August 18, 1997 by and
between Jefferies Group, Inc. and The Bank of New York, as
Trustee, including form of 7 1/2% Series B Senior
Notes due 2007 is incorporated by reference to Exhibit 4.1
to Jefferies Group, Inc.’s Registration Statement on
Form S-4 (No. 333-40263) filed on November 14,
1997 including amendments thereto.
[4
.1(a)]
First Supplemental Indenture dated as of
March 15, 1999 between Jefferies Group, Inc. and The Bank
of New York, as Trustee, supplementing the Indenture dated as of
August 18, 1997 is incorporated by reference to
Exhibit [4.1(a)] of Registrant’s Form 10-K filed
on March 27, 2000.
[4
.1(b)]
Second Supplemental Indenture dated as of
March 17, 1999 between JEF Holding Company, Inc., Jefferies
Group, Inc. and The Bank of New York, as Trustee, supplementing
the Indenture dated as of August 18, 1997, as amended on
March 15, 1999 is incorporated by reference to
Exhibit [4.1(b)] of Registrant’s Form 10-K filed
on March 27, 2000.
(4
.2)
Registration Rights Agreement dated as of
August 18, 1997 by and among Jefferies Group, Inc. and the
purchasers of Jefferies Group, Inc.’s 7 1/2% Series B
Senior Notes due 2007 is incorporated by reference to
Exhibit 10.2 to Jefferies Group, Inc.’s Registration
Statement on Form S-4 (No. 333-40263) filed on
November 14, 1997 including amendments thereto.
(4
.3)*
Indenture dated as of March 12, 2002 by and
between Jefferies Group, Inc. and The Bank of New York, as
Trustee.
(4
.4)*
Jefferies Group, Inc. 7.75% Senior Note, due
March 15, 2012.
(4
.5)
Zero Coupon Unsecured Convertible Notes (the
“Notes”); Registrant hereby agrees to provide copies
of such Notes to the Commission upon request.
(4
.6)
Subordinated Loan Agreements (Forms SL-1 and
SL-5) between Bonds Direct Securities LLC and the lenders;
Registrant hereby agrees to provide copies of such Notes to the
Commission upon request.
(10
.1)
Registrant’s 1999 Incentive Compensation
Plan is incorporated by reference to Exhibit 10.1 of
Registrant’s Form 10 filed on April 20, 1999.
(10
.2)
Registrant’s 1999 Directors’ Stock
Compensation Plan is incorporated by reference to
Exhibit 10.2 of Registrant’s Form 10 filed on
April 20, 1999.
(10
.3)
Distribution Agreement, dated as of
March 17, 1999, by and between Jefferies Group, Inc. and
JEF Holding Company, Inc. is incorporated by reference to
Exhibit 10.3 of Registrant’s Form 10 filed on
April 20, 1999.
(10
.4)
Tax Sharing and Indemnification Agreement, dated
as of March 17, 1999, by and among Investment Technology
Group, Inc., Jefferies Group, Inc. and the JEF Holding Company,
Inc. is incorporated by reference to Exhibit 10.4 of
Registrant’s Form 10 filed on April 20, 1999.
(10
.5)
Amended and Restated Tax Sharing Agreement, dated
as of March 17, 1999, by and among Investment Technology
Group, Inc., Jefferies Group, Inc. and JEF Holding Company, Inc.
is incorporated by reference to Exhibit 10.5 of
Registrant’s Form 10 filed on April 20, 1999.
(10
.6)
Benefits Agreement, dated as of March 17,
1999, by and between Jefferies Group, Inc. and JEF Holding
Company, Inc. is incorporated by reference to Exhibit 10.6
of Registrant’s Form 10 filed on April 20, 1999.
51
(10
.7)
Jefferies Group, Inc. Deferred Compensation Plan,
dated effective January 1, 2001 is incorporated by
reference to Exhibit 10.7 of Registrant’s
Form 10-K filed on March 30, 2001.
(10
.8)
Letter agreement between Frank E. Baxter and
Registrant dated February 15, 2002 is incorporated by
reference to Exhibit 10.8 of Registrant’s
Form 10-Q filed on May 10, 2002.
(10
.9)*
Letter agreement between Lloyd H. Feller and
Registrant dated November 4, 2002.
(12
.1)*
Computation of Ratio of Earnings to Fixed Charges.
(21
)*
List of Subsidiaries of Registrant.
(23
)*
Consent of KPMG LLP.
(99
.1)*
Certification by the Chief Executive Officer and
Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
| * | Filed herewith. |
Exhibits 10.1, 10.2, 10.7, 10.8 and 10.9 are management contracts or compensatory plans or arrangements.
All other Exhibits are omitted because they are not applicable.
(b) On October 7, 2002, the Company filed a Form 8-K disclosing a letter received from Sheldon B. Lubar dated October 1, 2002, resigning as a director of the Company effective October 31, 2002.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| JEFFERIES GROUP, INC. |
| By | /s/ RICHARD B. HANDLER |
|
|
|
| Richard B. Handler | |
| Chairman of the Board of Directors |
Dated: March 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
| Name | Title | Date | ||
|
|
|
|
||
|
/s/ RICHARD B. HANDLER
Richard B. Handler |
Chairman of the Board of Directors, Chief Executive Officer | March 28, 2003 | ||
|
/s/ JOHN C. SHAW, JR.
John C. Shaw, Jr. |
Director, President and Chief Operating Officer | March 28, 2003 | ||
|
/s/ JOSEPH A. SCHENK
Joseph A. Schenk |
Executive Vice President and Chief Financial Officer | March 28, 2003 | ||
|
/s/ W. PATRICK CAMPBELL
W. Patrick Campbell |
Director | March 28, 2003 | ||
|
/s/ RICHARD G. DOOLEY
Richard G. Dooley |
Director | March 28, 2003 | ||
|
/s/ FRANK J. MACCHIAROLA
Frank J. Macchiarola |
Director | March 28, 2003 | ||
53
CERTIFICATIONS
I, Joseph A. Schenk, certify that:
1. I have reviewed this annual report on
Form 10-K of Jefferies Group, Inc.;
2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;
4. The registrant’s other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
5. The registrant’s other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons
performing the equivalent function):
6. The registrant’s other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: March 28, 2003
54
1. I have reviewed this annual report on
Form 10-K of Jefferies Group, Inc.;
2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;
4. The registrant’s other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
5. The registrant’s other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons
performing the equivalent function):
6. The registrant’s other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: March 28, 2003
a) designed such disclosure controls and
procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant’s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual
report (the “Evaluation Date”); and
c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant’s ability to record, process, summarize and
report financial data and have identified for the
registrant’s auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrant’s internal controls; and
By:
/s/ JOSEPH A. SCHENK
Joseph A. Schenk
Chief Financial Officer
Table of Contents
a) designed such disclosure controls and
procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this annual report is being prepared;
b) evaluated the effectiveness of the
registrant’s disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual
report (the “Evaluation Date”); and
c) presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date;
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant’s ability to record, process, summarize and
report financial data and have identified for the
registrant’s auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrant’s internal controls; and
By:
/s/ RICHARD B. HANDLER
Richard B. Handler
Chief Executive Officer
55
EXHIBIT 3.2
JEFFERIES GROUP, INC.
(a Delaware corporation)
BYLAWS
Amended January 21, 2003
BY-LAWS
OF
JEFFERIES GROUP, INC.
(a Delaware Corporation)
ARTICLE I
OFFICES AND FISCAL YEAR
SECTION 1.01. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware and the name and address of its registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware.
SECTION 1.02. Other Offices. The Corporation may also have offices at such other places within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation requires.
SECTION 1.03. Fiscal Year. The fiscal year of the Corporation shall end on the 31st of December in each year unless the Board of Directors determines otherwise.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Place of Meeting. All meetings of the stockholders of the Corporation shall be held at the registered office of the Corporation, or at such other place within or without the State of Delaware as shall be designated by the Board of Directors in the notice of such meeting.
SECTION 2.02. Annual Meeting. The Board of Directors shall fix the date and time of the annual meeting of the stockholders, and at said meeting the stockholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting.
SECTION 2.03. Special Meetings. Subject to the rights of the holders of any series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation ("Preferred Stock") with respect to such series of Preferred Stock or any other
series or class of stock (excluding Common Stock) set forth in the Certificate of Incorporation, a special meeting of the stockholders shall be called only by the secretary of the Corporation at the request of (i) a majority of the total number of directors which the Corporation at the time would have if there were no vacancies or (ii) by any person authorized by the Board of Directors (through a vote of a majority of the total number of directors which the Corporation at the time would have if there were no vacancies) to call a special meeting. Notwithstanding the foregoing, stockholders shall have no right to call a special meeting of stockholders.
SECTION 2.04. Notice of Meetings. Written notice of the place, date and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting not less than ten nor more than sixty days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof.
SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders of a majority of the stock issued and outstanding (not including treasury stock) and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the Certificate of Incorporation or by these By-laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the Board of Directors or the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. When a quorum is present at any meeting, the vote by stockholders present or represented by proxy entitled to cast a majority of the votes which all stockholders present are entitled to cast thereon shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the applicable statute, the Certificate of Incorporation or these By-laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Except upon those questions governed by the aforesaid express provisions, the stockholders present in person or by proxy at a duly organized meeting can continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. Organization. At every meeting of the stockholders, the
chairman of the board, if there be one, shall act as chairman or in the case of
a vacancy in the office or absence of the chairman of the board, one of the
following persons present in the following order stated shall act as chairman:
the vice chairman, if one has been appointed, the president, a chairman
designated by the Board of Directors, the vice presidents in their order or
rank, or a chairman chosen by the stockholders entitled to cast a majority of
the votes which all stockholders present in person or by proxy are entitled to
cast, shall act as chairman, and the
secretary, or, in his or her absence, an assistant secretary, or in the absence of the secretary and the assistant secretaries, a person appointed by the chairman, shall act as secretary.
SECTION 2.07. Voting. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of capital stock having voting power held by such stockholder. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Every proxy shall be executed in writing by the stockholder or by such stockholder's duly authorized attorney-in-fact and filed with the secretary of the Corporation; provided, however, the foregoing clause shall not preclude the giving of proxies by electronic, telephonic or other means so long as such procedure is expressly approved by the Corporation's Board of Directors and is permitted by law. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the secretary of the Corporation.
SECTION 2.08. Notice of Stockholder Business and Nominations.
(A) Annual Meeting of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) by or at the direction of the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation at the time would have if there were no vacancies or (b) by any stockholder of the Corporation who is entitled to vote at the meeting with respect to the election of directors or the business to be proposed by such stockholder, as the case may be, who complies with the notice procedures set forth in clauses (2) and (3) of paragraph (A) of this Section 2.08 and who is a stockholder of record at the time such notice is delivered to the secretary of the Corporation as provided below.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (b) of paragraph (A) (1) of this Section 2.08, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and such business must be a proper subject for stockholder action under the Delaware General Corporation Law (the "DGCL"). To be timely, a stockholder's notice shall be delivered to the secretary of the Corporation at the principal executive office of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting (or action taken by consent in lieu of annual meeting); provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days, or delayed by more than 30 days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than either the close of business on (a) the 10th day following the day on which notice of the date of such meeting was mailed or (b) the 10th day following the day on which public announcement of the
date of such meeting is first made, whichever first occurs in (a) or (b). Such stockholder's notice shall set forth (x) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (y) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (z) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A) (2) of this Section 2.08 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 80 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by paragraph (A) (2) of this Section 2.08 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
(B) Special Meeting of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting and in accordance with these By-laws. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 2.08, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.08. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this Section 2.08 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholders notice as described above.
(C) General.
(1) Only persons who are nominated in accordance with the procedures set forth in this Section 2.08 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.08.
(2) Except as otherwise provided by law, the Certificate of Incorporation or this Section 2.08, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 2.08 and, if any proposed nomination or business is not in compliance with his Section 2.08, to declare that such defective nomination or proposal shall be disregarded.
(3) For purposes of this Section 2.08, "public announcement"
shall mean disclosure on a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section 2.08, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.08. Nothing in this Section 2.08 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation's proxy materials with respect to a meeting of stockholders pursuant to Rule 14a-8 under Exchange Act or (ii) of the holders of any series of Preferred Stock or any other series or class of stock (excluding Common Stock) as set forth in the Certificate of Incorporation to elect directors under specified circumstances or to consent to specific actions taken by the Corporation.
SECTION 2.09. Procedure for Election of Directors; Required Vote. Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock as set forth in the Certificate of Incorporation to elect directors under specified circumstances, election of directors at all meetings of the stockholders at which directors are to be elected shall be by a plurality of the votes cast. Except as otherwise provided by law, the Certificate of Incorporation, or these By-Laws, in all matters other than the election of directors, the affirmative vote of a majority of the stock present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders.
SECTION 2.10. No Stockholder Action by Written Consent. Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock (excluding
Common Stock) set forth in the Certificate of Incorporation to elect additional directors under specified circumstances or to consent to specific actions taken by the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be taken at an annual or special meeting of the stockholders and may not be taken by any consent in writing by stockholders of the Corporation.
SECTION 2.11. Voting Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 2.12. Inspectors of Election. All elections of directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation; the vote upon any other matter need not be by ballot. In advance of any meeting of stockholders, the Board of Directors may appoint inspectors of election, who need not be stockholders, to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting shall, appoint inspectors of election. The number of inspectors shall be either one or three, as determined by the chairman of the meeting or the Board of Directors, as the case may be. No person who is a candidate for office shall act as an inspector. In case any person appointed as an inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting, or at the meeting by the chairman of the meeting.
If inspectors of election are appointed as aforesaid, they shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies and ballots, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all stockholders. If there be three inspectors of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.
On request of the chairman of the meeting or of any stockholder or such stockholder's proxy, the inspectors shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the express powers conferred upon the Board of Directors by these By-laws, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or the Certificate of Incorporation or by these By-laws required to be exercised or done by the stockholders.
SECTION 3.02. Number and Term of Office. The Board of Directors shall consist of such number of directors, not less than 5 nor more than 17, as may be determined from time to time by (i) a resolution adopted by a majority of the total number of directors which the Corporation at the time would have if there were no vacancies or (ii) the affirmative vote of at least 66 2/3% of the voting power of all of the shares of the Corporation entitled to vote generally in the elections of directors, voting together as a single class. The directors shall be elected at each annual meeting of stockholders of the Corporation and shall hold office for a term expiring at the annual meeting of stockholders held in the year following the year of their election, and until their successors are elected and qualified. All directors of the Corporation shall be natural persons, but need not be residents of Delaware or stockholders of the Corporation.
SECTION 3.03. Vacancies. Subject to applicable law and the rights of the holders of any series of Preferred Stock or any other series or class of stock (excluding Common Stock) as set forth in the Certificate of Incorporation to elect directors under specified circumstances, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or stockholders of the Corporation at any annual meeting, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors shall shorten the term of any incumbent director.
SECTION 3.04. Resignations. Any director of the corporation may resign at any time by giving written notice to the president or the secretary of the Corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.05 Organization. At every meeting of the Board of Directors, the chairman of the board, if there be one, or, in the case of a vacancy in the office or absence of the chairman of the board, one of the following officers present in the order stated: the vice
chairman of the board, if there be one, the president, the vice presidents in their order of rank and seniority, or a chairman chosen by a majority of the directors present, shall preside, and the secretary, or, in his or her absence, an assistant secretary, or in the absence of the secretary and the assistant secretaries, any person appointed by the chairman of the meeting, shall act as secretary.
SECTION 3.06. Place of Meeting. The Board of Directors may hold its meetings, both regular and special, at such place or places within or without the State of Delaware as the Board of Directors may from time to time appoint, or as may be designated in the notice calling the meeting.
SECTION 3.07. Organization Meeting. Immediately after each annual election of directors, the Board of Directors shall meet for the purpose of organization, election of officers, and the transaction of other business, at the place where such election of directors was held or, if notice of such meeting is given, at the place specified in such notice. Notice of such meeting need not be given. In the absence of a quorum at said meeting, the same may be held at any other time and place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by the directors, if any, not attending and participating in the meeting.
SECTION 3.08. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall be designated from time to time by resolution of the Board of Directors. If the date fixed for any Such regular meeting be a legal holiday under the laws of the State where such meeting is to be held, then the same shall be held on the next succeeding business day, not a Saturday, or at such other time as may be determined by resolution of the Board of Directors. At such meetings, the directors shall transact such business as may properly be brought before the meeting.
SECTION 3.09. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman or by two or more of the directors. Notice of each such meeting shall be given to each director by telephone or in writing, including by facsimile message, to such telephone number or address as a director may designate from time to time at least 24 hours (in the case of notice by telephone or facsimile message) or 48 hours (in the case of notice by overnight delivery service) or three days (in the case of notice by mail) before the time at which the meeting is to be held. Each such notice shall state the time and place of the meeting to be so held. Any notice by telephone shall be deemed effective if a message regarding the substance of the notice is given on a director's behalf to the director's secretary or assistant or to a member of the director's family.
SECTION 3.10. Quorum, Manner of Acting and Adjournment. At all meetings of the Board of Directors, a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors.
SECTION 3.11. Executive and Other Committees. The Board of Directors may, by resolution adopted by a majority of the whole board, designate an executive committee and one or more other committees, each committee to consist of one or more directors and to have such authority as may be specified by the Board of Directors, subject to the DGCL. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member, and the alternate or alternates, if any, designated for such member, of any committee the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Any such committee shall be governed by the procedural provisions of these By-laws that govern the operation of the full Board of Directors, including with respect to notice and quorum, except to the extent specified otherwise by the Board of Directors.
SECTION 3.12. Compensation of Directors. Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
SECTION 3.13. Conference Telephone Meetings. One or more directors may participate in a meeting of the Board of Directors, or of a committee of the Board of Directors, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 4.01. Number, Qualifications and Designation. The officers of the Corporation shall be chosen by the Board of Directors and shall be a chairman, a president, a secretary, a treasurer, and such other officers as may be elected in accordance with the provisions of Section 4.03 of this Article. Any number of offices may be held by the same person. Officers may, but need not, be directors or stockholders of the Corporation. The chairman of the board shall be the chief executive officer of the Corporation, except as otherwise determined by the Board of Directors. All officers elected by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as may from time to time be conferred by the Board of Directors or by any committee thereof.
SECTION 4.02. Election and Term of Office. The officers of the Corporation, except those elected by delegated authority pursuant to the last sentence of Section 4.03 of this Article IV, shall be elected annually by the Board of Directors, but each such officer shall hold office until a successor is elected and qualified, or until his or her earlier resignation or removal.
SECTION 4.03. Other Officers, Committees and Agents. The Board of Directors may from time to time elect such other officers and appoint such committees, employees or other agents as it deems necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as are provided in these By-laws, or as the Board of Directors may from time to time determine. The Board of Directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents.
SECTION 4.04. Removal. Any officer elected, or agent appointed, by the Board of Directors may be removed by the affirmative vote of a majority of the whole Board of Directors whenever, in their judgment, the best interests of the Corporation would be served thereby. Any officer or agent appointed by another officer by delegated authority pursuant to the last sentence of Section 4.03 may be removed by such other officer whenever, in such officer's judgment, the best interests of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of such officer's successor, such officer's death, such officer's resignation or such officer's removal, whichever event shall first occur, except as otherwise provided in a written agreement or benefit plan.
SECTION 4.05. Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors for the unexpired portion of the term at any meeting of the Board of Directors. Any vacancy in an office appointed by another officer by delegated authority pursuant to Section 4.03 because of death, resignation, or removal may be filled by such other officer.
SECTION 4.06. Officers' Bonds. No officer of the Corporation need provide a bond to guarantee the faithful discharge of the officer's duties unless the Board of Directors shall
by resolution so require a bond in which event such officer shall give the Corporation a bond (which shall be renewed if and as required) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of office.
SECTION 4.07. Salaries. The salaries of the officers of the Corporation elected by the Board of Directors shall be fixed from time to time by the Board of Directors, except to the extent the Board of Directors shall have delegated power to officers of the Corporation to fix, from time to time, the salaries of such officers' assistant or subordinate officers.
ARTICLE V
NOTICE - WAIVERS
SECTION 5.01. Notice, What Constitutes. Whenever, under the provisions of the statutes of Delaware or the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at such stockholder's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given in accordance with Section 3.09 of Article III hereof.
SECTION 5.02. Waivers of Notice. Whenever any written notice is required to be given under the provisions of the Certificate of Incorporation, these By-laws, or by statute, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Except in the case of a special meeting of stockholders, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened.
SECTION 5.03. Exception to Requirements of Notice. Whenever notice is required to be given, under any provision of the DGCL or of the Certificate of Incorporation or these By-laws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any section of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
Whenever notice is required to be given, under any provision of the DGCL
or the Certificate of Incorporation or these By-laws, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a 12 month period, have been mailed addressed to such person
at such stockholder's address as shown on the records of the Corporation and
have been returned undeliverable, the giving of such notice to such person shall
not be required. Any action or meeting which shall be taken or held without
notice to such person shall have the same force and effect as if such notice had
been duly given. If any such person shall deliver to the Corporation a written
notice setting forth such stockholder's then current address, the requirement
that notice be given to such person shall be reinstated. In the event that the
action taken by the Corporation is such as to require the filing of a
certificate under any section of the DGCL, the certificate need not state that
notice was not given to persons to whom notice was not required to be given
pursuant to this section.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
SECTION 6.01. Issuance. Each stockholder shall be entitled to a certificate or certificates for shares of stock of the Corporation owned by such stockholder upon such stockholder's request therefor. The stock certificates of the Corporation shall be numbered and registered in the stock ledger and transfer books of the Corporation as they are issued. They shall be signed by the chairman of the board, the president or a vice president and by the secretary or an assistant secretary or the treasurer. It shall not be necessary for any such certificate to bear the corporate seal unless required by law. Any of or all the signatures upon such certificate may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent or registrar, before the certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent or registrar at the date of its issue.
SECTION 6.02. Transfer. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. No transfer shall be made which would be inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform Commercial Code-Investment Securities.
SECTION 6.03. Stock Certificates. Stock certificates of the Corporation shall be in such form as provided by statute and approved by the Board of Directors or by such committee or officer authorized by the Board of Directors to approve the form of certificate. The stock record books and the blank stock certificates books shall be kept by the secretary or by any agency designated by the Board of Directors for that purpose.
SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such stockholder's legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 6.05. Record Holder of Shares. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
SECTION 6.06. Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
SECTION 7.01. Indemnification of Authorized Representatives in Third Party Proceedings. The Corporation shall indemnify any person who was or is an authorized representative of the Corporation, and who was or is a party, or is threatened to be made a party to any third party proceeding, by reason of the fact that such person was or is an authorized representative of the Corporation, against expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such third party proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal third party proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, indictment, conviction or upon a plea of nolo contendre or its equivalent, shall not of itself create a presumption that the authorized representative did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to, the best interests of the Corporation, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in Corporate Proceedings. The Corporation shall indemnify any person who was or is an authorized representative of the Corporation and who was or is a party or is threatened to be made a party to any corporate proceeding, by reason of the fact that such person was or is an authorized representative of the Corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such corporate action if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such corporate proceeding was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such authorized representative is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized Representatives. To the extent that an authorized representative of the Corporation has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses actually and reasonably incurred by such person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the authorized representative is proper in the circumstances because such person has either met the applicable standard of conduct set forth in Section 7.01 or 7.02 or has been successful on the merits or otherwise as set forth in Section 7.03 and that the amount requested has been actually and reasonably incurred. Such determination shall be made:
(1) By the Board of Directors by a majority of a quorum consisting of directors who were not parties to such third party or corporate proceeding, or
(2) If such a quorum is not obtainable, or, even if obtainable, a majority vote of such a quorum so directs, by independent legal counsel in a written opinion, or
(3) By the stockholders.
SECTION 7.05. Advancing Expenses.
(1) Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of a director or other authorized representative by the Corporation in advance of the final disposition of such third party or corporate proceeding upon receipt of an undertaking by or on behalf of the director or other authorized representative to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article.
(2) The financial ability of any director or other authorized representative to make a repayment contemplated by this Section 7.05 shall not be a prerequisite to the making of an advance.
SECTION 7.06. Definitions. For purposes of this Article VII:
(1) "authorized representative" shall mean a director or officer of the Corporation, or a person serving at the request of the Corporation as a director, officer, or trustee, of another corporation, partnership, joint venture, trust or other enterprise;
(2) "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation of merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor or investigative proceeding by the Corporation;
(4) "criminal third party proceeding" shall include any action or investigation which could or does lead to a criminal third party proceeding;
(5) "expenses" shall include attorneys' fees and disbursements;
(6) "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan;
(7) "not opposed to the best interests of the Corporation" shall include actions taken in good faith and in a manner the authorized representative reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar involvement;
(10) "serving at the request of the Corporation" shall include any service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants, or beneficiaries; and
(11) "third party proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation.
SECTION 7.07. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article.
SECTION 7.08. Scope of Article. The indemnification of authorized representatives and advancement of expenses, as authorized by the preceding provisions of this Article, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity. The indemnification and advancement of expenses provided by or granted pursuant to this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be an authorized representative and shall inure to the benefit of the heirs, executors and administrators of such a person.
SECTION 7.09. Reliance on Provisions. Each person who shall act as an authorized representative of the Corporation shall be deemed to be doing so in reliance upon rights of indemnification provided by this Article, with the same effect as if such person and the Corporation entered into a binding contract under which the Corporation agreed to provide the indemnification provided by this Article VII.
ARTICLE VIII
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
SECTION 8.01. Affiliated Transactions. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders.
SECTION 8.01. Determining Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee thereof which authorizes the contract or transaction.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
SECTION 9.02. Contracts. Except as otherwise provided in these By-laws, the Board of Directors may authorize any officer or officers including the chairman and vice chairman of the Board of Directors, or any agent or agents, to enter into any contract or to execute or deliver any instrument on behalf of the Corporation and such authority may be general or confined to specific instances.
SECTION 9.03. Checks. All checks, notes, bills of exchange or other orders in writing shall be signed by the president, any vice president, the treasurer and such other person or persons as the Board of Directors may from time to time designate.
SECTION 9.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 9.05. Deposits. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as the Board of Directors may approve or designate, and all such funds shall be withdrawn only upon checks signed by such one or more officers or employees as the Board of Directors shall from time to time determine.
SECTION 9.06. Corporate Records. Every stockholder shall, upon written demand under oath stating the purpose thereof, have a right to examine, in person or by agent or attorney, during the usual hours for business, for any proper purpose, the stock ledger, books or
records of account, and records of the proceedings of the stockholders and directors, and make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. Where the stockholder seeks to inspect the books and records of the Corporation, other than its stock ledger or list of stockholders, the stockholder shall first establish (1) compliance with the provisions of this section respecting the form and manner of making demand for inspection of such document; and (2) that the inspection sought is for a proper purpose. Where the stockholder seeks to inspect the stock ledger or list of stockholders of the Corporation and has complied with the provisions of this section respecting the form and manner of making demand for inspection of such documents, the burden of proof shall be upon the Corporation to establish that the inspection sought is for an improper purpose.
Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. The court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger and the stock list and to make copies or extracts therefrom. The court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the court may deem just and proper.
SECTION 9.07. Amendment of By-laws. These By-laws may be amended, added to, rescinded or repealed at any meeting of the Board of Directors or of the stockholders, provided that notice of the proposed change was given in the notice of the meeting and, in the case of the Board of Directors, in a notice given no less than twenty-four hours prior to the meeting; provided, however, that in the case of amendments by stockholders, notwithstanding any other provisions of these By-laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock or any other series or class of stock set forth in the Certificate of Incorporation which is required by law, the Certificate of Incorporation or these By-laws, the affirmative vote of the holders of at least 66 2/3% of the voting power of the then outstanding shares of the Corporation entitled to vote generally in the election of directors, present or represented by proxy, voting together as a single class, shall be required to alter, amend or repeal Sections 2.03, 2.08, 2.10, 3.02, 3.03, 3.05, 9.07 and Article VII of these By-laws.
EXHIBIT 4.3
EXECUTION COPY
JEFFERIES GROUP, INC.,
Issuer
and
THE BANK OF NEW YORK,
Trustee
INDENTURE
Dated as of March 12, 2002
Senior Securities
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...................1
Section 1.01 Definitions.......................................................1
Section 1.02 Compliance Certificates and Opinions..............................8
Section 1.03 Form of Documents Delivered to Trustee............................9
Section 1.04 Acts of Holders; Record Dates.....................................9
Section 1.05 Notices, Etc., to Trustee and Company............................11
Section 1.06 Notice to Holders; Waiver........................................12
Section 1.07 Conflict with Trust Indenture Act................................12
Section 1.08 Effect of Headings and Table of Contents.........................13
Section 1.09 Successors and Assigns...........................................13
Section 1.10 Separability Clause..............................................13
Section 1.11 Benefits of Indenture............................................13
Section 1.12 Governing Law....................................................13
Section 1.13 Legal Holidays...................................................13
ARTICLE II SECURITY FORMS...........................................................14
Section 2.01 Forms Generally..................................................14
Section 2.02 Form of Face of Security.........................................14
Section 2.03 Form of Reverse of Security......................................16
Section 2.04 Form of Legend for Global Securities.............................20
Section 2.05 Form of Trustee's Certificate of Authentication..................20
ARTICLE III THE SECURITIES...........................................................20
Section 3.01 Amount Unlimited; Issuable in Series.............................20
Section 3.02 Denominations....................................................23
Section 3.03 Execution, Authentication, Delivery and Dating...................23
Section 3.04 Temporary Securities.............................................24
Section 3.05 Registration, Registration of Transfer and Exchange..............25
Section 3.06 Mutilated, Destroyed, Lost and Stolen Securities.................26
Section 3.07 Payment of Interest; Interest Rights Preserved...................27
Section 3.08 Persons Deemed Owners............................................28
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TABLE OF CONTENTS
(continued)
PAGE
Section 3.09 Cancellation.....................................................28
Section 3.10 Computation of Interest..........................................29
Section 3.11 CUSIP Numbers....................................................29
ARTICLE IV SATISFACTION AND DISCHARGE...............................................29
Section 4.01 Satisfaction and Discharge of Indenture..........................29
Section 4.02 Application of Trust Money.......................................30
ARTICLE V REMEDIES.................................................................31
Section 5.01 Events of Default................................................31
Section 5.02 Acceleration of Maturity; Rescission and Annulment...............32
Section 5.03 Collection of Indebtedness and Suits for Enforcement by
Trustee..........................................................33
Section 5.04 Trustee May File Proofs of Claim.................................34
Section 5.05 Trustee May Enforce Claims Without Possession of Securities......34
Section 5.06 Application of Money Collected...................................34
Section 5.07 Limitation on Suits..............................................35
Section 5.08 Unconditional Right of Holders to Receive Principal, Premium
and Interest.....................................................35
Section 5.09 Restoration of Rights and Remedies...............................36
Section 5.10 Rights and Remedies Cumulative...................................36
Section 5.11 Delay or Omission Not Waiver.....................................36
Section 5.12 Control by Holders...............................................36
Section 5.13 Waiver of Past Defaults..........................................37
Section 5.14 Undertaking for Costs............................................37
Section 5.15 Waiver of Usury, Stay or Extension Laws..........................37
ARTICLE VI THE TRUSTEE..............................................................38
Section 6.01 Duties of Trustee................................................38
Section 6.02 Rights of Trustee................................................39
Section 6.03 Individual Rights of Trustee.....................................40
Section 6.04 Trustee's Disclaimer.............................................40
Section 6.05 Notice of Default................................................40
Section 6.06 Reports by Trustee to Holders....................................40
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TABLE OF CONTENTS
(continued)
PAGE
Section 6.07 Compensation and Indemnity.......................................41
Section 6.08 Replacement of Trustee...........................................42
Section 6.09 Successor Trustee by Merger, Etc.................................43
Section 6.10 Eligibility; Disqualification....................................43
Section 6.11 Preferential Collection of Claims against Company................43
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY........................43
Section 7.01 Company to Furnish Trustee Names and Addresses of Holders........43
Section 7.02 Preservation of Information; Communications to Holders...........44
Section 7.03 Reports by Trustee...............................................44
Section 7.04 Reports by Company...............................................44
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.....................45
Section 8.01 When Company May Merge, Etc......................................45
Section 8.02 Successor Corporation Substituted................................45
ARTICLE IX SUPPLEMENTAL INDENTURES..................................................46
Section 9.01 Supplemental Indentures Without Consent of Holders...............46
Section 9.02 Supplemental Indentures with Consent of Holders..................47
Section 9.03 Execution of Supplemental Indentures.............................48
Section 9.04 Effect of Supplemental Indentures................................48
Section 9.05 Conformity with Trust Indenture Act..............................48
Section 9.06 Reference in Securities to Supplemental Indentures...............48
ARTICLE X COVENANTS................................................................49
Section 10.01 Payment of Securities............................................49
Section 10.02 Maintenance of Office or Agency..................................49
Section 10.03 Money for Securities Payments to Be Held in Trust................49
Section 10.04 Corporate Existence..............................................50
Section 10.05 Payment of Taxes and Other Claims................................51
Section 10.06 Compliance Certificate; Notice of Default........................51
Section 10.07 Waiver of Stay, Extension or Usury Laws..........................51
Section 10.08 Limitation on Liens..............................................52
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TABLE OF CONTENTS
(continued)
PAGE
Section 10.09 Limitation on Transactions with Affiliates.......................52
ARTICLE XI REDEMPTION OF SECURITIES.................................................53
Section 11.01 Applicability of Article.........................................53
Section 11.02 Election to Redeem; Notice to Trustee............................53
Section 11.03 Selection by Trustee of Securities to Be Redeemed................53
Section 11.04 Notice of Redemption.............................................54
Section 11.05 Deposit of Redemption Price......................................54
Section 11.06 Securities Payable on Redemption Date............................54
Section 11.07 Securities Redeemed in Part......................................55
ARTICLE XII SINKING FUNDS............................................................55
Section 12.01 Applicability of Article.........................................55
Section 12.02 Satisfaction of Sinking Fund Payments with Securities............55
Section 12.03 Redemption of Securities for Sinking Fund........................56
ARTICLE XIII REDEMPTION UPON A DESIGNATED EVENT AND A RATING DECLINE..................56
Section 13.01 Redemption by Holders............................................56
Section 13.02 Redemption by Company............................................58
Section 13.03 Other Provisions.................................................58
ARTICLE XIV DEFEASANCE AND COVENANT DEFEASANCE.......................................58
Section 14.01 Company's Option to Effect Defeasance or Covenant Defeasance.....58
Section 14.02 Defeasance and Discharge.........................................59
Section 14.03 Covenant Defeasance..............................................59
Section 14.04 Conditions to Defeasance or Covenant Defeasance..................59
Section 14.05 Deposited Money and U.S. Government Obligations to be Held
in Trust; Other Miscellaneous Provisions.........................61
Section 14.06 Reinstatement....................................................62
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INDENTURE, dated as of March 12, 2002, between Jefferies Group, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 520 Madison Avenue, 12th Floor, New York, NY 10022 and The Bank of New York, a New York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid and legally binding agreement of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.01 Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term GAAP with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation;
(4) the words "Article" and "Section" refer to an Article and Section, respectively, of this Indenture;
(5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and
(6) Certain terms used principally in Articles VI, X, XIII, and XIV, are defined in those Articles.
"Act", when used with respect to any Holder, has the meaning specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors.
"Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at any time any determination thereof is made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with generally accepted accounting principles.
"Capital Stock", as applied to the stock of any corporation, means the capital stock of every class whether now or hereafter authorized, regardless of whether such capital stock shall be limited to a fixed sum or percentage with respect to the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of such corporation.
"Commission" means the Securities and Exchange Commission, from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, any Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock.
"Corporate Trust Office" means the principal office of the Trustee in New York, New York at which at any particular time its corporate trust business shall be administered, which office as of the date hereof is located at 5 Penn Plaza, 13th Floor, New York, NY 10001.
"Corporation" means a corporation, association, company, joint-stock company or business trust.
"Covenant Defeasance" has the meaning specified in Section 14.03.
"Defaulted Interest" has the meaning specified in Section 3.07.
"Defeasance" has the meaning specified in Section 14.02.
"Defeasible Series" has the meaning specified in Section 14.01.
"Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 3.01.
"Designated Event" has the meaning specified in Section 13.01.
"Disqualified Stock" means any Capital Stock which by its terms (or by the terms of any security into which it is convertible of for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the final date of maturity of the Securities.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any statute successor thereto.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession.
"Global Security" means a Security that evidences all or part of the Securities of any series and is authenticated and delivered to, and registered in the name of, the Depositary for such Securities or a nominee thereof.
"Guaranty" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), or all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the Obligations of such Person under interest rate swap agreements, interest rate cap agreements, and interest rate collar agreements, and other agreements or arrangements designed to protect such Person against fluctuations in interest rates.
"Holder" means a Person in whose name a Security is registered in the Security Register.
"Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures of similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the Guaranty of any indebtedness of such Person or any other Person.
"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument, and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 3.01.
"Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
"Lien" means any mortgage, lien, pledge, charge, security interest, or other encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law.
"Material Subsidiary" means any Subsidiary of the Company or any of its Subsidiaries if the Company's or any of Subsidiaries investments in such Subsidiary at the date of determination thereof, represent 5% or more of the Company's Consolidated Net Worth as of such date.
"Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in Section 5.01(4).
"Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing and Indebtedness.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 10.06 shall be the principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company.
"Original Issue Discount Security" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 5.02.
"Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
(1) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made;
(3) Securities as to which Defeasance has been effected pursuant to Section 14.02; and
(4) Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (A) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof to such date pursuant to Section 5.02, (B) the principal amount of a Security denominated in one or more foreign currencies or currency units shall be the U.S. dollar equivalent, determined in the manner provided as contemplated by Section 3.01 on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the date of original issuance of such Security of the amount determined as provided in Clause (A) above) of such Security, and (C) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company.
"Permitted Liens" means (a) Liens in favor of the Company; (b) Liens on any shares of Voting Stock of any corporation existing at the time such corporation becomes a Material Subsidiary of the Company (and any extensions, renewals or replacements thereof); (c) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other Obligations of a like nature incurred in the ordinary course of business; (d) mechanics', materialmen's, workmen's, repairmen's, warehousemen's and carrier's liens arising in the ordinary course of business; (e) easements, rights of way and other similar restrictions that do not materially adversely affect the use and enjoyment of the property subject thereto or affected thereby and (f) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or appropriate provision as shall
be required in conformity with generally accepted accounting principles shall have been made therefor.
"Person" means any individual, corporation, partnership, joint venture, limited liability company, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 3.01.
"Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Rating Decline" has the meaning specified in Section 13.01.
"Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01.
"Responsible Officer", when used with respect to the Trustee, means any vice president, any assistant treasurer, any trust officer or assistant trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.
"Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
"Security Register" and "Security Registrar" have the respective meanings specified in Section 3.05.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
"Subject Securities" has the meaning specified in Section 13.01.
"Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean each Trustee with respect to Securities of that series.
"U.S. Government Obligations" has the meaning specified in
Section 14.04.
"Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president".
"Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).
Section 1.02 Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates provided for in Section 10.06) shall include
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
Section 1.03 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any subsidiary of the Company stating that the information with respect to such factual matters is in the possession of the Company or any subsidiary of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
Section 1.04 Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
The Company may, in the circumstances permitted by the Trust Indenture Act, set any day as the record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities of such series. With regard to any record date set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date (or their duly appointed agents), and only such Persons, shall be entitled to give or take the relevant action, whether or not such Holders remain Holders after such record date. With regard to any action that may be given or taken hereunder only by Holders of a requisite principal amount of Outstanding Securities of any series (or their duly appointed agents) and for which a record date is set pursuant to this paragraph, the Company may, at its option, set an expiration date after which no such action purported to be given or taken by any Holder shall be effective hereunder unless given or taken on or prior to such expiration date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date (or their duly appointed agents). On or prior to any expiration date set pursuant to this paragraph, the Company may, on one or more occasions at its option, extend such date to any later date. Nothing in this paragraph shall prevent any Holder (or any duly appointed agent thereof) from giving or taking, after any such expiration date, any action identical to, or, at any time, contrary to or different from, the action or purported action to which such expiration date relates, in which event the Company may set a record date in respect thereof pursuant to this paragraph. Nothing in this paragraph shall be construed to render ineffective any action taken at any time by the Holders (or their duly appointed agents) of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is so taken. Notwithstanding the foregoing or the Trust Indenture Act, the Company shall not set a record date for, and the provisions of this paragraph shall not apply with respect to, any notice, declaration or direction referred to in the next paragraph.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to join
in the giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.02, if an Event of Default with respect to
Securities of such series has occurred and is continuing and the Trustee shall
not have given such a declaration to the Company, (iii) any request to institute
proceedings referred to in Section 5.07(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. Promptly
after any record date is set pursuant to this paragraph, the Trustee shall
notify the Company and the Holders of Outstanding Series of such series of any
such record date so fixed and the proposed action. The Holders of Outstanding
Securities of such series on such record date (or their duly appointed agents),
and only such Persons, shall be entitled to join in such notice, declaration or
direction, whether or not such Holders remain Holders after such record date;
provided that, unless such notice, declaration or direction shall have become
effective by virtue of Holders of the requisite principal amount of Outstanding
Securities of such series on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th day after such record date, such
notice, declaration or direction shall automatically and without any action by
any Person be cancelled and of no further effect. Nothing in this paragraph
shall be construed to prevent a Holder (or a duly appointed agent thereof) from
giving, before or after the expiration of such 90-day period, a notice,
declaration or direction contrary to or different from, or, after the expiration
of such period, identical to, the notice, declaration or direction to which such
record date relates, in which event a new record date in respect thereof shall
be set pursuant to this paragraph. Nothing in this paragraph shall be construed
to render ineffective any notice, declaration or direction of the type referred
to in this paragraph given at any time to the Trustee and the Company by Holders
(or their duly appointed agents) of the requisite principal amount of
Outstanding Securities of the relevant series on the date such notice,
declaration or direction is so given.
Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount.
Section 1.05 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing (which may be via facsimile) to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
Section 1.06 Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
Section 1.07 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Wherever this Indenture refers to a provision of the Trust Indenture Act, such provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms used in this Indenture have the following meanings:
"commission" means the United States Securities and Exchange Commission.
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Company and any other obligor on the Securities.
All other Trust Indenture Act terms used in this Indenture that are defined by the Trust Indenture Act, defined by the Trust Indenture Act referenced to another statute or defined by any Commission Rule and not otherwise defined herein have the meanings defined to them thereby.
Section 1.08 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
Section 1.09 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
Section 1.10 Separability Clause.
In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.12 Governing Law.
This Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York, but without regard to principles of conflicts of laws.
Section 1.13 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of the Securities of any series which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the intervening period.
ARTICLE II
SECURITY FORMS
Section 2.01 Forms Generally.
The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities.
The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
Section 2.02 Form of Face of Security.
[Insert any legend required by the Internal Revenue Code and the regulations thereunder.]
Jefferies Group, Inc.
No.____________________ $_________
Jefferies Group, Inc., a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________________________________, or registered assigns, the principal sum of ___________________ ___________________ Dollars on ____________________________ ___________________________ [if the Security is to bear interest prior to Maturity, insert --, and to pay interest thereon from _______________________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ____________ and ____________ in each year, commencing __________ at the rate of ____% per annum, until the principal hereof is paid or made available for payment [if applicable, insert --, and at the rate of ____% per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the _______ or _______ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture].
[If the Security is not to bear interest prior to Maturity, insert -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of ____% per annum, which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of _______% per annum, which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.]
Payment of the principal of (and premium, if any) and [if applicable, insert -- any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in _____________, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert --; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register].
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated:
JEFFERIES GROUP, INC.
Title:
Attest:
Section 2.03 Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of _______________ __, 2002 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [if applicable insert --, limited in aggregate principal amount to $___________].
[If applicable insert -- The Securities are subject to redemption at the election of the Holders thereof, in whole or in part, and in limited circumstances at the election of the Company, in whole, following the occurrence of a Designated Event and a Rating Decline. Such redemptions will be made at a Redemption Price equal to 100% of the principal amount, together with accrued interest to the Redemption Date, as provided for in Article XIII of the Indenture. [The Securities are not otherwise subject to redemption prior to maturity and no sinking fund is provided for the Securities.]]
[If applicable insert -- The Securities of this series are
subject to redemption upon not less than 30 days' notice by mail, [if
applicable, insert -- (1) on ___________ in any year commencing with the year
______ and ending with the year ______ through operation of the sinking fund for
this series at a Redemption Price equal to 100% of the principal amount, and
(2)] at any time [if applicable insert on or after ___________, 20__], as a
whole or in part, at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount): If redeemed [if
applicable insert -- on or before _______________, __%, and if redeemed] during
the 12-month period beginning _____________ of the years indicated,
Year Redemption Price Year Redemption Price ---- ---------------- ---- ---------------- |
and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption [if applicable, insert -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.
[If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on ____________ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [if applicable, insert -- on or after ____________], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning _____________ of the years indicated,
Redemption
Redemption Price Price For Redemption
For Redemption Through Otherwise Than Through
Year Operation of the Sinking Fund Operation of the Sinking Fund
---- ------------------------------ ------------------------------
|
and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.]
[If applicable, insert -- Notwithstanding the foregoing, the Company may not, prior to ____________ redeem any Securities of this series as contemplated by [if applicable, insert -- Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to
the Company (calculated in accordance with generally accepted financial practice) of less than _____% per annum.]
[If applicable, insert -- The sinking fund for this series provides for the redemption on ____________ in each year beginning with the year _______ and ending with the year _____ of [if applicable, insert -- not less than $____________ "mandatory sinking fund") and not more than] $________ aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through (if applicable, insert -- mandatory] sinking fund payments may be credited against subsequent [if applicable, insert -- mandatory] sinking fund payments otherwise required to be made [if applicable, insert -- in the inverse order in which they become due).]
[If the Security is subject to redemption of any kind, insert -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.]
[If applicable, insert -- The Indenture contains provisions for defeasance at any time of (l) the entire indebtedness of this Security or (2) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture.]
[If the Security is not an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.]
[If the Security is an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to insert formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.]
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company or the Security Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
Section 2.04 Form of Legend for Global Securities.
Unless otherwise specified as contemplated by Section 3.01 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form:
This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be transferred to, or registered or exchanged for Securities registered in the name of, any Person other than the Depositary or a nominee thereof and no such transfer may be registered, except in the limited circumstances described in the Indenture. Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, this Security shall be a Global Security subject to the foregoing, except in such limited circumstances.
Section 2.05 Form of Trustee's Certificate of Authentication.
The Trustee's certificates of authentication shall be in substantially the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
ARTICLE III
THE SECURITIES
Section 3.01 Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 3.03, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series,
(1) the title of the Securities of the series, including CUSIP Numbers (which shall distinguish the Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06 or 11.07 and except for any Securities which, pursuant to Section 3.03, are deemed never to have been authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;
(4) the date or dates on which the principal of the Securities of the series is payable;
(5) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date;
(6) the place or places where the principal of and any premium and interest on Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company;
(8) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable;
(10) the currency, currencies or currency units in which payment of the principal of and any premium and interest on any Securities of the series shall be payable if other than the currency of the United States of America and the manner of determining the equivalent thereof in the currency of the United States of America for purposes of the definition of "Outstanding" in Section 1.01;
(11) if the amount of payments of principal of or any premium or interest on any Securities of the series may be determined with reference to an index, the manner in which such amounts shall be determined;
(12) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or a Holder thereof, in one or more currencies or currency units other than that or those in which the Securities are stated to be payable, the currency, currencies or currency units in which payment of the principal of and any premium and interest on Securities of such series as to which such election is made shall be payable, and the periods within which and the terms and conditions upon which such election is to be made;
(13) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to
Section 5.02;
(14) the applicability, nonapplicability, or variation, of Article XIII with respect to the Securities of such Series;
(15) if applicable, that the Securities of the series shall be subject to either or both of Defeasance or Covenant Defeasance as provided in Article XIV;
(16) if and as applicable, that the Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the Depositary or Depositaries for such Global Security or Global Securities and any circumstances other than those set forth in Section 3.05 in which any such Global Security may be transferred to, and registered and exchanged for Securities registered in the name of, a Person other than the Depositary for such Global Security or a nominee thereof and in which any such transfer may be registered;
(17) any addition to or change in the covenants set forth in Article X which applies to Securities of the series; and
(18) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.01(5)).
All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 3.03) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series.
The Company may, from time to time, by adoption of a Board Resolution and subject to compliance with any other applicable provisions of this Indenture, without the consent of the Holders, create and issue pursuant to this Indenture additional securities of any series of Securities ("Add On Securities") having terms and conditions identical to those of such series of Outstanding Securities, except that such Add On Securities:
(i) may have a different issue date from such series of Outstanding Securities;
(ii) may have a different amount of interest payable on the first Interest Payment Date after issuance than is payable on such series of Outstanding Securities; and
(iii) may have terms specified in such Board Resolution for such Add On Securities making appropriate adjustments to this Article III applicable to such Add On Securities in order to conform to and ensure compliance with the Securities Act (or applicable securities laws) which are not adverse in any material respect to the Holder of any Outstanding Securities (other than such Add On Securities) and which shall not affect the rights or duties of the Trustee.
Section 3.02 Denominations.
The Securities of each series shall be issuable only in registered form without coupons in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof.
Section 3.03 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President, one of its Vice Presidents or its Treasurer under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries or by its Chief Financial Officer. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any Series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 2.01 and 3.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.01 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.09, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.04 Temporary Securities.
Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor.
Section 3.05 Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor.
At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of Securities, but the Company or Security Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
The Company shall not be required (1) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.03 and ending at the close of business on the day of such mailing, or (2) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.
Notwithstanding any other provision in this Indenture, no Global
Security may be transferred to, or registered or exchanged for Securities
registered in the name of, any Person other than the Depositary for such Global
Security or any nominee thereof, and no such transfer may be registered, unless
(1) such Depositary (A) notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Security or (B) has ceased to be a
clearing agency registered under the Exchange Act, (2) the Company executes and
delivers to the Trustee a Company Order that such Global Security shall be so
transferable, registrable and exchangeable, and such transfers shall be
registrable, (3) there shall have occurred and be continuing an Event of Default
with respect to the Securities evidenced by such Global Security or (4) there
shall exist such other circumstances, if any, as have been specified for this
purpose as contemplated by Section 3.01. Notwithstanding any other provision in
this Indenture, a Global Security to which the restriction set forth in the
preceding sentence shall have ceased to apply may be transferred only to, and
may be registered and exchanged for Securities registered only in the name or
names of, such Person or Persons as the Depositary for such Global Security
shall have directed and no transfer thereof other than such a transfer may be
registered.
Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security to which the restriction set forth in the first sentence of the preceding paragraph shall apply, whether pursuant to this Section, Section 3.04, 3.06, 9.06 or 11.07 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security.
Section 3.06 Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in
lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in exchange for any mutilated Security or in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.07 Payment of Interest; Interest Rights Preserved.
Except as otherwise provided as contemplated by Section 3.01 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
Section 3.08 Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 3.07) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
Section 3.09 Cancellation.
All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in its customary manner.
Section 3.10 Computation of Interest.
Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.
Section 3.11 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any changes in the "CUSIP" numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 6.07, and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of Clause
(1) of this Section, the obligations of the Trustee under Section 4.02 shall
survive such satisfaction and discharge.
Section 4.02 Application of Trust Money.
All money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest for whose payment such money has been deposited with the Trustee.
ARTICLE V
REMEDIES
Section 5.01 Events of Default.
"Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series, and continuance of such default for a period of 30 days; or
(4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
(5) the Company shall fail to pay any Indebtedness in excess of
$10,000,000 owing by the Company, or any interest or premium thereon,
when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness, or the Company shall fail to
perform any term, covenant or agreement on its part to be performed
under any agreement or instrument evidencing or securing or relating to
any such Indebtedness, if the effect of such failure in either case is
that the maturity of such Indebtedness is duly accelerated, without such
Indebtedness having been discharged or such acceleration having been
rescinded or annulled, in each such case, within a period of 10 days
after there shall have been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by Holders
of at least 25% in principal amount of the Outstanding Securities of
that series, a written notice specifying such default and requiring the
Company to cause such Indebtedness to be discharged or cause such
acceleration to be rescinded or annulled, as the case may be, and
stating that such notice is a "Notice of Default" hereunder (the Trustee
shall not be deemed to have knowledge of a default under this subsection
(5) unless it shall have actual knowledge thereof); provided, however,
that, subject to the provisions of Sections 6.01 and 6.05, the Trustee
shall not be deemed to have knowledge of such failure to pay unless
either (A) a Responsible Officer of the Trustee shall have actual
knowledge of such failure to pay or (B) the Trustee shall have received
written notice thereof from the Company, from any Holder, from the
holder of any such Indebtedness or from the trustee thereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or
(7) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
(8) any other Event of Default provided with respect to Securities of that series.
Section 5.02 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if any of the Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable.
At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay
(A) all overdue interest on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities,
(C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;
and
(2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
Section 5.03 Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem necessary to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.04 Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or
any other obligor upon the Securities), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 6.07.
No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee.
Section 5.05 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
Section 5.06 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07;
SECOND: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of
which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively; and
THIRD: To the Company.
Section 5.07 Limitation on Suits.
No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
Section 5.08 Unconditional Right of Holders to Receive Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 3.07) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
Section 5.09 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 5.12 Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities of any series shall 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 Securities of such series, provided that
(1) such direction shall not be in conflict with any rule of law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.01, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith share, by a Responsible Officer or Officers of the Trustee, determine, and the Trustee shall have received a legal opinion stating, that the proceedings so directed would involve the Trustee in personal liability.
Section 5.13 Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default
(1) in the payment of the principal of or any premium or interest on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
Section 5.14 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section nor the Trust Indenture Act shall apply to any suit instituted by the Trustee, to any suit instituted by any Holders of the Securities, or group of Holders of the Securities, holding in the aggregate more than 10% of principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder of the Outstanding Securities for the enforcement of the payment of principal of or interest on any Outstanding Securities held by such Holder, on or after the respective due dates expressed in such Outstanding Securities, and provided, further, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company.
Section 5.15 Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed.
Section 6.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no others, and no covenants or obligations shall be implied in or read into this Indenture.
(2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this Section 6.01.
(2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.12.
(d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture.
(e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section 6.01.
(f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law.
Section 6.02 Rights of Trustee.
Subject to Section 6.01:
(a) The Trustee may conclusively rely on any document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in any document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such investigation.
(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby.
(g) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection of any action taken, suffered or omitted by in hereunder in good faith and in reliance thereon.
(h) the Trustee shall not be deemed to have notice of any Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture.
(i) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be
enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
Section 6.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent or Security Registrar may do the same with like rights. However, the Trustee must comply with Sections 6.08, 6.09 and 6.10.
Section 6.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities and it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities, other than the Trustee's certificate of authentication, or the use or application of any funds received by a Paying Agent other than the Trustee.
Section 6.05 Notice of Default.
If an Event of Default with respect to Securities of any series occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder of Securities of such series notice of the uncured Event of Default within 90 days after such Event of Default occurs. Except in the case of an Event of Default in payment of principal (or premium, if any) of, or interest on, any Security, the Trustee may withhold the notice if and so long as a Responsible Officer in good faith determines that withholding the notice is in the interest of the Holders of Securities of such series.
Section 6.06 Reports by Trustee to Holders.
Within 60 days after each February 15 beginning with the February
15 following the date of this Indenture, the Trustee shall mail to each Holder a
brief report dated as of such February 15 that complies with Trust Indenture Act
Section 313(a) if such report is required by such Trust Indenture Act Section
313(a). The Trustee also shall comply with Trust Indenture Act Sections 313(b)
and 313(c).
The Company shall promptly notify the Trustee in writing if the Securities of any series become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed.
Section 6.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such compensation for its services as the Company and the Trustee shall from time to time agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents, accountants, experts and counsel.
The Company shall indemnify each of the Trustee (in its capacity as Trustee) and any predecessor Trustee and each of their respective officers, directors, attorneys-in-fact and agents for, and hold it harmless against, any claim, demand, expense (including but not limited to reasonable compensation, disbursements and expenses of the Trustee's agents and counsel), loss, charges (including taxes (other than taxes based upon the income of the Trustee)) or liability incurred by them without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust and their rights or duties hereunder including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall provide reasonable cooperation at the Company's expense in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its written consent which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee as determined by a court of competent jurisdiction to have been caused by its own negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 6.07, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust to pay principal and premium, if any, of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(6) or (7) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law.
The Company's obligations under this Section 6.07 and any lien arising hereunder shall survive the resignation or removal of the Trustee, the discharge of the Company's obligations pursuant to Article IV of this Indenture and any rejection or termination of this Indenture under any Bankruptcy Law.
Section 6.08 Replacement of Trustee.
The Trustee may resign at any time with respect to the Securities of one or more series by so notifying the Company in writing. The Holder or Holders of a majority in principal amount of the outstanding Securities of a series may remove the Trustee with respect to Securities of such series by so notifying the Company and the Trustee in writing and may
appoint a successor trustee with respect to Securities of such series with the Company's consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver, custodian, or other public officer takes charge of the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee, with respect to the Securities of one or more series, for any reason, the Company shall promptly appoint a successor Trustee, with respect to Securities of that or those series. Within one year after the successor Trustee with respect to a series of Securities takes office, the Holder or Holders of a majority in principal amount of the Securities of such series may appoint a successor Trustee with respect to such series to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that and provided that all sums owing to the Trustee provided for in Section 6.07 have been paid, the retiring Trustee shall transfer all property held by it as Trustee with respect to such series of Securities to the successor Trustee, subject to the lien provided in Section 6.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee with respect to one or more series of Securities shall mail notice of its succession to each Holder of Securities of that or those series.
If a successor Trustee with respect to a series of Securities does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holder or Holders of at least 10% in principal amount of the outstanding Securities of that series may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series.
If the Trustee fails to comply with Section 6.10, any Holder of Securities of a series may petition any court of competent jurisdiction for the removal of the Trustee with respect to such series and the appointment of a successor Trustee with respect to such series.
Notwithstanding replacement of the Trustee pursuant to this
Section 6.08, the Company's obligations under Section 6.07 shall continue for
the benefit of the retiring Trustee.
Section 6.09 Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee.
Section 6.10 Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of Trust Indenture Act Section 310(a)(1) and Trust Indenture Act Section 310(a)(5). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Trust Indenture Act Section 310(b); provided, however, that there shall be excluded from the operation of such Section 310(b) the Indenture dated as of August 18, 1997, between the Company and The Bank of New York pertaining to the Company's 7 _ % Senior Notes due 2007 and the Indenture dated as of April 28, 1994, between the Company and The Bank of New York pertaining to the Company's 8 7/8% Senior Notes due 2004.
Section 6.11 Preferential Collection of Claims against Company.
The Trustee shall comply with Trust Indenture Act Section 311(a),
excluding any creditor relationship listed in Trust Indenture Act Section
311(b). A Trustee who has resigned or been removed shall be subject to Trust
Indenture Act Section 311(a) to the extent indicated.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01 Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after each Regular Record Date, a list for each series of Securities, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of such series as of the Regular Record Date, as the case may be, and
(2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.
Section 7.02 Preservation of Information; Communications to Holders.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
The rights of the Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.
Section 7.03 Reports by Trustee.
The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.
A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange or delisted therefrom.
Section 7.04 Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute contructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates.)
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.01 When Company May Merge, Etc.
The Company may not, in a single transaction or through a series of related transactions, consolidate with or merge with or into any other person, or, directly or indirectly, sell, lease, assign, transfer or convey its properties and assets as an entirety or substantially as an entirety (computed on a consolidated basis) to another person or group of affiliated persons, and another person or group of affiliated persons may not directly or indirectly sell, lease, assign,
transfer or convey its properties and assets as an entity or substantially as an entity (computed on a consolidated basis) to the Company, unless:
(1) the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the properties and assets of the Company are transferred as an entirety or substantially as an entirety (the Company or such other person being hereinafter referred to as the "Surviving Person"), shall be a corporation organized and validly existing under the laws of the United States, any State thereof or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form and substance satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture and the Indenture, so supplemented, shall remain in full force and effect;
(2) immediately after giving effect to such transaction and the assumption of the obligations as set forth in clause (1), above, no Event of Default shall have occurred and be continuing; and
(3) if a supplemental indenture is required in connection with such transaction, the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, assignment, or transfer and such supplemental indenture comply with this Article VIII and that all conditions precedent herein provided relating to such transaction have been satisfied.
Section 8.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of assets in accordance with Section 8.01, the Surviving Person formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such Surviving Person had been named as the Company herein. When a Surviving Person duly assumes all of the obligations of the Company pursuant hereto and pursuant to the Securities, the predecessor shall be relieved of the performance and observance of all obligations and covenants of this Indenture and the Securities, including but not limited to the obligation to make payment of the principal of and interest, if any, on all the Securities then outstanding, and the Company may thereupon or any time thereafter be liquidated and dissolved.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01 Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the, benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default; or
(4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, provided that
any such addition, change or elimination (A) shall neither (i) apply to
any Security of any series created prior to the execution of such
supplemental indenture and entitled to the benefit of such provision nor
(ii) modify the rights of the Holder of any such Security with respect
to such provision or (B) shall become effective only when there is no
such Security Outstanding; or
(6) to secure the Securities pursuant to the requirements of Article X or otherwise; or
(7) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; or
(8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11; or
(9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (9) shall not adversely affect the interests of the Holders of Securities of any series in any material respect.
Section 9.02 Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest or the time of payment of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section 5.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 6.11 and 9.01(8),
(4) change any obligation of ours to maintain an office or agency, or
(5) change any obligation of ours to pay additional amounts, or
(6) adversely affect the right of repayment or repurchase at the option of the Holder, or
(7) reduce or postpone any sinking fund or similar provision.
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with
respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Section 9.03 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 9.04 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
Section 9.05 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act.
Section 9.06 Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
ARTICLE X
COVENANTS
Section 10.01 Payment of Securities.
The Company covenants and agrees for the benefit of each series of Securities that it will pay the principal of and interest on the Securities of that series on the dates and in the manner provided in the Securities of that series and this Indenture. An installment of principal,
premium, if any, or interest on the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds for the benefit of the Holders, on that date, immediately available funds deposited and designated for and sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue installments of interest at the rate specified in the Securities compounded semi-annually, to the extent lawful.
Section 10.02 Maintenance of Office or Agency.
The Company shall maintain in the Place of Payment for any series of Securities, an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office.
The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the principal corporate trust office of the Trustee as such office of the Company.
Section 10.03 Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of or any premium or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1)
comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York City, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
Section 10.04 Corporate Existence.
Subject to Article VIII, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Subsidiaries in accordance with the respective organizational documents of each of them and the rights (charter and statutory) and corporate franchises of the Company and each of its Subsidiaries; provided, however, that the Company shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Subsidiaries, any such existence, right or franchise, if (a) the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and (b) the loss thereof is not disadvantageous in any material respect to the Holders.
Section 10.05 Payment of Taxes and Other Claims.
The Company shall, and shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon the Company or any of its Subsidiaries or properties and assets of the Company or any of its Subsidiaries and (ii) all lawful claims, whether for labor, materials, supplies, service or anything else, which have become due and payable and which by law have or may become a Lien upon the property and assets of the Company or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves have been established in accordance with generally accepted accounting principles.
Section 10.06 Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within 120 days
after the end of its fiscal year an Officers' Certificate (one of the
signatories of which shall be the Company's principal executive officer,
principal financial officer or principal accounting officer) complying with
Section 314(a)(4) of the Trust Indenture Act and stating that a review of its
activities and the activities of its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture (all without regard to periods of grace, which
shall be deemed fulfilled unless and until the expiration of such periods) or
notice requirements) and further stating, as to each such officer signing such
certificate, whether or not the signer knows of any failure by the Company or
any Subsidiary of the Company to comply with any conditions or covenants in this
Indenture and, if such signer does know of such a failure to comply, the
certificate shall describe such failure with particularity. The Officers'
Certificate shall also notify the Trustee should the relevant fiscal year end on
any date other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities of any series are outstanding, deliver to the Trustee, immediately upon becoming aware of any Event of Default with respect to such series under this Indenture, an Officers' Certificate specifying such Event of Default and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of a an Event of Default unless one of its Responsible Officers receives notice of the Event of Default giving rise thereto from the Company or any of the Holders.
Section 10.07 Waiver of Stay, Extension or Usury Laws.
The Company covenants for the benefit of each series of Securities (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law wherever enacted which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Securities of that series as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives for the benefit of each series of Securities all benefit or advantage of any such law insofar as such law applies to the Securities of that series, and covenants for the benefit of each series of Securities that it shall not hinder, delay or impede the execution of any power
herein granted to the Trustee with respect to that series, but will suffer and permit the execution of every such power as though no such law had been enacted.
Section 10.08 Limitation on Liens.
The Company shall not, and shall not permit any of its Material Subsidiaries to, issue, incur, assume or Guaranty any Indebtedness for borrowed money secured by a Lien (other than Permitted Liens) upon any shares of the Voting Stock of a Material Subsidiary without effectively providing that the Securities (and if the Company so elects, any other indebtedness of the Company ranking on a parity with the Securities) shall be secured equally and ratably with, or prior to, any such secured Indebtedness so long as such Indebtedness remains outstanding.
Section 10.09 Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or asset from, or enter into any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is made on terms that are no less favorable to the Company or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated person and (b) the Company delivers to the Trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25 million in any fiscal year, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with clause (a) above and such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors; provided, however, that (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary; (ii) transactions between or among the Company and/or its Subsidiaries, and (iii) Affiliate Transactions entered into prior to the date of issuance of the Securities under this Indenture, shall be deemed not to be Affiliate Transactions.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.01 Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 3.01 for Securities of any series) in accordance with this Article.
Section 11.02 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed
by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction.
Section 11.03 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed (unless all of the Securities of such series and of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If less than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.
Section 11.04 Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date,
(5) the place or places where such Securities are to be surrendered for payment of the Redemption Price,
(6) that the redemption is for a sinking fund, if such is the case, and
(7) applicable CUSIP Numbers.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable.
Section 11.05 Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date.
Section 11.06 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 3.01, installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
Section 11.07 Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any
authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
ARTICLE XII
SINKING FUNDS
Section 12.01 Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 3.01 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.
Section 12.02 Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.
Section 12.03 Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 12.02 and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.04. Such notice having been duly
given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.06 and 11.07.
ARTICLE XIII
REDEMPTION UPON A DESIGNATED EVENT
AND A RATING DECLINE
Section 13.01 Redemption by Holders.
Subject to Section 3.01(14), in the event that there occurs (a) a Designated Event (as hereinafter defined) at any time on or prior to Maturity, and (b) a Rating Decline (as hereinafter defined), each Holder of a Security that is of a series to which this Article XIII is applicable (for purposes of this Article XIII, a "Subject Security") shall have the right, at the Holder's option, to require the Company to redeem all or any portion (which shall be $1,000 or an integral multiple thereof) of such Subject Security on the date that is 90 days after the last to occur of public notice of the occurrence of the Designated Event and the Rating Decline, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the Redemption Date.
On or before the twenty-eighth day after the last to occur of public notice of the occurrence of the Designated Event and the Rating Decline, the Company is obligated to notify the Trustee of such events, and promptly thereafter to mail, or cause to be mailed first-class, postage prepaid, to each Holder of any Subject Securities, at the address of such Holder appearing in the Security Register, a notice regarding the Designated Event, the Rating Decline, and the redemption right. The notice shall include the Redemption Date, the date by which the redemption right must be exercised, the Redemption Price, and the procedure which the Holder must follow to exercise this right.
To exercise this right, the Holder of such Subject Securities must deliver on or before a date selected by the Company, which date shall be not more than 10 days prior to the Redemption Date, written notice to the Company (or an agent designated by the Company for such purpose) of the Holder's exercise of such right, together with the Subject Securities with respect to which the right is being exercised, duly endorsed or assigned to the Company or in blank. Such written notice by a Holder shall, unless otherwise required by law, be irrevocable.
As used herein, a "Designated Event" shall be deemed to have occurred at such a time as any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) becomes the "beneficial owner" (as the term is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power entitled to vote in the election of directors of the Company; provided, however, that a Designated Event shall not be deemed to have occurred (i) as a result of the formation of such a "group" or the acquisition of shares of Capital Stock of the Company by such group if such group includes existing Affiliates and/or persons who beneficially own in the aggregate, as of the date of this Indenture, 20% or more of
the outstanding shares of Capital Stock of the Company on the date of this Indenture, or (ii) by virtue of the Company, any Subsidiary, any employee stock ownership plan or any other employee benefit plan of the Company or any Subsidiary, or any other person holding Capital Stock of the Company for or pursuant to the terms of any such employee benefit plan, becoming a beneficial owner, directly or indirectly, of more than 50% of the total voting power entitled to vote in the election of directors of the Company.
As used herein, a "Rating Decline" shall be deemed to have
occurred if on any date within the 90-day period following public notice of the
occurrence of a Designated Event (which 90-day period shall be extended with
respect to either Rating Agency (as hereinafter defined) for so long as the
rating of the Securities is under publicly announced consideration for possible
downgrade relating to such Designated Event by such Rating Agency) (i) in the
event the Securities are rated by one Rating Agency or by both Rating Agencies
on the Rating Date (as hereinafter defined) as Investment Grade (as hereinafter
defined), the rating of the Securities by such Rating Agency or by either of
such Rating Agencies (as the case may be) shall be below Investment Grade; or
(ii) in the event the Securities are rated by both Rating Agencies on the Rating
Date below Investment Grade, the rating of the Securities by either Rating
Agency shall be at least one Full Rating Category (as hereinafter defined) below
the rating of the Securities by such Rating Agency on the Rating Date.
As used herein, "Rating Agency" shall mean Standard & Poor's Corporation and its successors ("S&P"), and Moody's Investors Service and its successors ("Moody's"), or if S&P or Moody's or both shall not make a rating on the Securities publicly available, a nationally recognized statistical rating organization or organizations, as the case may be, selected by the Company which shall be substituted for S&P or Moody's or both, as the case may be; "Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's or by any other Rating Agency selected as provided above, and "Rating Date" shall mean the date which is 121 days prior to public notice of the occurrence of a Designated Event.
As used herein, the term, "Full Rating Category" shall mean (i) with respect to S&P, any of the following categories BB, B, CCC, CC, and C; (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, and C; and (iii) with respect to any other Rating Agency, the equivalent of any such category of S&P or Moody's used by such other Rating Agency. In determining whether the rating of the Securities has decreased by the equivalent of one Full Rating Category, gradation within Full Rating Categories (+ and - for S&P, 1, 2, and 3 for Moody's; or the equivalent gradation for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB-, or from BB to B+, will constitute a decrease of less than one Full Rating Category).
Section 13.02 Redemption by Company.
In the event the aggregate principal amount of the Subject Securities that are surrendered for redemption on any such Redemption Date is a least 90% of the aggregate principal amount of the Subject Securities Outstanding at the close of business on the day next preceding such Redemption Date, the remaining Subject Securities not so redeemed will be subject to redemption as a whole, at the Company's option, upon not less than 30 days' notice
mailed to each Holder at the address of such Holder appearing in the Security Register, on a date of redemption selected by the Company that is within 60 days after such Redemption Date, at a Redemption Price equal to 100% of the principal amount, plus accrued interest to such date of redemption selected by the Company.
Section 13.03 Other Provisions.
With respect to any redemption at the option of the Holders of Securities, as hereinabove provided, (x) the first clause of Section 11.06 shall read as follows: "Notice by the Holder of such Holder's exercise of the redemption right having been duly given," and (y) if any Security delivered by the Holder upon exercise of the redemption right is, at the option of the Holder, to be redeemed in part only, the written notice delivered by the Holder to the Company as aforesaid shall state the principal amount of the Security which is to be redeemed.
Notwithstanding the foregoing, the Holders shall not have the redemption right described above if, prior to the occurrence of the Designated Event, the Company has effected a defeasance or covenant defeasance of the Securities as provided in Article XIV.
ARTICLE XIV
DEFEASANCE AND COVENANT DEFEASANCE
Section 14.01 Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may elect, at its option by Board Resolution at any time, to have either Section 14.02 or Section 14.03 applied to the Outstanding Securities of any series designated pursuant to Section 3.01 as being defeasible pursuant to this Article XIV (hereinafter called a "Defeasible Series"), upon compliance with the conditions set forth below in this Article XIV.
Section 14.02 Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 14.01 to have this Section 14.02 applied to the Outstanding Securities of any Defeasible Series and subject to the proviso to Section 14.01, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series as provided in this Section on and after the date the conditions set forth in Section 14.04 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under the Securities of such series and this Indenture insofar as the Securities of such series are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of Securities of such series to receive, solely from the trust fund described in Section 14.04 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities of such series when payments are due, (2) the Company's obligations with respect to the Securities of such series under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (4) this Article XIV. Subject to compliance with this Article XIV,
the Company may exercise its option provided in Section 14.01 to have this
Section 14.02 applied to the Outstanding Securities of any Defeasible Series
notwithstanding the prior exercise of its option provided in Section 14.01 to
have Section 14.03 applied to the Outstanding Securities of such series.
Section 14.03 Covenant Defeasance.
Upon the Company's exercise of the option provided in Section
14.01 to have this Section 14.03 applied to the Outstanding Securities of any
Defeasible Series, (1) the Company shall be released from its obligations under
Section 8.01, and Sections 10.04, 10.05, 10.08 and 10.09, and Article XIII, and
(2) the occurrence of any event specified in Sections 5.01(3), 5.01(4) (with
respect to any of Sections 8.01, 10.04, 10.05, 10.08 and 10.09, and Article
XIII), 5.01(5) and 5.01(8) shall be deemed not to be or result in an Event of
Default, in each case with respect to the Outstanding Securities of such series
as provided in this Section on and after the date the conditions set forth in
Section 14.04 are satisfied (hereinafter called "Covenant Defeasance"). For this
purpose, such Covenant Defeasance means that the Company may omit to comply with
and shall have no liability in respect of any term, condition or limitation set
forth in any such specified Section (to the extent so specified in the case of
Section 5.01(4)), whether directly or indirectly by reason of any reference
elsewhere herein to any such Section or by reason of any reference in any such
Section to any other provision herein or in any other document, but the
remainder of this Indenture and the Securities of such series shall be
unaffected thereby.
Section 14.04 Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 14.02 or Section 14.03 to the Outstanding Securities of any Defeasible
Series:
(1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee that satisfies the requirements contemplated by Section 6.09 and agrees to comply with the provisions of this Article XIV applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of Outstanding Securities of such series, (A) money in an amount, or (B) U.S. Government Obligations that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on the Securities of such series on the respective Stated Maturities, in accordance with the terms of this Indenture and the Securities of such series. As used herein, "U.S. Government Obligation" means (x) any security that is (i) a direct obligation of the United States of America for the payment of which full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any U.S. Government Obligation specified in Clause (x) and held by such custodian for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any such U.S. Government Obligation, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt.
(2) In the case of an election under Section 14.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date first set forth hereinabove, there has been a change in the applicable Federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of such series will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to the Securities of such series and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur.
(3) In the case of an election under Section 14.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to the Securities of such series and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that the Securities of such series, if then listed on any securities exchange, will not be delisted as a result of such deposit.
(5) No Event of Default or event that (after notice or lapse of time or both) would become an Event of Default shall have occurred and be continuing at the time of such deposit or, with regard to any Event of Default or any such event specified in Sections 5.01(6) and (7), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day).
(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Securities are in default within the meaning of such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound.
(8) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with.
(9) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be qualified under such Act or exempt from regulation thereunder.
Section 14.05 Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions.
All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 14.06, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 14.04 in respect of the Securities of any Defeasible Series shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities of such series and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of Securities of such series, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 14.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge that by law is for the account of the Holders of Outstanding Securities.
Anything in this Article XIV to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 14.04 with respect to Securities of any Defeasible Series that, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Defeasance or Covenant Defeasance with respect to the
Securities of such series.
Section 14.06 Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article XIV with respect to the Securities of any series by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to this Article XIV with respect to Securities of such series until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust pursuant to Section 14.05 with respect to Securities of such series in accordance with this Article XIV; provided, however, that if the Company makes any payment of principal of or any premium or interest on any Security of such series following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of Securities of such series to receive such payment from the money so held in trust.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
(Signature Page to Follow)
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.
JEFFERIES GROUP, INC.
By: /s/ John C. Shaw
--------------------------------
Name: John C. Shaw
Title: President
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THE BANK OF NEW YORK
By: /s/ Stacey B. Poindexter
--------------------------------
Name: Stacey B. Poindexter
Title: Assistant Treasurer
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Jefferies Group, Inc. Certain Sections of this Indenture relating to Sections 3.10 through 3.18, inclusive, of the Trust Indenture Act of 1939:
Trust Indenture
Act Section Indenture Section
----------- -----------------
Section 310 (a)(1) ........................................................... 6.10
(a)(2) ........................................................... 6.10
(a)(3) ........................................................... Not Applicable
(a)(4) ........................................................... Not Applicable
(a)(5) ........................................................... 6.10
(b) ........................................................... 6.08
........................................................... 6.10
(c) ........................................................... Not Applicable
Section 311 (a) ........................................................... 6.11
(b) ........................................................... 6.11
(c) ........................................................... Not Applicable
Section 312 (a) ........................................................... 7.01
........................................................... 7.02
(b) ........................................................... 7.02
(c) ........................................................... 7.02
Section 313 (a) ........................................................... 6.06
........................................................... 7.03
(b) ........................................................... 6.06
........................................................... 7.03
(c) ........................................................... 6.06
........................................................... 7.03
(d) ........................................................... 7.03
Section 314 (a) ........................................................... 7.04
(a)(4) ........................................................... 1.01
........................................................... 10.06
(b) ........................................................... Not Applicable
(c)(1) ........................................................... 10.2
(c)(2) ........................................................... 10.2
(c)(3) ........................................................... Not Applicable
(d) ........................................................... Not Applicable
(e) ........................................................... 10.2
Section 315 (a) ........................................................... 6.01
(b) ........................................................... 6.05
(c) ........................................................... 6.01
(d) ........................................................... 6.01
(e) ........................................................... 5.14
Section 316 (a) ........................................................... 10.1
(a)(1)(A) ........................................................... 5.02
........................................................... 5.12
(a)(1)(B) ........................................................... 5.13
(a)(2) ........................................................... Not Applicable
(b) ........................................................... 5.08
(c) ........................................................... 10.4
Section 317 (a)(1) ........................................................... 5.03
(a)(2) ........................................................... 5.04
(b) ........................................................... 10.03
Section 318 (a) ........................................................... 1.07
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EXHIBIT 4.4
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
JEFFERIES GROUP, INC.
7.75% SENIOR NOTE, DUE MARCH 15, 2012
CUSIP Number: 472319 AA 0
No. 1 $325,000,000
Jefferies Group, Inc., a corporation duly organized and existing
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under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of Three Hundred Twenty-Five Million Dollars ($325,000,000) on March 15, 2012 and to pay interest thereon from March 12, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 2002 at the rate of 7.75% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and any such interest on this Security will be made at the office or agency of the Company maintained for that purpose in New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
Dated: March 12, 2002
Attest: JEFFERIES GROUP, INC.
/s/ Joseph A. Schenk By: /s/ John C. Shaw
-------------------- ---------------------
Name: John C. Shaw, Jr.
Title: President
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Securities of the series designated therein referred to in the within mentioned Indenture.
THE BANK OF NEW YORK
By: /s/ Stacey B. Poindexter
------------------------
Authorized Signatory
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REVERSE OF NOTE
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of March 12, 2002 (herein called the "Indenture"), between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof initially limited in aggregate principal amount to $325,000,000.
The Securities of this series are subject to redemption upon not less than 30 days' but not more than 60 days notice by mail at any time, as a whole or in part, at the election of the Company, at the Redemption Price. The Redemption Price shall be equal to accrued and unpaid interest on the principal amount being redeemed to the redemption date plus the greater of 100% of the principal amount of the Securities to be redeemed and the sum of the present values of the remaining scheduled payments of principal and interest on the Securities being redeemed on the Redemption Date, discounted to the Redemption Date, on a semi-annual basis, at the Treasury Rate, plus 45 basis points. "Treasury Rate" means the rate per year equal to the semi-annual equivalent yield to maturity of Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue, expressed as a percentage of its principal amount, equal to the Comparable Treasury Price for the Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. "Comparable Treasury Price" means the average of the Reference Treasury Dealer Quotations for the Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or if the Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the average of all Reference Treasury Dealer Quotations. "Reference Treasury Dealer" means Salomon Smith Barney Inc. and its successors, and any two other primary Treasury dealers the Company selects. If any of the forgoing ceases to be a primary U.S. government securities dealer in New York City, the Company must substitute another primary Treasury dealer. "Reference Treasury Dealer Quotations" means the average, as determined by the Trustee, of the bid and ask prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. New York City time on the third Business Day preceding the Redemption Date.
In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.
The Indenture contains provisions for defeasance at any time of (l) the entire indebtedness of this Security or (2) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company or the Security Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
EXHIBIT 10.9
November 4, 2002
Mr. Lloyd H. Feller
3448 Clay Street
San Francisco, CA. 94118
Dear Lloyd:
We are pleased to offer you a position as Executive Vice President, General Counsel and Secretary of Jefferies Group, Inc. ("Group") and Jefferies & Company, Inc. ("Jefferies") and you will also be a member of the Executive Committee of Jefferies. Initially, you will be based in our San Francisco office, it being understood that you will relocate to the New York area prior to the end of 2003 and thereafter will be based in Jefferies' New York and Stamford offices. This letter will govern the terms of your employment for a two year period from the commencement of your employment through the date which is two years thereafter (the "Term"). You will commence your employment at a mutually acceptable time and date. You will report to me in the exercise of your duties and responsibilities.
I. COMPENSATION
A. During the Term, you will receive a base salary at the rate of $250,000 per annum ("Base Salary"), payable in equal installments on approximately the 15th and last day of each month.
B. Except as otherwise provided in Section III, subject to you remaining in the employ of Jefferies and/or Group on the date such payments are to be made, you will receive a guaranteed bonus for each year of the Term, in the amount of $650,000 ("Guaranteed Bonus"), which will be paid in equal quarterly installments.
C. In addition to the foregoing, you may receive an additional discretionary bonus, the amount and payment of which shall be in Jefferies' sole discretion.
D. When you commence employment, Jefferies shall invest in your name and on your behalf, $100,000 (which will be deemed compensation to you) in the Jefferies Employees Opportunity Fund.
The amounts set forth in this Section I are gross amounts, and Jefferies shall be required to withhold from such amounts deductions with respect to Federal, state and local taxes, FICA, Medicare, unemployment compensation taxes and similar taxes, assessments or withholding requirements. You will be given the opportunity to participate in the Jefferies' Deferred
Compensation Plan in 2003 and all other years in which such program is available to senior executives of Group and/or Jefferies.
Jefferies will pay the expenses of your relocation from San Francisco to the New York area in accordance with Jefferies' policies with respect to reimbursement for relocation expenses. If any of such expenses are deemed income to you, Jefferies will pay you an additional sum to "gross up" the amount of such expenses that are deemed income to you so that you do not have any tax liability for such expenses. Jefferies agrees that you will not be required to relocate to New York until, at the earliest, October 1, 2003.
II. RESTRICTED STOCK AND OPTIONS
In addition to the foregoing, I will recommend to the Compensation Committee of Group that you receive 25,000 shares of restricted common stock of Group and options to purchase 25,000 shares of Group common stock. One-fifth of the restricted stock will vest on each of the first through fifth anniversaries of the date of grant. The options will be granted and priced at the closing price of Group common stock on the date this agreement is executed by both parties and will vest and become exercisable annually over a three year period from the date of grant.
The grant of the restricted stock and options which are described above is contingent upon the approval of the Group Compensation Committee and the execution of a restricted stock agreement (in the form of Exhibit 1). If Jefferies terminates your employment for Cause (as defined herein) or you resign your employment without Good Reason (as defined herein) prior to the date the restricted stock and options would have vested, the restricted stock and options will be forfeited. In the event of termination of your employment by Jefferies without Cause or by you for Good Reason prior to the date the restricted stock and options would have vested, any unvested restricted stock will immediately vest and the options will become immediately exercisable.
In the event of a "Change of Control" prior to the date the restricted stock and options would have vested if, but only if, such Change of Control results in an impact on your duties, any unvested restricted stock will immediately vest and the options will become immediately exercisable. For purposes hereof, a "Change of Control" will be defined as and shall occur (a) if any person (as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934 (the "Act")) becomes a beneficial owner (as such term is used in Rule 13d-3 of the Act) of more than 51% of the voting stock of Jefferies or Group, (b) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, holders of Jefferies' or Group's securities entitled to vote generally in the election of directors of Jefferies or Group immediately prior to such transaction hold in the aggregate less than a majority of the then-outstanding securities of Jefferies or Group (or any successor company or entity) entitled to vote generally in the election of the directors of Jefferies or Group (or such other company or entity) after such transaction; or (c) a sale of all or substantially all of the assets of Jefferies or Group.
III. TERMINATION
Termination by Jefferies
A. We may terminate your employment under this agreement without Cause on thirty (30) days notice.
B. We may terminate your employment under this agreement for Cause at any time by notifying you of such termination.
C."Cause" shall mean a determination by the Board of Directors, subject to clause 6 below, that you have:
1. Committed an act that constitutes fraud;
2. Willfully engaged in misconduct that is (a) materially injurious to Jefferies, or (b) a material violation of Jefferies' internal policies or procedures, including but not limited to Jefferies Group, Inc.'s Statement of Employee Conduct, as amended from time to time;
3. Committed an act, which in the written opinion of counsel, will lead to your suspension or bar by any regulatory body or self-regulatory organization having jurisdiction over you;
4. Willfully failed to execute a directive of the Executive Committee or your supervisor or committed an act against the directive of the Executive Committee or your supervisor (unless such directive in either case would in your reasonable judgment result in act or failure to act that is illegal, a breach of a fiduciary duty or unethical); or
5. Negotiated or accepted employment with a competitor of Jefferies prior to your termination hereunder.
Termination by you
A. You may terminate this Agreement at any time for Good Reason or
without Good Reason by giving notice thereof at least thirty
(30) days before the effective date of such termination.
B. "Good Reason" means
1. Any failure by Group and/or Jefferies to pay or provide the compensation and benefits, including the grant of the restricted stock and options, provided for in this agreement after (i) notice from you of such failure and (ii) a reasonable period of time within which to cure such failure; or.
2. (a) a change in your responsibilities which represents a materially adverse change in your responsibilities as in effect at any time within the preceding three (3) months; (b) any change in your title, other than by promotion, or (c) termination of your membership on the Executive Committee of Jefferies or any committee or successor to that committee performing a substantially similar function; or
3. Any request or directive that you take any action, including any request or directive that you not take action, that in your reasonable judgment could involve you in an illegal act, breach of fiduciary duty or unethical conduct; provided, however, that for such request or directive to constitute Good Reason, you shall give notice of such concern to the Chairman of the Audit Committee and such request or directive shall not have been withdrawn or the action corrected within ten (10) days of such notice; or.
4. Any request that you relocate to any place other than the greater New York area (which includes Jefferies' Connecticut office), without your prior written agreement to relocate, except for reasonably required business travel.
Severance Benefits
A. If your employment under this agreement is terminated on or before the end of the Term by us without Cause or by you for Good Reason, we shall pay you a lump sum cash payment, within ten (10) days of the date of such termination, equal to the unpaid Base Salary to the end of the Term and all unpaid Guaranteed Bonuses to the end of the Term.
B. If the your employment under this agreement is terminated by the us for Cause or by the you without Good Reason, the we shall pay you a lump sum cash payment within ten (10) days of the date of such termination, equal to your unpaid Base Salary to the termination date.
C. If the your employment under this agreement is terminated by reason of your death or your total disability (as defined in Group's long term disability plan), we shall pay you your unpaid Base Salary to the date of termination plus a prorated portion of the Guaranteed Bonus, (prorated from the date of the last quarterly payment to the date of termination). Notwithstanding anything to the contrary contained in this or any other agreement, the restrictions on your restricted stock grant shall be removed and all such stock shall immediately vest.
D. If you are entitled to receive payments or other benefits under this agreement upon the termination of your employment, you hereby irrevocably waive the right to receive any payments or other benefits under any other severance or similar plan maintained by the Group or Jefferies ("Other Severance Plan"), provided, however, that if the payments and other benefits provided under such Other Severance Plan exceed the payments and other benefits
under this Agreement, you, in your sole discretion, may elect to receive the payments and benefits under such Other Severance Plan in lieu of the payments and benefits under this Agreement upon the termination of your employment. Notwithstanding anything to the contrary in this Agreement, nothing contained herein shall affect your rights with respect to any stock option, restricted stock or other equity participation granted pursuant to any stock option, restricted stock, or other equity participation plan of Group or its affiliates, all of which shall be governed by the terms of the governing documents, including the specific grant documents.
IV. MISCELLANEOUS
In addition to and except for the matters governed by this Agreement, you will be entitled to all employee benefits and perquisites under such plans and programs as provided to other senior executives of Group and/or Jefferies from time to time.
Group and Jefferies will indemnify and hold you harmless to the fullest extent permitted by applicable law if you are or become a party to, a subject or a target of, or witness or a participant in, or is threatened to be made a party to, a subject or a target of, or a witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that you in good faith believe might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (other than an action by or in the right of the Group or Jefferies) (a "Claim") by reason of (or arising in part out of) any event or occurrence related to the fact that you are or was a director, officer, manager, member, employee, agent or fiduciary of Group, or any subsidiary of Group, or is or was serving at the request of Group or one its subsidiaries as a director, officer, manager, member, employee, agent or fiduciary of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on your part while serving in such capacity against any and all Expenses (as defined below), including any and all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made Group as soon as practicable but in any event no later than twenty (20) business days after you make written demand therefore to Group.
Group shall pay all Expenses incurred by you in advance of the final disposition of a Claim as soon as practicable after you incur the same, but in any event no later than twenty (20) business days after you make written demand therefore to the Group. You hereby undertake to repay the amount of any Expenses paid in advance if it is ultimately determined that you are not entitled to be indemnified by the Group. Group may request that you reconfirm this undertaking in writing prior to paying any Expense in advance. Any obligation by you to reimburse Group for any Expense advance shall be unsecured and no interest shall be charged thereon.
"Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations) incurred in connection with investigating, defending, being a witness in, or a subject or a target of, or participating in (including on appeal), or preparing to defend, to
be a witness in, or a subject or a target of, or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation; any and all judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by Group, which approval shall not be unreasonably withheld or delayed) of any Claim subject to indemnification hereunder; and any and all federal, state, local or foreign taxes imposed on you as a result of the actual or deemed receipt of any payments under this Agreement.
The indemnification and advancement of expenses provided by this agreement shall be in addition to any rights to which you may otherwise be entitled under the Certificate of Incorporation or its Bylaws of Group and/or Jefferies (as now or hereafter in effect), any other agreement, the Delaware General Corporation Law, or otherwise.
This letter agreement, including the exhibit, constitutes the entire agreement between you and Jefferies with respect to the subject matters referred to herein, and supersedes all prior or contemporaneous negotiations, promises, covenants, agreements and representations of every kind or nature with respect thereto, all of which have become merged and finally integrated into this letter agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the each of us and our respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Group) heirs and personal and legal representatives. The provisions of this agreement that relate to severance benefits, the restricted stock and options terms and grants and the indemnification and advancement of expenses shall survive the termination of your employment or the expiration of the Term.
If the above terms are acceptable to you, I request that you signify your acceptance of the terms of this letter by signing and dating the copy enclosed and returning it to me.
Sincerely,
/s/ Richard B. Handler Richard B. Handler Chairman and Chief Executive Officer |
Enclosure
AGREED TO AND ACCEPTED BY:
/s/ Lloyd H. Feller Dated: 11/4 , 2002
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Lloyd H. Feller
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EXHIBIT 12.1
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Year Ended December 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Fixed Charges:
Interest expense on long-term
indebtedness ..................... $ 23,419 $ 12,035 $ 12,035 $ 12,035 $ 12,035
Interest portion of rent expense ... 6,037 5,105 4,178 3,109 2,432
-------- -------- -------- -------- --------
Total fixed charges ................ $ 29,456 $ 17,140 $ 16,213 $ 15,144 $ 14,467
======== ======== ======== ======== ========
Earnings:
Earnings before income taxes ....... $103,692 $102,652 $ 95,393 $ 84,095 $ 59,193
Total fixed charges ................ 29,456 17,140 16,213 15,144 14,467
-------- -------- -------- -------- --------
Total earnings ..................... $133,148 $119,792 $111,606 $ 99,239 $ 73,660
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges (1) 4.5 7.0 6.9 6.6 5.1
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(1) The ratio of earnings to fixed charges is computed by dividing (a) income from continuing operations before income taxes plus fixed charges by (b) fixed charges. Fixed charges consist of interest expense on all long-term indebtedness and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of operating lease rentals).
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EXHIBIT 21
SUBSIDIARIES OF JEFFERIES GROUP, INC.
(PURSUANT TO ITEM 601 OF REGULATION S-K)
NAME OF SUBSIDIARY PLACE OF FORMATION / INCORPORATION ------------------ ---------------------------------- Bonds Direct Securities LLC Delaware Griffin Trading Specialists LLC Delaware Helfant Group, Inc. California Jefferies & Company, Inc. Delaware Jefferies/Quarterdeck, LLC Delaware Jefferies Advisers, Inc. Delaware Jefferies Asset Management (Zurich) Switzerland Jefferies Employees Opportunity Fund, LLC Delaware Jefferies International Limited England & Wales Jefferies International (Holdings) Limited England & Wales Jefferies Investment Management Limited England & Wales Jefferies (Japan) Limited England & Wales Jefferies Pacific Limited Hong Kong Jefferies Partners Opportunity Fund, LLC Delaware Jefferies Partners Opportunity Fund II, LLC Delaware Jefferies Partners Opportunity Fund III, LLC Delaware Jefferies Partners Opportunity Fund IV, LLC Delaware Jefferies Partners Opportunity Fund V, LLC Delaware Jefferies Private Client Advisers, LLC Delaware Jefferies (Switzerland) Limited Switzerland Quarterdeck Investment Partners, LLC Delaware Quarterdeck Investment Partners Ltd. England & Wales |
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Jefferies Group, Inc.:
We consent to incorporation by reference in the Registration Statements No. 2-94727 dated December 6, 1984; No. 33-17065 dated September 8, 1987; No. 33-19741 dated January 21, 1998; No. 33-64318 dated May 27, 1993; No. 33-64490 dated June 15, 1993; No. 033-52139 dated February 3, 1994; No. 033-54373 dated June 30, 1994, No. 333-02489 dated April 12, 1996, and No. 333-84079 dated July 29, 1999, all on Form S-8, No. 033-54265 dated July 15, 1994, and No. 333-40263 dated December 5, 1997, both on Form S-4, and No. 333-76310 dated January 4, 2002 and No. 333-81354 dated January 24, 2002, both on Form S-3 of Jefferies Group, Inc. of our report dated January 20, 2003, relating to the consolidated statements of financial condition of Jefferies Group, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of earnings, changes in stockholders' equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31, 2002, which report appears in the December 31, 2002 annual report on Form 10-K of Jefferies Group, Inc.
/s/ KPMG LLP Los Angeles, California March 28, 2003 |
Exhibit 99.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard B. Handler, Chief Executive Officer, and I, Joseph A. Schenk, Chief Financial Officer, of Jefferies Group, Inc, a Delaware corporation (the "Company"), each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Company's periodic report on Form 10-K for the period ended
December 31, 2002 (the "Form 10-K") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
* * *
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
/s/ Richard B. Handler /s/ Joseph A. Schenk
----------------------------- --------------------------------
Richard B. Handler Joseph A. Schenk
Date: March 28, 2003 Date: March 28, 2003
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A signed original of this written statement required by Section 906 has been provided to Jefferies Group, Inc. and will be retained by Jefferies Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.