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Pursuant to Rule 424(b)(2)
Registration No. 33-65674
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MARCH 21, 1994
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 4, 1993)
$75,000,000
LEHMAN BROTHERS HOLDINGS INC.
GLOBAL TELECOMMUNICATIONS STOCK
UPSIDE NOTE SECURITIES(SM) DUE 2000
"SUNS(SM)"
------------------------
The Global Telecommunications Stock Upside Note Securities Due 2000 (the
"Securities" or "SUNS") of Lehman Brothers Holdings Inc. ("Holdings") are being
offered at an original issue price of 100% of the principal amount thereof. The
Stated Maturity of the Securities is , 2000. On of each year,
commencing , 1995, and at Stated Maturity (each an "Interest Payment
Date"), each Holder in whose name Securities are registered at the close of
business on the preceding will be entitled to receive an interest
payment (the "Interest Payment"), which shall be calculated based on the change
in the value of a basket of specified telecommunications industry equity
securities of issuers organized in the United States and abroad (the "Basket"),
if the Basket Appreciation Percentage (as defined herein) is positive. If the
Basket Appreciation Percentage is not positive, such Interest Payment shall be
zero on such Interest Payment Date. Each Holder of Securities will be repaid the
principal amount of such Securities at Stated Maturity. The Securities are to be
issued as a series of Debt Securities under the Senior Indenture described in
the accompanying Prospectus and will constitute "Senior Debt" of Holdings as
described in the accompanying Prospectus. The Securities may not be redeemed
prior to Stated Maturity and are not subject to any sinking fund.
The Interest Payment payable to any Holder with respect to Securities on
each Interest Payment Date will equal the product of (A) the principal amount of
the Securities of such Holder and (B) % of the Basket Appreciation
Percentage, with respect to the relevant Interest Determination Date. The
calculation of the Basket Appreciation Percentage with respect to any Interest
Determination Date, as more fully described herein, will be based upon the
annual appreciation, if any, in excess of %, in the value of the Basket during
the immediately preceding year. For information as to the calculation of the
Interest Payment, which will be paid on each Interest Payment Date or upon
earlier acceleration, the calculation and the composition of the Basket and
certain tax consequences to holders of the Securities, see "Description of
Securities," "Certain United States Federal Income Tax Consequences" and "The
Basket" in this Prospectus Supplement. FOR OTHER INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "SPECIAL CONSIDERATIONS" IN THIS
PROSPECTUS SUPPLEMENT.
The Securities will originally be issued as certificates in registered form.
Forty-five calendar days after the closing of the offering, each registered
holder will have the option to convert the form of such holder's Securities from
certificated to book-entry form within a forty-five calendar day period as
described herein. Ownership of converted Securities will be maintained in
book-entry form by or through the Depository. Beneficial owners of Securities in
book-entry form will not have the right to receive physical certificates
evidencing their ownership except under the limited circumstances described
herein.
Application has been made to list the SUNS on the American Stock Exchange
under the symbol "SXT."
Lehman Brothers Inc., a wholly owned subsidiary of Holdings, may, but is not
obligated to, purchase and sell the Securities for its own account for the
purpose of making a market in the Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) HOLDINGS(2)
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<S> <C> <C> <C>
Per Security.................... $25 % %
- -----------------------------------------------------------------------------------------------------
Total(3)........................ $75,000,000 $ $
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- -----------------------------------------------------------------------------------------------------
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(1) Holdings has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting other expenses payable by Holdings estimated at $ .
(3) Holdings has granted the Underwriters a 30-day option to purchase up to an
additional $ principal amount of SUNS solely to cover over-allotments.
If such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Holdings, before deducting
expenses, will be $ , $ and $ , respectively. See "Underwriting."
------------------------
The Securities offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriters and
to certain further conditions. The Underwriters reserve the right to reject
orders in whole or in part. It is expected that delivery of the Securities will
be made at the offices of Lehman Brothers Inc., New York, New York, on or about
April , 1994.
------------------------
LEHMAN BROTHERS
KEMPER SECURITIES, INC.
KIDDER, PEABODY & CO.
INCORPORATED
OPPENHEIMER & CO., INC.
March , 1994
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"SUNS" and "Stock Upside Note Securities" are service marks of Lehman
Brothers Inc.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information set forth elsewhere or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
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Issuer........................ Lehman Brothers Holdings Inc. ("Holdings").
Securities Offered............ $75,000,000 Global Telecommunications Stock Upside Note
Securities Due 2000 (the "Securities" or "SUNS"). The
Securities are to be issued as a series of Debt Securities
under the Senior Indenture described in the accompanying
Prospectus and will constitute Senior Debt of Holdings.
Denominations................. $25 and integral multiples thereof.
Original Issue Price.......... 100%.
Stated Maturity............... , 2000 (the "Stated Maturity").
Payments...................... On of each year, commencing , 1995,
and at Stated Maturity (each an "Interest Payment Date") each
Holder in whose name Securities are registered at the close
of business on the preceding (each, an "Interest
Determination Date") will be entitled to receive an interest
payment (the "Interest Payment") with respect to each $25
principal amount of Securities equal to the following:
Determination Value - (Prior Determination Value X %)
$25 X ------------------------------------------------------- X %
Prior Determination Value
provided, however, in the event such number is not positive,
such Interest Payment shall be zero on such Interest Payment
Date. The determination value (the "Determination Value")
with respect to any Interest Determination Date will be
determined by Lehman Brothers Inc., an affiliate of Holdings
(the "Calculation Agent"), and will equal the sum of the
products of the Average Market Prices and the applicable
Multipliers for the securities in the Basket (each a "Basket
Security" and collectively the "Basket Securities"). The
average market price (the "Average Market Price") of a Basket
Security will equal the average (mean) of the Market Prices
(determined as described herein) of such Basket Security
determined on the first five Calculation Days occurring
during the period beginning on the tenth New York Trading Day
prior to such Interest Determination Date, and on each
succeeding New York Trading Day up to and including the sixth
New York Trading Day prior to such Interest Determination
Date (the "Calculation Period"). If there are fewer than five
Calculation Days with respect to a Basket Security, then the
Average Market Price will equal the average (mean) of the
Market Prices on such Calculation Days, and if there is only
one Calculation Day, the Average Market Price will equal the
Market Price on such Calculation Day. The multiplier (the
"Multiplier") relating to each Basket Security is specified
under the caption "Description of Securities -- Basket
Securities" below and indicates the number of shares (or
fraction of one share) of such Basket Security included in
the calculation of the Determination Value. The Multipliers
will remain constant for the term of the Securities unless
adjusted for certain corporate events such as stock splits,
reverse stock splits or stock dividends or similar
adjustments in the ADRs (as defined herein). See "Description
of Securities -- Adjustments to the Multiplier and Basket" in
this Prospectus Supplement. The prior determination value
(the "Prior Determination Value") shall be equal to the
Determination Value of the prior year except with respect to
the calculation of the Interest Payment in the year 1995 for
which the Prior Determination Value shall be equal to the
Original Basket Value. The basket appreciation percentage
(the "Basket Appreciation Percentage") with respect to any
Interest
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Determination Date will be the percentage increase,
if any, in excess of % of the Determination Value over the
Prior Determination Value. If the Basket Appreciation
Percentage is not positive, such Interest Payment shall be
zero on such Interest Payment Date. See "Description of
Securities -- Interest Payments." On 2000, a
Holder of Securities will be entitled to receive the
principal amount thereof. See also "Description of
Securities -- Events of Default and Acceleration" for a
description of payments upon any acceleration of the maturity
of the Securities.
Global Telecommunications
Basket...................... The Global Telecommunications Basket (the "Basket") is made
up of the stocks (or the depositary receipts representing
such stocks) of 24 corporations operating in the
telecommunications business in the United States and abroad
organized in the United States and abroad. Ownership of the
Securities will not entitle Holders to receive Basket
Securities. Certain of the Basket Securities are in the form
of American Depositary Receipts ("ADRs"), which are receipts
issued by a depositary institution representing stocks, or
multiples or fractions thereof, held by such depositary
institution. The terms and conditions of each ADR included as
a Basket Security may be different and may affect the
liquidity and market value of such ADR, as compared to the
liquidity and market value of the underlying stock. The
Basket Securities have been issued by corporations formed
under the laws of Argentina (2), Brazil (1), Canada (1),
Chile (1), France (1), Hong Kong (2), Israel (1), Italy (1),
Malaysia (1) Mexico (1), New Zealand (1), the Philippines
(1), Spain (1), Sweden (1), Thailand (1), the United Kingdom
(2), and the United States (5), and have significantly
different levels of market value (i.e., the number of shares
outstanding of a security multiplied by the current price of
such security). The original Multipliers will be determined
so that each Basket Security represents an equal percentage
of the Original Basket Value on the date the Securities are
priced for initial sale to the public. See "Description of
Securities -- Basket Securities" in this Prospectus
Supplement. The inclusion of a Basket Security in the Basket
is not a recommendation to buy or sell such Basket Security,
and neither Holdings nor any of its affiliates make any
representation as to the performance of the Basket or any
Basket Security.
Basket Value.................. The basket value (the "Basket Value"), for any day, will
equal the sum of the products of the most recently available
Market Prices and the applicable Multipliers for the Basket
Securities. The Determination Value, however, is calculated
based on Average Market Prices for certain days. See
"Description of Securities -- Interest Payments" in this Pro-
spectus Supplement.
Original Basket Value......... Based on the individual prices of the Basket Securities on
the date that the Securities are priced for initial offering
to the public, the Multiplier for each Basket Security will
be initially set so that the Basket Value on such date (the
"Original Basket Value") will equal 100.
Special Considerations........ The Securities are subject to certain special considerations.
Investors should be aware that if, on any Interest
Determination Date, the Determination Value of the Basket is
equal to or less than % of the Prior Determination Value,
the interest due and payable on the next succeeding Interest
Payment Date shall be zero, even if the value of the Basket
as of some interim period or periods prior to such Interest
Determination Date may have exceeded % of the Prior
Determination Value, because the Interest Payment payable on
any Interest Payment Date is calculated on the basis of the
applicable Determination Value only. The Determination Value
of the Basket does not reflect the payment of dividends on
the Basket Securities and therefore the yield based on the
appreciation of the Basket, if any, between Interest
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Payment Dates will not produce the same yield as if the Basket
Securities were purchased and held for a similar period.
Moreover, there can be no assurance as to how the Securities
will trade in the secondary market or whether such market
will be liquid. The price at which a Holder will be able to
sell Securities prior to Maturity may be at a discount from
the principal amount thereof, if, among other things, the
Basket Value at such time is below, equal to or not
sufficiently above the Prior Determination Value. It is
expected that the secondary market for the Securities will be
affected by a number of factors, including changes
in interest rates, the volatility of the Basket Value, the
time remaining to Stated Maturity and changes in dividend
rates. See "Special Considerations" herein.
Holders of the Securities will receive the principal amount
of such Securities at Maturity and will not have any right at
any time to receive any of the Basket Securities or any
ownership right or interest in such Basket Securities, even
though the return on the investment in the Securities is
based on the value of the Basket. Certain of the Basket
Securities (or securities underlying the ADRs included in the
Basket) have been issued by non-United States corporations.
Investments in securities indexed to the value of non-United
States securities involve certain risks. Fluctuations in
foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions
applicable to such investments may affect the U.S. dollar
value of such non-United States securities, and ADRs that
represent such non-United States securities. With respect to
certain countries, there is the possibility of expropriation
of assets, confiscatory taxation, economic, political or
social instability or diplomatic developments which could
affect the value of investments in those countries. There may
be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may
not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those to
which U.S. entities are subject. In addition, certain foreign
investments could be subject to foreign withholding taxes,
which could affect the value of investment in such countries.
Foreign financial markets, while growing in volume, may have
substantially less volume than U.S. markets, and securities
of many foreign companies are less liquid and their prices
more volatile than securities of comparable U.S. companies.
The foreign markets may have different trading practices that
may affect the prices of securities. The foreign markets may
also have different clearance and settlement procedures, and
in certain countries there have been periods when settlements
have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such
transactions. There is generally less government supervision
and regulation of exchanges, brokers and issuers in foreign
countries than there is in the U.S. In addition, the terms
and conditions of depositary facilities may result in less
liquidity or lower market prices for the ADRs than the
underlying stocks.
It is suggested that prospective investors who consider
purchasing the Securities should reach an investment decision
only after carefully considering with their advisers the
suitability of an investment in the Securities in the light
of their particular circumstances.
Investors should also consider the tax consequences of
investing in the Securities. See "Certain United States
Federal Income Tax Consequences" in this Prospectus
Supplement.
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USE OF PROCEEDS
The net proceeds from the sale of the Securities will be used as described
under "Use of Proceeds" in the accompanying Prospectus and to hedge market risks
affecting the value of any Interest Payment (described below under "Description
of Securities -- Interest Payments").
SPECIAL CONSIDERATIONS
INTEREST PAYMENTS
If, on any Interest Determination Date, the Determination Value is equal to
or less than % of the Prior Determination Value, the interest due and payable
on the next succeeding Interest Payment Date will be zero. This will be true
even though the value of the Basket as of some interim period or periods prior
to such Interest Determination Date may have exceeded % of the Prior
Determination Value, because the Interest Payment payable on any Interest
Payment Date is calculated on the basis of the applicable Determination Value
only.
The Determination Value of the Basket does not reflect the payment of
dividends on the Basket Securities and therefore the yield based on the
appreciation of the Basket, if any, between Interest Payment Dates will not
produce the same yield as if the Basket Securities were purchased and held for a
similar period.
Under present New York law, the maximum permitted rate of interest, with
certain exceptions, is 25% per annum (calculated, in each case, on a simple
interest basis). This limit does not apply to loans of $2,500,000 or more.
Holdings will covenant for the benefit of the Holders of the Securities, to the
extent permitted by law, not to claim voluntarily the benefits of any laws
concerning usurious rates of interest against a Holder of the Securities.
TRADING
Application has been made to list the Securities on the American Stock
Exchange ("AMEX"). There can be no assurance as to how the Securities will trade
in the secondary market or whether such market will be liquid. It is expected
that the secondary market for the Securities will be affected by a number of
factors.
The trading value of the Securities is expected to depend primarily on the
extent of the appreciation, if any, of the Basket Value over the Prior
Determination Value. However, the price at which a Holder will be able to sell
Securities prior to Maturity may be at a discount from the principal amount
thereof if, at such time, the Basket Value is below, equal to or not
sufficiently above the applicable Prior Determination Value. A discount could
also result from increased interest rates, increased dividends or decreased
volatility of the Basket Securities. Before selling Securities, a Holder of
Securities should carefully consider, among other things, (i) the trading price
of the Securities, (ii) the Basket Value at the time, (iii) the time remaining
to the next Interest Determination Date, (iv) prevailing interest rates and (v)
any related transaction costs.
The trading values of the Securities may be affected by a number of
interrelated factors, including those listed below. The relationship among these
factors is complex, including how these factors affect the relative trading
value of the principal amount of the Securities to be repaid at Maturity and the
amount, if any, of any Interest Payment. Accordingly, investors should be aware
that factors other than the Basket Value are likely to affect their trading
value. The expected effect on the trading value of the Securities of each of the
factors listed below, assuming in each case that all other factors are held
constant, is as follows:
Interest Rates. In general, if U.S. interest rates increase, the
value of the Securities is expected to decrease. If U.S. interest rates
decrease, the value of the Securities is expected to increase. Local
interest rates may also affect the economies of countries in which issuers
of the respective Basket Securities (or shares underlying such securities)
operate, and, in turn, affect the Basket Value. Rising interest rates may
lower the Basket Value and, thus, may lower the value of the Securities.
Falling interest rates may increase the value of the Basket Value and,
thus, may increase the value of the Securities.
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Volatility of the Basket Value. If the volatility of the Basket Value
increases, the trading value of the Securities is expected to increase. If
the volatility of the Basket Value decreases, the trading value of the
Securities is expected to decrease.
Time Remaining to Interest Determination Date. The Securities may
trade at a value other than that which may be inferred from the level of
interest rates and the Basket Value. This difference may be due to
expectations concerning interest rates and the value of the Basket Value
during the period prior to the next Interest Determination Date. As the
time remaining to the next Interest Determination Date decreases, this
difference in value is expected to decrease.
Dividend Rates. If dividend rates on the stocks comprising the Basket
Securities increase, the value of the Securities is expected to decrease.
Conversely, if dividend rates on the Basket Securities decrease, the value
of the Securities is expected to increase.
FOREIGN CURRENCY EXCHANGE AND FOREIGN MARKETS
The Securities are U.S. dollar-denominated securities issued by Holdings, a
United States corporation. Investments in the Securities do not give the
beneficial owners any right to receive any Basket Security or any other
ownership right or interest in the Basket Securities, although the return on the
investment in the Securities is based on the Determination Value of the Basket
Securities. Certain of the Basket Securities (or securities underlying ADRs
included in the Basket) have been issued by non-United States companies, and
certain of the Basket Securities and the underlying securities represented by
the ADRs are quoted in currencies other than the U.S. dollar. Investments in
securities indexed to the value of non-United States securities involve certain
risks. Fluctuations in foreign exchange rates, future foreign political and
economic developments and the possible imposition of exchange controls or other
foreign governmental laws or restrictions applicable to such investments may
affect the U.S. dollar value of such non-United States securities, including
ADRs. Securities prices in different countries are subject to different
economic, financial, political and social factors. Rates of exchange between the
dollar and other currencies are determined by forces of supply and demand in the
foreign exchange markets. These forces are, in turn, affected by international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position. With
respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could affect the value of investments in those countries.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
to which U.S. entities are subject. Certain foreign investments may be subject
to foreign withholding taxes which could affect the value of investment in these
countries. In addition, investment laws in certain foreign countries may limit
or restrict ownership of certain securities by foreign nationals by restricting
or eliminating voting or other rights or limiting the amount of securities that
may be so owned, and such limitations or restrictions may affect the prices of
such securities.
Foreign financial markets, while growing in volume, may have substantially
less volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable domestic
companies. The foreign markets have different trading practices that may affect
the prices of securities. The foreign markets have different clearance and
settlement procedures, and in certain countries there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. In addition,
there is generally less government supervision and regulation of exchanges,
brokers and issuers in foreign countries than there is in the U.S.
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AMERICAN DEPOSITARY RECEIPTS
Certain of the Basket Securities are in the form of ADRs. An ADR is a
negotiable receipt which is issued by a depositary, generally a bank,
representing shares (the "Underlying Shares") of a foreign issuer (the "Foreign
Issuer") that have been deposited and are held, on behalf of the holders of the
ADRs, at a custodian bank in the Foreign Issuer's home country. While the market
for Underlying Shares will generally be in the country in which the Foreign
Issuer is organized and while trading in such market will generally be based on
that country's currency, ADRs that are Basket Securities will trade in U.S.
Dollars.
Although ADRs are distinct securities from the Underlying Shares, the
trading characteristics and valuations of ADRs will usually, but not
necessarily, mirror the characteristics and valuations of the Underlying Shares
represented by the ADRs. Active trading volume and efficient pricing in the
principal market in the home country for the Underlying Shares will usually
indicate similar characteristics in respect of the ADRs. In the case of certain
ADRs, however, there may be inadequate familiarity with or information about the
Foreign Issuer of the Underlying Shares represented by the ADR in the market in
which the ADR trades to support active volume, thus resulting in pricing
distortions. This is more likely to occur when the ADR is not listed on a U.S.
stock exchange or quoted on the National Market System of the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"), and
trades only over-the-counter, because the Foreign Issuer would not be required
to register such ADRs under the U.S. Securities Exchange Act of 1934, as is the
case with ADRs so listed or quoted. Because of the size of an offering of
Underlying Shares in ADR form outside the home country and/or other factors that
have limited or increased the float of certain ADRs, the liquidity of such
securities may be less than or greater than that with respect to the Underlying
Shares. In addition, the terms and conditions of depositary facilities may
result in less liquidity or lower market values for the ADRs than for the
Underlying Shares. Inasmuch as holders of ADRs may surrender the ADR in order to
take delivery of and trade the Underlying Shares, a characteristic that allows
investors in ADRs to take advantage of price differentials between different
markets, a market for the Underlying Shares that is not liquid will generally
result in an illiquid market for the ADR representing such Underlying Shares.
The depositary bank that issues an ADR generally charges a fee based on the
price of the ADR, upon issuance and cancellation of the ADR. This fee would be
in addition to the brokerage commissions paid upon the acquisition or surrender
of the security. In addition, the depositary bank incurs expenses in connection
with the conversion of dividends or other cash distributions paid in local
currency into U.S. Dollars and such expenses are deducted from the amount of the
dividend or distribution paid to holders, resulting in a lower payout per
Underlying Share represented by the ADR than would be the case if the Underlying
Share were held directly. Furthermore, foreign investment laws in certain
countries may restrict ownership by foreign nationals of certain classes of
Underlying Shares. Accordingly, the ADR representing such class of securities
may not possess voting rights, if any, equivalent to those in respect of the
Underlying Shares. Certain tax considerations, including tax rate differentials
arising from application of the tax laws of one nation to the nationals of
another and from certain practices in the ADR market may also exist with respect
to certain ADRs. In varying degrees, any or all of these factors may affect the
value of the ADR compared with the value of the Underlying Shares in the local
market.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
with their advisers the suitability of the Securities in the light of their
particular circumstances.
Investors should also consider the tax consequences of investing in the
Securities. See "Certain United States Federal Income Tax Consequences" in this
Prospectus Supplement.
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DESCRIPTION OF SECURITIES
GENERAL
The Securities are to be issued as a series of Debt Securities under the
Senior Indenture, which is more fully described in the accompanying Prospectus.
The following description of the particular terms of the Securities offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
under the heading "Description of Debt Securities" in the accompanying
Prospectus. For a description of the rights attaching to different series of
Debt Securities under the Senior Indenture, see "Description of Debt Securities"
in the accompanying Prospectus. The Securities constitute "Senior Debt" as
defined in the accompanying Prospectus.
Certain capitalized terms used herein have the meanings ascribed thereto in
the accompanying Prospectus. Reference is also made to the Glossary for certain
defined terms used herein and the locations of other defined terms used herein.
The Securities will be issued at 100% of their principal amount in
denominations of $25 and integral multiples thereof. The Securities will mature
on , 2000. On each Interest Payment Date each Holder of Securities
will be entitled to receive an Interest Payment, but if the Basket Appreciation
Percentage is not positive, such Interest Payment shall be zero. See "Interest
Payments" below.
The Securities are not redeemable by Holdings or repayable at the option of
any Holder prior to Stated Maturity and are not subject to any sinking fund.
Upon the occurrence of an Event of Default with respect to the Securities,
Holders of the Securities may accelerate the Maturity of the Securities, as
described under "Description of Securities -- Events of Default and
Acceleration" in this Prospectus Supplement and "Description of Debt
Securities -- Events of Default" in the accompanying Prospectus.
Currency amounts in this Prospectus Supplement and the accompanying
Prospectus are stated in United States dollars ("$," "dollars," "U.S. dollars"
or "U.S.$").
INTEREST PAYMENTS
On each Interest Payment Date each Holder in whose name Securities are
registered at the close of business on the preceding will be entitled
to receive an Interest Payment with respect to each $25 principal amount of
Securities equal to the following:
Determination Value - (Prior Determination Value X %)
$25 X ------------------------------------------------------- X %
Prior Determination Value
provided, however, in the event such number is not positive, such Interest
Payment shall be zero on such Interest Payment Date. At Stated Maturity, a
Holder of Securities will be entitled to receive the principal amount thereof.
The Basket Appreciation Percentage with respect to any Interest
Determination Date will be determined by Lehman Brothers Inc., as Calculation
Agent, and will equal the percentage increase, if any, in excess of %, of
the Determination Value over the Prior Determination Value. The Determination
Value with respect to any Interest Determination Date will equal the sum of the
products of the Average Market Prices and the applicable Multipliers for each
Basket Security. The Prior Determination Value with respect to any Interest
Determination Date will equal the Determination Value as determined by the
Calculation Agent with respect to the preceding Interest Determination Date
except with respect to the calculation of the interest payment for the year 1995
for which the Prior Determination Value shall be equal to the Original Basket
Value. The Average Market Price of a Basket Security will equal the average
(mean) of the Market Prices (determined as described herein) of such Basket
Security determined on the first five Calculation Days occurring during the
period beginning on the tenth New York Trading Day prior to such Interest
Determination Date and on each succeeding Trading Day up to and including the
sixth New York Trading Day prior to such Interest Determination Date. If there
are fewer than five Calculation Days with respect to a
S-9
<PAGE> 10
Basket Security, then the Average Market Price will equal the average (mean) of
the Market Prices on such Calculation Days, and if there is only one Calculation
Day, the Average Market Price will equal the Market Price on such Calculation
Day. The Multiplier relating to each Basket Security is specified under the
caption "Description of Securities -- Basket Securities" below and indicates the
number of shares (or fraction of one share) of such Basket Security included in
the calculation of the Determination Value. The Multipliers will remain constant
for the term of the Securities unless adjusted for certain corporate events such
as stock splits, reverse stock splits or stock dividends or similar adjustments
in the ADRs. See "Description of Securities -- Basket Securities -- Adjustments
to the Multiplier and Basket" in this Prospectus Supplement. "Calculation Day"
with respect to a Basket Security means any Trading Day during the Calculation
Period in the country in which such Basket Security is being priced on which a
Market Disruption Event has not occurred. If a Market Disruption Event occurs on
all Trading Days in such country during the Calculation Period then the fifth
scheduled New York Trading Day prior to such Interest Determination Date in such
country will be deemed a Calculation Day, notwithstanding the Market Disruption
Event; provided, however, that if such fourth scheduled New York Trading Day is
not a Trading Day in such country then the immediately following Trading Day
shall instead be deemed a Calculation Day. Any reference to a specific day
herein shall mean such calendar day in each market in which Basket Securities
are priced.
"Market Price," which will be determined by the Calculation Agent based on
information reasonably available to it, means for a Calculation Day the
following:
(i) If the Basket Security is listed on a national securities exchange
in the United States or is a NASDAQ National Market System ("NASDAQ NMS")
security, Market Price means the last reported sale price, regular way, on
such day on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such Basket Security is
listed or admitted to trading on NASDAQ NMS, as the case may be, or, if
such last reported sale price is not obtainable, the last reported sale
price on the United States over-the-counter market on such day. If the last
reported sale price on the United States over-the-counter market is not
obtainable, then the Market Price shall mean the average (mean) of the last
available bid and offer prices of the three most active dealers, selected
by the Calculation Agent, in such market. If the Basket Security is a
security issued by a company organized in the United States and is not
listed on a national securities exchange in the United States or is not a
NASDAQ NMS security, Market Price means the last reported sale price on the
United States over-the-counter market. If the last reported sale price on
the United States over-the-counter market is not obtainable, then Market
Price shall mean the average (mean) of the last available bid and offer
prices of the three most active dealers, selected by the Calculation Agent,
in such market.
(ii) If the Basket Security is a security issued by a company
organized other than in the United States or is an ADR, that, in either
case, is not listed on a national securities exchange in the United States
or is not a NASDAQ NMS security, Market Price means the last reported sale
price on such day on the securities exchange on which such Basket Security
is listed or admitted to trading with the greatest volume of trading for
the calendar month preceding such day, provided that if such last reported
sale price is for a transaction which occurred more than four hours prior
to the close of such exchange then Market Price shall mean the average
(mean) of the last available bid and offer price on such exchange. If such
Basket Security is not listed or admitted to trading on any such securities
exchange or if such last reported sale price or bid and offer are not
obtainable, the Market Price shall mean the last reported sale price on the
over-the-counter market with the greatest volume of trading, provided that
if such last reported sale price is for a transaction which occurred more
than four hours prior to when trading in such over-the-counter market
typically ends, then the Market Price shall mean the average (mean) of the
last available bid and offer prices of the three most active dealers,
selected by the Calculation Agent, in such market. If such prices are
quoted in a currency other than in U.S. Dollars, such prices will be
translated into U.S. Dollars for purposes of calculating the Average Market
Price using the Spot Rate on the same calendar day as the date of any such
price. The "Spot Rate" on any date will be determined by the Calculation
Agent and will equal the bid spot rate for dealer purchase of such currency
per U.S. $1.00 on such date at approximately 4:00 p.m., New York City time,
as reported on the Reuters System or, if the Reuters System has not
reported such rate by 4:30 p.m., New York City time, on such day, the bid
spot
S-10
<PAGE> 11
rate of such currency per U.S. $1.00 on such date for a transaction amount
in an amount customary for such market on such date quoted at approximately
4:30 p.m., New York City time, by a leading bank in the foreign exchange
markets as may be selected by the Calculation Agent, in each case adjusted
by the Calculation Agent to account for any difference between the Spot
Rate settlement date and the settlement date of the related Basket
Security. If no such quotation is available, the Calculation Agent will
determine the Spot Rate.
If the Calculation Agent is required to use the bid and offer price for a
Basket Security to determine the Market Price of such Basket Security pursuant
to the foregoing, the Calculation Agent shall not use any bid or offer price
announced by Lehman Brothers Inc. or any other affiliate of Holdings.
As used herein, "New York Trading Day" shall mean a day on which trading is
generally conducted on the New York Stock Exchange ("NYSE"), AMEX and NASDAQ NMS
and in the over-the-counter market for equity securities in the United States as
determined by the Calculation Agent. "Trading Day" shall mean a day on which
trading is conducted on the principal securities exchanges in the country in
which such Basket Security is being priced.
"Market Disruption Event" with respect to a Basket Security means either of
the following events as determined by the Calculation Agent:
(i) the suspension or material limitation (provided that, with respect
to Basket Securities that are priced in the United States, limitations
pursuant to New York Stock Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the New York Stock Exchange, any other
self regulatory organization or the Securities and Exchange Commission of
similar scope as determined by the Calculation Agent) on trading during
significant market fluctuations shall be considered "material" for purposes
of this definition) in the trading of such Basket Security in the country
in which such Basket Security is being priced for more than two hours of
trading or during the period one-half hour prior to the time that such
Basket Security is to be priced, or
(ii) the suspension or material limitation (whether by reason of
movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise) in option contracts related to a Basket Security
traded on any exchange in the country in which such Basket Security is
being priced for more than two hours of trading or during the period
one-half hour prior to the time that such Basket Security is to be priced.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
All percentages resulting from any calculation on the Securities will be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation will be rounded to the nearest cent
with one-half cent being rounded upwards.
BASKET SECURITIES
The stocks or the ADRs representing the stocks listed below will be used to
calculate the value of the Basket. Holders of the Securities will not have any
right to receive the Basket Securities. The following table sets forth the
Basket Securities, the country in which each issuer of a Basket Security is
organized, the primary exchange on which the Basket Securities are traded, the
market capitalization of the respective issuers of the Basket Securities (and,
in the case of ADRs, the total market capitalization of the issuer of the
Underlying Shares) and the initial Multipliers. Each Basket Security will
initially represent 4.17% of the Original Basket Value.
S-11
<PAGE> 12
<TABLE>
<CAPTION>
APPROXIMATE
U.S. DOLLAR
PRIMARY MARKET VALUE
EXCHANGE OF OF ISSUER OF
ISSUER OF THE COUNTRY IN WHICH BASKET BASKET BASKET INITIAL
BASKET SECURITY(1) ISSUER IS ORGANIZED SECURITY(2) SECURITY SECURITIES(3) MULTIPLIER(4)
----------------------------------------- ------------------- ----------- ------------ ------------ -----------
($MM)
<C> <S> <C> <C> <C> <C> <C>
1. Advanced Info Service Public Co. Ltd. ... Thailand Ordinary Thailand 2,451
2. Alcatel Alsthom Compagnie
Generale d'Electricite................. France ADR NYSE 23,509
3. ALLTEL Corp. ............................ United States Common NYSE 5,049
4. American Telephone & Telegraph Company... United States Common NYSE 71,230
5. Bell Atlantic Corp. ..................... United States Common NYSE 22,891
6. Cable & Wireless P.L.C. ................. United Kingdom ADR NYSE 15,025
7. Champion Technology
Holdings Ltd. ......................... Hong Kong Ordinary Hong Kong 253
8. Compania de Telefonos de
Chile S.A.............................. Chile ADR NYSE 5,065
9. GTE Corporation.......................... United States Common NYSE 30,280
10. Hong Kong Telecommunications Ltd......... Hong Kong ADR NYSE 20,298
11. L.M. Ericsson Telephone Co............... Sweden ADR NASDAQ 10,138
12. MCI Communications Corp. ................ United States Common NASDAQ 13,574
13. Newbridge Networks Corporation........... Canada Common NASDAQ 4,986
14. Philippine Long Distance Telephone
Company................................ Philippines Common AMEX 3,524
15. STET Societa Finanziaria
Telefonica P.A. ....................... Italy Ordinary Milan 9,427
16. Tadiran Limited.......................... Israel Common NYSE 439
17. Telecom Argentina Stet-France Telecom
S.A. .................................. Argentina Ordinary Buenos Aires 6,005(5)
(Class B)
18. Telecom Corporation of
New Zealand, Ltd....................... New Zealand ADR NYSE 7,795
19. Telecommunicacoes
Brasileiras S.A........................ Brazil Ordinary Sao Paulo 13,546
(Preferred)
20. Telefonica de Argentina S.A. ............ Argentina ADR NYSE 8,474(5)
21. Telefonica de Espana S.A. ............... Spain ADR NYSE 12,940
22. Telefonos de Mexico...................... Mexico ADR NYSE 32,653
23. Telekom Malaysia BHD..................... Malaysia Ordinary Kuala Lumpur 13,435
24. Vodaphone Group PLC...................... United Kingdom ADR NYSE 8,466
</TABLE>
- ---------------
1 Or, in the case of ADRs, the Underlying Shares.
2 If restrictions are imposed on the number or percentage of shares of a Basket
Security held by foreign nationals, such shares may have a different value
than shares held by persons not subject to such restrictions. Under such
circumstances, the Basket will reflect the price of the shares of the Basket
Security owned by persons not subject to such restrictions.
3 The approximate total market value of the issuer of a Basket Security
organized in the United States was calculated by multiplying the most recent
publicly available number of outstanding shares of the Basket Security of such
issuer by the Market Price for such shares on March 16, 1994. The approximate
total market value of the issuer of a Basket Security organized other than in
the United States or, in the case of a Basket Security that is an ADR, the
issuer of the Underlying Shares, was calculated by multiplying the most recent
publicly available number of outstanding shares of stock of the issuer of such
Underlying Shares by the last available Market Price for such shares based on
the last available Spot Rate.
4 Initial Multipliers will be determined on the date the Securities are priced
for initial offering to the public.
5 The approximate total market value for the issuer was calculated assuming that
the price of all of its capital stock was the same as the price of the Basket
Security or, in the case of an ADR, the Underlying Shares.
The initial Multiplier relating to each Basket Security will indicate the
number of such Basket Security, given the market price of such Basket Security,
required to be included in the calculation of the Original Basket Value so that
each Basket Security represents an equal percentage (i.e., 4.17%) of the
Original Basket Value. The price of each Basket Security used to calculate the
initial Multiplier relating to each such Basket Security will be the closing
price of such Basket Security on the date that the Securities are priced by
Holdings for initial sale to the public. The respective Multipliers will remain
constant for the term of the Securities unless adjusted for certain corporate
events, as described below.
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<PAGE> 13
The Basket Value, for any day, will equal the sum of the products of the
most recently available Market Prices and the applicable Multipliers for the
Basket Securities. The Determination Value, however, is calculated based on the
average Market Prices for certain days.
The Calculation Agent currently intends to provide the Basket Value to the
AMEX once each business day. The AMEX has informed Holdings that, as long as
SUNS are listed on the AMEX, it intends to disseminate the Basket Value to
vendors via the facilities of the AMEX Tape under the symbol "GTB."
ADJUSTMENTS TO THE MULTIPLIER AND BASKET
The Multiplier with respect to any Basket Security and the Basket will be
adjusted by the Calculation Agent as follows:
1. If a Basket Security is subject to a stock split or reverse stock
split (or similar adjustment in the case of ADRs) then once such split has
become effective, the Multiplier relating to such Basket Security will be
adjusted to equal the product of the number of shares outstanding after
such split has become effective with respect to each share of such Basket
Security outstanding immediately prior to the effectiveness of such split
(or the number of receipts outstanding with respect to each ADR if a Basket
Security is an ADR) and the prior Multiplier.
2. If a Basket Security is subject to an extraordinary stock dividend
or extraordinary stock distribution (i.e., issuance of additional shares of
the Basket Security other than in lieu of an ordinary cash dividend) that
is given equally to all holders of shares of the issuer of such Basket
Security, then once the dividend has become effective and such Basket
Security is trading ex-dividend, the Multiplier will be adjusted so that
the new Multiplier shall equal the former Multiplier plus the product of
the number of shares of such Basket Security issued with respect to one
such share of Basket Security and the prior Multiplier.
3. If the issuer of a Basket Security is being liquidated or
dissolved or is subject to a proceeding under any applicable bankruptcy,
insolvency or other similar law such Basket Security will continue to be
included in the Basket so long as a Market Price for such Basket Security
is available. Subject to paragraph 11 below, if a Market Price is no longer
available for a Basket Security for whatever reason, including the
liquidation or dissolution of the issuer of such Basket Security or the
subjection of the issuer of such Basket Security to a proceeding under any
applicable bankruptcy, insolvency or other similar law, then the value of
such Basket Security will equal zero in connection with calculating the
Basket Value and the Determination Value for so long as no Market Price is
available, and no attempt will be made to find a replacement stock or
increase the value of the Basket to compensate for the deletion of such
Basket Security.
4. If the issuer of a Basket Security (or, if a Basket Security is an
ADR, the Foreign Issuer of the Underlying Share) has been subject to a
merger or consolidation and is not the surviving entity or is nationalized,
then a value for such Basket Security will be determined at the time such
issuer is merged or consolidated or nationalized and will equal the last
available Market Price for such Basket Security and that value will be
constant for the remaining term of the Securities. At such time, no
adjustment will be made to the Multiplier of such Basket Security. The
Calculation Agent may at it sole discretion increase such last available
Market Price to reflect payments or dividends of cash, securities or other
consideration to holders of such Basket Security in connection with such
merger or consolidation which may not be reflected in such last available
Market Price.
5. If all the Basket Securities of any class or series of an issuer
are converted into the same or a different number of shares of any class or
classes of equity security other than such Basket Security, whether by
capital reorganization, recapitalization, reclassification or otherwise
(other than pursuant to paragraph 4 above), then, once such conversion has
become effective, the former Basket Security will be removed from the
Basket and such new equity securities will be added to the Basket as new
Basket Securities. The Multiplier for each such new Basket Security will
equal the product of the last value of
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<PAGE> 14
the Multiplier with respect to the former Basket Security and the number of
shares of such new Basket Security issued with respect to one share of the
former Basket Security.
6. If the issuer of a Basket Security issues to all of its
shareholders equity securities of an issuer other than the issuer of the
Basket Security, then such new equity securities will be added to the
Basket as a new Basket Security. The Multiplier for such new Basket
Security will equal the product of the last value of the Multiplier with
respect to the Basket Security for which the new Basket Security is being
issued (the "Original Basket Security") and the number of shares of the new
Basket Security issued with respect to one share of the Original Basket
Security.
7. If an ADR is no longer listed or admitted to trading on a United
States securities exchange registered under the Securities Exchange Act of
1934 or is no longer a NASDAQ NMS security, then the Underlying Share with
respect to such ADR will be deemed to be a new Basket Security. The initial
Multiplier for such new Basket Security will equal the last value of the
Multiplier for such ADR multiplied by the number of shares of Underlying
Share represented by a single ADR.
8. If a Foreign Issuer whose stock is included in the Basket
subsequently lists ADRs on a national securities exchange in the United
States or NASDAQ NMS, the Calculation Agent shall have the option of using
the ADRs in the calculation of the Basket Value instead of the Underlying
Shares and such ADRs will be deemed to be a new Basket Security. The
initial Multiplier for such new Basket Security will equal the last value
of the Multiplier for the Basket Security being replaced divided by the
number of shares of Underlying Shares represented by a single ADR.
9. In the event that holders of Basket Securities (or any class of
holders of Basket Securties) become bound to transfer the Basket Securities
to any governmental authority or entity controlled by any governmental
authority, the Calculation Agent may take such action, including
adjustments to the Multipler or the Market Price with respect to such
Basket Security or to the Basket, as it deems appropriate.
10. In the event that a capital gains tax or any other tax or duty is
hereafter imposed or increased by any governmental or regulatory authority
on Basket Securities beneficially owned, held or traded by foreign
nationals, the Market Price or Multiplier with respect to such Basket
Security shall be adjusted as the Calculation Agent deems appropriate.
11. If a Basket Security is subject to an extraordinary dividend or an
extraordinary distribution (including upon liquidation or dissolution) of
cash or other property of any kind (other than any such dividend or
distribution otherwise addressed in the preceding paragraphs) which is
received equally by all holders of such Basket Securities, then the
Calculation Agent shall determine the fair market value, if any, of such
cash or other property received in respect of each share of such Basket
Security and the Basket shall thereafter be deemed to include an amount
equal to the product of the Multiplier on such date and such fair market
value.
No adjustments of any Multiplier of a Basket Security will be required
unless such adjustment would require a change of a least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
No adjustments to the Multiplier of any Basket Security or to the Basket
will be made other than those specified above.
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<PAGE> 15
THE BASKET
GENERAL
While the Basket consists of stocks (or ADRs representing interests
therein) of issuers that are involved in the global telecommunications industry,
the Basket is not intended to provide an indication of the pattern of price
movements of common stocks of corporations involved in the global
telecommunications industry generally. Each of the United States issuers of a
Basket Security files certain information reports with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934.
Such reports generally contain a description of the business of the issuer,
financial statements and certain other information which may be material to
potential investors in the Securities. Foreign Issuers of Underlying Shares
related to ADRs that are Basket Securities and that are traded in the United
States also file certain information reports with the SEC pursuant to the
Securities Exchange Act of 1934, although information contained in such reports
will generally be more limited than that available with respect to a United
States issuer. Neither Holdings nor Lehman Brothers Inc. makes any
representation or warranty as to the accuracy or completeness of such reports.
THE INCLUSION OF A BASKET SECURITY IN THE BASKET IS NOT A RECOMMENDATION TO BUY
OR SELL SUCH BASKET SECURITY, AND NEITHER HOLDINGS NOR ANY OF ITS AFFILIATES
MAKE ANY REPRESENTATION TO ANY PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF
THE BASKET OR ANY BASKET SECURITY.
Holdings or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Basket Securities or, in the
case of ADRs, the Underlying Shares, including extending loans to, or making
equity investments in, such issuers or providing advisory services to such
issuers, including merger and acquisition advisory services. In the course of
such business, Holdings or its affiliates may acquire non-public information
with respect to such issuers and, in addition, one or more affiliates of
Holdings may publish research reports with respect to such issuers. Holdings
does not make any representation to any purchaser of a Security with respect to
any matters whatsoever relating to such issuers. Any prospective purchaser of a
Security should undertake an independent investigation of the issuers of the
Basket Securities as in its judgment is appropriate to make an informed decision
with respect to an investment in the Securities.
GLOBAL TELECOMMUNICATIONS SECTOR
The global telecommunications industry is subject to varying degrees of
regulatory, political and economic risk which may affect the price of the stocks
of companies involved in such industry. Such risks depend on a number of factors
including the country in which a company is located. Telecommunications
companies in both developed and emerging countries are undergoing significant
change due to varying and evolving levels of governmental regulation and other
factors. As a result, competitive pressures are increasing. Additionally, as key
components of foreign equity markets, the securities of such companies may be
subject to price volatility. In addition, companies offering telephone services
are experiencing, and will continue to experience, increasing competition from
other types of service providers such as wireless, cable, long distance and
other local loop providers. The cellular telephone industry, with a limited
operating history, faces uncertainty concerning the future of the industry and
demand for cellular and other wireless telephones. All telecommunications
companies in both developed and emerging countries are subject to additional
economic, political, currency and other fundamental risks.
In virtually every country, certain aspects of the telecommunications
industry are subject to some government regulation. The nature and scope of such
regulation generally is subject to political forces and market considerations,
the effect of which cannot be predicted. Such regulation can have significant
effects upon the operations of a telecommunications venture. It is difficult to
predict the directions, types or effects of future telecommunications-related
regulation.
During the 1980s and early 1990s, the global telecommunications industry
underwent structural changes. Many state-owned telephone monopolies were
completely or partially divested to the public. Within the U.S., American
Telephone & Telegraph Company divested its local telephone service, creating
seven holding companies in 1984 under an agreement with the U.S. Government. In
addition, the evolution of technology and regulatory changes is allowing the
entrance of new competitors into the previously exclusive domain of the
traditional local telephone operators including operators of cable television
systems. Companies that employ
S-15
<PAGE> 16
various technologies including fibre-optics, microwave and satellite
communications are allowed to compete for traditional telephone company business
in many countries. Continued mergers, divestures, privatizations and alliances
in the global telecommunications industry and changes in technology will affect
companies involved in such industry and the prices of their stocks.
Among the issuers of the Basket Securities, 2 are incorporated in
Argentina, 1 in Brazil, 1 in Canada, 1 in Chile, 1 in France, 2 in Hong Kong, 1
in Israel, 1 in Italy, 1 in Malaysia, 1 in Mexico, 1 in New Zealand, 1 in the
Philippines, 1 in Spain, 1 in Sweden, 1 in Thailand, 2 in the United Kingdom and
5 in the United States.
HISTORICAL INFORMATION
The following table sets forth the high and low closing price for each of
the Basket Securities as reported in the country of the issuer's organization,
or, in the case of ADRs, on the U.S. exchange in which it trades, and converted
to U.S. Dollars during 1991, 1992, 1993 and during 1994 (through March 17,
1994), and the closing price on March 17, 1994. The historical prices of the
Basket Securities should not be taken as an indication of future performance,
and no assurance can be given that the prices of the Basket Securities will
increase sufficiently to cause the beneficial owners of the Securities to
receive any interest on an Interest Payment Date. The historical stock prices
set forth herein have been adjusted to reflect certain corporate events that
affected the prices of the Basket Securities, including, but not limited to,
scrips issues, rights issues, stock splits, reverse splits, stock dividends,
spin-offs and extraordinary dividends. Certain adjustments to the Multiplier and
the Basket will be made by the Calculation Agent as set forth under "Description
of Securities -- Adjustments to the Multiplier and Basket;" such adjustments may
not correspond to the adjustments made in determining the historical stock
prices set forth herein.
<TABLE>
<CAPTION>
BASKET SECURITIES(1) HIGH LOW LAST
- ------------------------------------------------------------ --------- -------- ---------
<S> <C> <C> <C>
Advanced Info Service Public Co. Ltd.
1991........................................................ $ 5.935 $ 5.162 $ 5.935
1992........................................................ 17.569 5.450 12.143
1993........................................................ 44.036 11.769 44.019
1994 (through March 17)..................................... 45.408 30.976 30.976
Alcatel Alsthom Compagnie Generale d'Electricite
1991........................................................ ND ND ND
1992........................................................ 26.583 22.399 24.368
1993........................................................ 29.375 21.907 28.625
1994 (through March 17)..................................... 30.125 24.000 25.500
ALLTEL Corp.
1991........................................................ 21.563 16.000 19.500
1992........................................................ 24.750 17.750 23.875
1993........................................................ 30.625 23.313 29.500
1994 (through March 17)..................................... 29.000 26.750 27.375
American Telephone & Telegraph Company
1991........................................................ 39.875 29.250 39.125
1992........................................................ 52.750 36.750 51.000
1993........................................................ 64.750 50.750 52.500
1994 (through March 17)..................................... 56.750 50.875 53.500
Bell Atlantic Corp.
1991........................................................ 54.000 43.250 48.250
1992........................................................ 53.750 40.500 51.250
1993........................................................ 67.625 49.750 59.250
1994 (through March 17)..................................... 58.625 52.500 53.000
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
BASKET SECURITIES(1) HIGH LOW LAST
- ------------------------------------------------------------ --------- -------- ---------
<S> <C> <C> <C>
Cable & Wireless P.L.C.
1991........................................................ $ 15.908 $ 11.469 $ 15.948
1992........................................................ 16.068 12.798 15.516
1993........................................................ 24.875 14.780 24.000
1994 (through March 17)..................................... 24.750 20.125 20.375
Champion Technology Holdings Ltd.
1991........................................................ ND ND ND
1992........................................................ 0.242 0.096 0.242
1993........................................................ 0.653 0.218 0.653
1994 (through March 17)..................................... 0.654 0.401 0.414
Compania de Telefonos de Chile S.A.
1991........................................................ 45.509 14.010 37.634
1992........................................................ 60.358 35.031 58.003
1993........................................................ 103.170 57.515 101.550
1994 (through March 17)..................................... 132.000 99.432 105.625
GTE Corporation
1991........................................................ 34.875 28.000 34.625
1992........................................................ 35.500 29.000 34.625
1993........................................................ 39.875 34.375 35.000
1994 (through March 17)..................................... 35.000 31.500 32.125
Hong Kong Telecommunications Ltd.
1991........................................................ 28.989 19.479 28.616
1992........................................................ 36.338 27.253 34.983
1993........................................................ 65.750 34.508 62.250
1994 (through March 17)..................................... 64.500 53.500 53.500
L.M. Ericsson Telephone Co.
1991........................................................ 38.071 14.996 18.624
1992........................................................ 26.985 17.898 26.242
1993........................................................ 59.625 23.395 40.375
1994 (through March 17)..................................... 47.750 40.125 47.000
MCI Communications Corp.
1991........................................................ 15.750 9.000 15.125
1992........................................................ 20.375 14.938 19.813
1993........................................................ 29.625 18.938 28.250
1994 (through March 17)..................................... 28.500 24.250 25.000
Newbridge Networks Corporation
1991........................................................ 4.750 1.563 3.813
1992........................................................ 21.625 3.813 20.625
1993........................................................ 73.250 19.313 54.750
1994 (through March 17)..................................... 68.375 54.250 62.625
Philippine Long Distance Telephone Company
1991........................................................ 27.021 7.207 27.021
1992........................................................ 41.565 25.384 33.058
1993........................................................ 80.796 30.451 79.209
1994 (through March 17)..................................... 79.331 64.563 66.625
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
BASKET SECURITIES(1) HIGH LOW LAST
- ------------------------------------------------------------ --------- -------- ---------
<S> <C> <C> <C>
STET Societa Finanziaria Telefonica P.A.
1991........................................................ $ 2.053 $ 1.294 $ 1.791
1992........................................................ 2.031 0.781 1.207
1993........................................................ 2.879 1.164 2.564
1994 (through March 17)..................................... 2.999 2.424 2.999
Tadiran Limited
1991........................................................ ND ND ND
1992........................................................ 27.760 14.316 27.635
1993........................................................ 38.625 26.500 26.500
1994 (through March 17)..................................... 26.125 20.500 22.000
Telecom Argentina Stet-France Telecom S.A.
1991........................................................ ND ND ND
1992........................................................ 3.698 2.271 2.901
1993........................................................ 6.440 2.819 6.284
1994 (through March 17)..................................... 8.173 5.655 6.156
Telecom Corporation of New Zealand, Ltd.
1991........................................................ 25.883 21.516 24.941
1992........................................................ 24.941 18.515 22.761
1993........................................................ 48.554 21.502 48.315
1994 (through March 17)..................................... 54.250 45.452 54.250
Telecommunicacoes Brasileiras S.A.
1991........................................................ ND ND ND
1992........................................................ 0.024 0.011 0.018
1993........................................................ 0.038 0.017 0.034
1994 (through March 17)..................................... 0.053 0.033 0.049
Telefonica de Argentina S.A.
1991........................................................ ND ND ND
1992........................................................ ND ND ND
1993........................................................ ND ND ND
1994 (through March 17)..................................... 78.250 70.250 70.875
Telefonica de Espana S.A.
1991........................................................ 35.027 22.525 34.566
1992........................................................ 35.142 24.703 28.300
1993........................................................ 39.643 28.300 38.652
1994 (through March 17)..................................... 45.218 38.776 41.750
Telefonos de Mexico
1991........................................................ 45.361 23.893 45.361
1992........................................................ 57.853 41.269 54.862
1993........................................................ 67.625 44.086 67.500
1994 (through March 17)..................................... 75.500 60.875 61.500
Telekom Malaysia BHD
1991........................................................ 4.300 2.508 3.582
1992........................................................ 5.964 3.529 5.539
1993........................................................ 8.455 4.566 8.200
1994 (through March 17)..................................... 8.985 6.586 6.749
</TABLE>
S-18
<PAGE> 19
<TABLE>
<CAPTION>
BASKET SECURITIES(1) HIGH LOW LAST
- ------------------------------------------------------------ --------- -------- ---------
<S> <C> <C> <C>
Vodaphone Group PLC
1991........................................................ $ 69.068 $ 45.190 $ 69.068
1992........................................................ 69.068 51.813 63.194
1993........................................................ 90.125 54.375 89.250
1994 (through March 17)..................................... 94.000 84.250 85.750
</TABLE>
- ---------------
1 Certain prices for certain Basket Securities are not presented because (i)
such Basket Securities were not outstanding during the relevant year or were
only outstanding for a portion of such year or (ii) certain information was
not available.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a Holder of a Security upon
any acceleration permitted under the Senior Indenture will be equal to: (i) the
principal amount thereof plus (ii) an additional amount, if any, of interest
calculated as though the date of acceleration was an Interest Determination
Date. See "Description of Securities -- Interest Payments" herein. If a
bankruptcy proceeding is commenced in respect of Holdings, the claim of the
Holder of a Security may be limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the principal amount of the Security plus an additional
amount, if any, of contingent interest calculated as though the date of the
commencement of the proceeding was an Interest Determination Date.
CALCULATION AGENT
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on Holdings and the Holders of the
Securities and the Calculation Agent shall have no liability therefor.
FORM OF SECURITIES
CONVERSION OPTION
The Securities will initially be evidenced by certificates in fully
registered form (each, a "Certificate"). Forty-five calendar days after the
closing of the offering, each Holder will have the option to convert the form of
such Holder's Securities from certificated to book-entry form within a
forty-five calendar day period (the "Conversion Option Period"). In order to be
exchanged for Securities in book-entry form (represented by a beneficial
interest in the Global Security described below), a Certificate must be
delivered to the Depository in the manner referred to below. The Conversion
Option Period is expected to run from , 1994, through ,
1994. Certificates received by the Depository for exchange during the Conversion
Option Period will be exchanged for Securities in book-entry form by the close
of business on the Business Day so received by the Depository (if received by
the Depository at its then applicable cut-off time for same day credit) or on
the following Business Day (if received by the Depository at its then applicable
cut-off time for next day credit). After the last day of the Conversion Option
Period, the Depository will not be required to accept delivery of Certificates
for exchange for book-entry Securities, but may permit Certificates to be so
exchanged on a case-by-case basis. It is anticipated that after the Conversion
Option Period, Certificates delivered to the Depository in proper form for
deposit will be accepted by the Depository for exchange for book-entry
Securities, generally within three to four Business Days after delivery to the
Depository. However, there can be no assurance that such Certificates will be
accepted for exchange. Further, there can be no assurance, with respect to
Certificates accepted for exchange, that exchange will occur within that time
period. Securities surrendered at any time for exchange for book-entry
Securities may not be delivered for transfer until such exchange has been
effected. Since Certificates are not required to be exchanged for Securities in
book-entry form, it is likely that not all Certificates will be so exchanged.
Accordingly, Holders purchasing Securities in secondary market trading after the
Conversion Option Period may wish to make specific
S-19
<PAGE> 20
arrangements with brokers or other participants or indirect participants if they
wish to purchase only Securities in book-entry form and not Certificates.
In order to be exchanged for a Security in book-entry form, a Certificate
must be delivered to the Depository, in proper form for deposit, by a
participant of the Depository. Accordingly, a Holder which is not a participant
must deliver its Certificate, in proper form for deposit, to such a participant
either directly or through an indirect participant or brokerage firm which
maintains an account with the participant, in order to have its Certificate
exchanged for a Security in book-entry form. Such Holders who desire to exchange
their Certificates for Securities in book-entry form should contact their
brokers or other participants or indirect participants to obtain information on
procedures for submitting their Certificates to the Depository, including the
proper form for submission and (during the Conversion Option Period) the cut-off
times for same day and next day exchange. Certificates which are held by the
Holder in nominee or "street" name may be automatically exchanged into
book-entry form by the broker or other entity in whose name such Certificates
are registered, without action of or consent by the beneficial owner of the
related Security (i.e., such beneficial owner need not deliver a Certificate).
Certificates which have been exchanged into book-entry form may not be
re-exchanged for Certificates, except under the limited circumstances described
in the accompanying Prospectus under "Global Securities."
CERTIFICATES FOR SECURITIES
The Trustee will maintain a register (the "Security Register") for
registering the ownership of and transfers of Securities represented by
Certificates. Prior to due presentment for registration of transfer, Holdings,
the Trustee, and any agent of either of them may deem and treat the person in
whose name a Certificate is registered (the "registered holder") as the absolute
owner of the Securities evidenced by such Certificate for any purpose
whatsoever, and as the person entitled to exercise the rights represented by the
Securities evidenced thereby, and neither Holdings, the Trustee, nor any agent
of either of them shall be affected by any notice to the contrary. Accordingly,
if a beneficial owner of a Security evidenced by a Certificate is not the
registered holder thereof (for example, if it holds the Certificate through a
broker holding such Certificate in nominee or "street" name), it may exercise
its rights as a Holder only through the registered holder.
The Trustee shall from time to time register the transfer of any
outstanding Certificates upon surrender thereof at the Trustee's office, duly
endorsed, or accompanied by a written instrument or instruments of transfer in
form satisfactory to the Trustee duly executed by the registered holder thereof,
by the duly appointed legal representative thereof or by its duly authorized
attorney, such signature to be guaranteed by a bank or trust company located, or
with a correspondent office, in The City of New York or by a broker or dealer
which is a member of a national securities exchange. A new Certificate shall be
issued to the transferee upon any such registration of transfer.
At the option of a Holder, Certificates may be exchanged for other
Certificates, representing a like principal amount of Securities upon surrender
to the Trustee at the Trustee's office of the Certificates to be exchanged.
Holdings shall thereupon execute, and the Trustee shall countersign and deliver,
one or more new Certificates representing a like principal amount of Securities.
If any Certificate is mutilated, lost, stolen or destroyed, Holdings may in
its discretion execute, and the Trustee may countersign and deliver, in exchange
and substitute for and upon cancellation of the mutilated Certificate, or in
lieu of the lost, stolen or destroyed Certificate, a new Certificate of like
tenor and representing an equivalent principal amount of Securities, but only
(in the case of loss, theft or destruction) upon receipt of evidence
satisfactory to Holdings and the Trustee of such loss, theft or destruction of
such Certificate and security or indemnity, if requested, also satisfactory to
them. Applicants for substitute Certificates must also comply with such other
reasonable regulations and pay such other reasonable charges as Holdings or the
Trustee may prescribe.
The principal of, and interest on Securities in certificated form will be
payable when due at the office of the Trustee, Citibank, N.A., Corporate Trust
Services, at 111 Wall Street, 5th Floor, New York, New York 10043; provided,
however, that payment of interest may be made at the option of Holdings by check
mailed to the address of the person entitled thereto as it appears on the books
of the Trustee.
S-20
<PAGE> 21
BOOK-ENTRY FORM
Securities held in book-entry form will be held in the form of one or more
global certificates (the "Global Security") registered in the name of the
nominee of the depository, The Depository Trust Company ("DTC", and together
with any successor depository, the "Depository"). Holdings anticipates that the
Depository's initial nominee will be CEDE & Co. ("CEDE"). Accordingly, CEDE is
expected to be the registered holder of the Securities in book-entry form.
DTC is a limited-purpose trust company which was created to hold securities
for its participating organizations ("participants") and to facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants. Participants
include securities brokers and dealers (including the Underwriters), banks and
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants"). Persons
who are not participants may beneficially own securities held by DTC only
through participants or indirect participants.
DTC's nominee for all purposes will be considered the sole owner or holder
of the Securities which are held in book-entry form. Holders which own
Securities in book-entry form will not be entitled to have Securities registered
in their names, will not be considered the holders thereof under the Senior
Indenture, and will not be entitled to exchange their book-entry Securities for
definitive form Certificates, except under the limited circumstances described
below.
A Holder that is not a participant will have its ownership of a Security in
book-entry form recorded on or through the records of the brokerage firm or
other entity that maintains such Holder's account. In turn, the total number of
Securities in book-entry form held by an individual brokerage firm for its
clients will be maintained on the records of the Depository in the name of such
brokerage firm (or in the name of a participant that acts as agent for the
Holder's brokerage firm if such firm is not a participant). Therefore, a Holder
must rely upon the foregoing procedures to evidence such Holder's ownership of a
Security in book-entry form. Transfer of ownership of a Security in book-entry
form may be effected only through the Depository, and, if applicable, the
brokerage firm or other entity that maintains the selling Holder's book-entry
account. The laws of some states of the United States may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits on transfer and such laws may impair the ability to own,
transfer or pledge securities in book-entry form.
Neither Holdings nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made to beneficial owners
of book-entry securities or for maintaining, supervising or reviewing any
records relating to such beneficial owners.
Holdings understands that under existing industry practices, in the event
that Holdings requests any action of Holders or that Holders which own
Securities in book-entry form desire to give or take any action which Holders
are entitled to give or take under the Senior Indenture, the Depository would
authorize the participants to give or take such action, and such participants
would authorize Holders owning through such participants to give or take such
action or would otherwise act upon the instructions of Holders owning through
them. Accordingly, each Holder which owns a Security in book-entry form must
rely on the procedures of the Depository and, if such Holder is not a
participant, on the procedures of the participant through which such Holder owns
its Security, to exercise any rights of a Holder under the Senior Indenture.
Payment of the principal of, and any interest payment with respect to,
Securities registered in the name of the Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the holder of the
Global Securities representing such Securities. None of Holdings, the Trustee or
any other agent of Holdings or any agent of the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests or for supervising or
reviewing any records relating to such beneficial ownership interests. Holdings
expects that the Depository, upon receipt of any payment of principal or any
interest payment in respect of a Global Security, will credit the accounts of
the participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of the Depository. Holdings also expects that payments by
participants to Holders will be governed by standing customer instructions and
customary
S-21
<PAGE> 22
practices, as is now the case with Securities held for the accounts of customers
in bearer form or registered in "street name", and will be the responsibility of
such participants.
If at any time (i) the Depository notifies Holdings that it is unwilling or
unable to continue as Depository or (ii) Holdings becomes aware that the
Depository shall no longer be eligible under the Senior Indenture, Holdings
shall appoint a successor Depository. If a successor Depository for the
Securities is not appointed by Holdings within 90 days after any such event,
Holdings will issue, and the Trustee will authenticate and deliver, Securities
in definitive form in an aggregate principal amount equal to the aggregate
principal amount of the Global Securities, in denominations of $25 and integral
multiples thereof. Such definitive Securities shall be registered in such name
or names as the Depository shall instruct the Trustee. It is expected that such
instructions will be based upon directions received by the Depository from
participants with respect to ownership of beneficial interests in such Global
Securities.
LISTING
Application has been made to list the SUNS on the American Stock Exchange
under the symbol "SXT".
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Securities as of the date hereof. Except where
noted, it deals only with Securities held as capital assets and does not deal
with special situations, such as those of dealers in securities, financial
institutions, life insurance companies or United States Holders whose
"functional currency" is not the U.S. dollar. Furthermore, the discussion below
is based upon the provisions of the Internal Revenue Code of 1986 (the "Code"),
and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
Persons considering the purchase, ownership or disposition of Securities should
consult their own tax advisors concerning the federal income tax consequences in
light of their particular situations as well as any consequences arising under
the laws of any other taxing jurisdiction.
UNITED STATES HOLDERS
As used herein, a "United States Holder" of a Security means a holder that
is a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source. A
"Non-United States Holder" is a holder that is not a United States Holder.
PAYMENTS OF INTEREST
This summary is based upon Internal Revenue Service ("IRS") regulations
which were published in the Federal Register on February 2, 1994 (the "OID
Regulations") and are to be effective as final regulations on April 4, 1994. The
OID Regulations provide, however, that taxpayers generally may rely on them in
determining the federal income tax consequences of owning debt instruments
issued after December 21, 1992 and before their effective date.
The Securities constitute variable rate debt instruments under the OID
Regulations, and, accordingly, interest on the Securities will be taxable to a
holder as ordinary income at the time it is paid, in the case of a cash basis
taxpayer, or accrued, in the case of an accrual basis taxpayer.
In the case of an accrual basis taxpayer, the OID Regulations do not
specify the method by which a United States Holder must accrue interest on a
Security. A reasonable method for the accrual of interest by a United States
Holder would be to accrue interest currently based on the Basket Value as of the
applicable accrual date. Furthermore, such United States Holder would take into
account any difference between the amount accrued under the preceding sentence,
and the amount actually paid on an Interest Payment Date as
S-22
<PAGE> 23
an adjustment to interest accrued in the subsequent period. For example, if the
amount accrued is greater than the amount actually paid, the amount accrued in
the subsequent period will be reduced by such difference, and to the extent the
adjustment is greater than the amount otherwise accruable, such difference
should be treated as an ordinary deduction. Other approaches to the accrual of
interest are possible and there can be no assurance that regulations will not be
promulgated which take a different approach. Holdings intends, however, to
accrue and report interest to United States Holders as described above.
MARKET DISCOUNT
If a United States Holder purchases a Security for an amount that is less
than its issue price (defined as the first price at which a substantial amount
of the Securities were initially sold), the amount of the difference will be
treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment
on, or any gain on the sale or exchange or other disposition of, a Security as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Security at the
time of such payment or disposition. In addition, the United States Holder may
be required to defer, until the maturity of the Security or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Security, unless a current inclusion election is made as described below.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Security, unless the
United States Holder elects to accrue on a constant yield method. A United
States Holder of a Security may elect to include market discount in income
currently as it accrues on either a ratable or constant yield basis. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. Alternatively, a United States Holder may elect to treat market discount
and all interest that accrues on a Security as "original issue discount." United
States Holders should consult their own tax advisors about this election.
AMORTIZABLE BOND PREMIUM
A United States Holder who purchases a Security for an amount in excess of
the sum of all amounts payable on the Security after the purchase date other
than qualified stated interest will be considered to have purchased the Security
at a "premium." A United States Holder generally may elect to amortize the
premium over the remaining term of the Security on a constant yield method. The
amount amortized in any year will be treated as a reduction of the United States
Holder's interest income from the Security. Bond premium on a Security held by a
United States Holder that does not make such an election will decrease the gain
or increase the loss otherwise recognized on disposition of the Security. The
election to amortize premium on a constant yield method once made applies to all
debt obligations held or subsequently acquired by the electing holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
SALE AND EXCHANGE OF SECURITIES
A United States Holder's tax basis in a Security will, in general, be the
United States Holder's cost therefor, increased by market discount, if any,
previously included in income by the United States Holder and reduced by any
amortized premium, if any. Upon the sale or exchange of a Security, a United
States Holder may be required to include in income as ordinary interest income
any portion of the amount realized which is attributable to the change in Basket
Value (which the Calculation Agent will provide to the AMEX once each business
day for dissemination via the AMEX Tape) as of the date of such sale or
exchange. Moreover, a United States Holder will recognize gain or loss equal to
the difference between the amount realized, in excess of the amount treated as
ordinary income, if any, under the preceding sentence, and the adjusted tax
basis of the Security. Except as described above with respect to market
discount, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if at the time of sale or exchange the Security has been
held
S-23
<PAGE> 24
for more than one year. Under current law, net capital gains of individuals are,
under certain circumstances, taxed at lower rates than items of ordinary income.
The deductibility of capital losses is subject to limitations.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Company or any Paying Agent of
principal or interest on a Security owned by a Non-United States Holder,
provided (i) that the beneficial owner does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of section 871(h)(3) of
the Code and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner is not a bank whose receipt of
interest on a Security is described in section 881(c)(3)(A) of the Code and
(iv) the beneficial owner satisfies the statement requirement (described
generally below) set forth in section 871(h) and section 881(c) of the Code
and the regulations thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange or retirement of a Security; and
(c) a Security beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Security would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Security, or a financial institution holding the Security on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of the Company with a statement to the effect that the beneficial
owner is not a U.S. person, citizen or resident. Pursuant to current temporary
Treasury regulations, these requirements will be met if (1) the beneficial owner
provides his name and address, and certifies, under penalties of perjury, that
he is not a U.S. person, citizen or resident (which certification may be made on
an Internal Revenue Service Form W-8 (or successor form) or (2) a financial
institution holding the Debt Security on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent with a copy thereof.
Payments to Non-United States Holders not meeting the requirements of
paragraph (a) above and thus subject to withholding of United States federal
income tax may nevertheless be exempt from such withholding if the beneficial
owner of the Security provides the Company with a properly executed (1) Internal
Revenue Service Form 1001 (or successor form) claiming an exemption from
withholding under the benefit of a tax treaty or (2) Internal Revenue Service
Form 4224 (or successor form) stating that interest paid on the Security is not
subject to withholding tax because it is effectively connected with the owner's
conduct of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal and interest paid on Securities and to the proceeds of
sale of a Security made to United States Holders other than certain exempt
recipients (such as corporations). A 31 percent backup withholding tax will
apply to such payments if the United States Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
S-24
<PAGE> 25
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal or interest on a Security is paid or collected by a
foreign office of a custodian, nominee or other foreign agent on behalf of the
beneficial owner of such Security, or if a foreign office of a broker (as
defined in applicable Treasury regulations) pays the proceeds of the sale of a
Security to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a U.S. person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, such payments will not be subject to backup withholding but
will be subject to information reporting, unless (1) such custodian, nominee,
agent or broker has documentary evidence in its records that the beneficial
owner is not a U.S. person and certain other conditions are met or (2) the
beneficial owner otherwise establishes an exemption. Temporary Treasury
regulations provide that the Treasury is considering whether backup withholding
will apply with respect to such payments of principal, interest or the proceeds
of a sale that are not subject to backup withholding under the current
regulations. Under proposed Treasury regulations not currently in effect backup
withholding will not apply to such payments absent actual knowledge that the
payee is a United States person.
Payments of principal and interest on a Security paid to the beneficial
owner of a Security by a United States office of a custodian, nominee or agent,
or the payment by the United States office of a broker of the proceeds of sale
of a Security, will be subject to both backup withholding and information
reporting unless the beneficial owner provides the statement referred to in
(a)(iv) above and the payor does not have actual knowledge that the beneficial
owner is a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
S-25
<PAGE> 26
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated as of March , 1994 (the "Underwriting Agreement"), Holdings has agreed
to sell to each of the underwriters named below (the "Underwriters") for whom
Lehman Brothers Inc., Kemper Securities, Inc., Kidder, Peabody & Co.
Incorporated and Oppenheimer & Co., Inc. are acting as representatives (the
"Representatives"), and each of the Underwriters has severally agreed to
purchase, the principal amount of Securities set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT OF SECURITIES
----------------------------------------------------------- --------------------
<S> <C>
Lehman Brothers Inc. ...................................... $
Kemper Securities, Inc.....................................
Kidder, Peabody & Co. Incorporated.........................
Oppenheimer & Co., Inc.....................................
--------------------
Total............................................ $ 75,000,000
--------------------
--------------------
</TABLE>
Holdings has been advised by the Representatives that the Underwriters
propose initially to offer the Securities to the public at the public offering
price set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $ per Security.
The Underwriter may allow and such dealers may reallow a concession not in
excess of $ per Security to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed.
Holdings has granted an option to the Underwriters, exercisable within 30
days of the date of this Prospectus Supplement, to purchase up to an additional
$ principal amount of Securities to cover over-allotments, if any, at
the price to public less the underwriting discounts and commissions specified on
the cover page of this Prospectus Supplement.
Lehman Brothers Inc. is a wholly owned subsidiary of Holdings. The
participation of Lehman Brothers Inc. in the offer and sale of the SUNs complies
with the requirements of Schedule E of the By Laws of the National Association
of Securities Dealers regarding underwriting securities of an affiliate.
The Representatives have advised Holdings that they intend to make a market
in the Securities but the Representatives are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Securities.
Holdings has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
S-26
<PAGE> 27
GLOSSARY
Set forth below are definitions of some of the terms used in this
Prospectus Supplement and not defined in the accompanying Prospectus.
"Business Day" means a day of the week which is not a day on which banking
institutions in New York, New York, are authorized or required by law to close.
"Maturity" of any Security means the date on which the principal of such
Security becomes due and payable as provided therein or in the Senior Indenture,
whether at Stated Maturity or by declaration of acceleration or otherwise.
"Holder" means, with respect to any certificated Security, the Person in
whose name the certificate is registered in the Security Register and, with
respect to any Global Security, any Beneficial Holder thereof to the extent of
such Beneficial Holder's interest therein.
In addition, definitions for the following terms are set forth in this
Prospectus Supplement at the pages indicated:
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------- -----
<S> <C>
ADRs.................................................................................. S-4
AMEX.................................................................................. S-6
Average Market Price.................................................................. S-3
Basket................................................................................ S-4
Basket Appreciation Percentage........................................................ S-3
Basket Securities..................................................................... S-3
Basket Security....................................................................... S-3
Basket Value.......................................................................... S-4
Calculation Agent..................................................................... S-3
Calculation Day....................................................................... S-10
Calculation Period.................................................................... S-3
CEDE.................................................................................. S-21
Certificate........................................................................... S-19
Code.................................................................................. S-22
Conversion Option Period.............................................................. S-19
Depository............................................................................ S-21
Determination Value................................................................... S-3
$..................................................................................... S-9
dollars............................................................................... S-9
DTC................................................................................... S-21
Foreign Issuer........................................................................ S-8
Global Security....................................................................... S-21
Holdings.............................................................................. S-3
indirect participants................................................................. S-21
Interest Determination Date........................................................... S-3
Interest Payment...................................................................... S-3
Interest Payment Date................................................................. S-3
IRS................................................................................... S-22
Market Disruption Event............................................................... S-11
Market Price.......................................................................... S-10
Multiplier............................................................................ S-3
NASDAQ................................................................................ S-8
NASDAQ NMS............................................................................ S-10
</TABLE>
S-27
<PAGE> 28
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------- -----
<S> <C>
NYSE.................................................................................. S-11
New York Trading Day.................................................................. S-11
Non-United States Holder.............................................................. S-22
OID Regulations....................................................................... S-22
Original Basket Value................................................................. S-4
Original Basket Security.............................................................. S-14
participants.......................................................................... S-21
Prior Determination Value............................................................. S-3
registered holder..................................................................... S-20
Representatives....................................................................... S-26
SEC................................................................................... S-15
Securities............................................................................ S-3
Security Register..................................................................... S-20
Spot Rate............................................................................. S-10
Stated Maturity....................................................................... S-3
SUNS.................................................................................. S-3
Trading Day........................................................................... S-11
Underlying Shares..................................................................... S-8
Underwriters.......................................................................... S-26
Underwriting Agreement................................................................ S-26
United States Holder.................................................................. S-22
U.S. dollars.......................................................................... S-9
U.S.$................................................................................. S-9
</TABLE>
S-28
<PAGE> 29
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF HOLDINGS SINCE THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary............................... S-3
Use of Proceeds....................... S-6
Special Considerations................ S-6
Description of Securities............. S-9
The Basket............................ S-15
Form of Securities.................... S-19
Certain Federal United States Income
Tax Consequences.................... S-22
Underwriting.......................... S-26
Glossary.............................. S-27
PROSPECTUS
Available Information................. 2
Documents Incorporated by Reference... 2
The Company........................... 3
Use of Proceeds....................... 3
Ratio of Earnings to Fixed Charges.... 3
Description of Debt Securities........ 4
Limitations on Issuance of
Bearer Securities................... 14
United States Taxation................ 15
Capital Requirements.................. 17
Plan of Distribution.................. 18
ERISA Matters......................... 19
Legal Opinions........................ 19
Independent Accountants............... 20
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
$75,000,000
LEHMAN BROTHERS
HOLDINGS INC.
GLOBAL TELECOMMUNICATIONS
STOCK UPSIDE NOTE
SECURITIES DUE 2000
"SUNS"
---------------------
PROSPECTUS SUPPLEMENT
MARCH , 1994
---------------------
LEHMAN BROTHERS
KEMPER SECURITIES, INC.
KIDDER, PEABODY & CO.
INCORPORATED
OPPENHEIMER & CO., INC.
- ------------------------------------------------------
- ------------------------------------------------------
