<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 033-58548
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 20, 1994)
1,000,000 WARRANTS
LEHMAN BROTHERS HOLDINGS INC.
AMEX HONG KONG 30 INDEX* CALL WARRANTS
EXPIRING FEBRUARY 26, 1996
Each AMEX Hong Kong 30 Index Call Warrant ("Warrant") will entitle the
holder thereof to receive from Lehman Brothers Holdings Inc. ("Holdings"), upon
exercise (including automatic exercise), an amount in U.S. dollars computed by
reference to increases in the AMEX Hong Kong 30 Index (the "Index"). Such amount
(the "Cash Settlement Value") will equal the quotient (rounded down to the
nearest cent) of (A) the amount, if any, by which the Spot Index (as defined
herein) for the applicable Valuation Date (as defined herein) exceeds the Strike
Index (as defined herein) divided by (B) 2.5, divided by (C) the fixed Hong Kong
dollar/U.S. dollar exchange rate of H.K.$7.7278 per U.S.$1.00. If the Strike
Index for such Valuation Date is equal to or exceeds the Spot Index, the Cash
Settlement Value will be zero; in which case, the Warrantholder (as defined
herein) will be permitted, subject to certain exceptions, to re-exercise such
Warrant prior to the Expiration Date (as defined herein) or prior to the
Delisting Date (as defined herein).
The Strike Index is 463.55, which is equal to the closing level of the Index
on August 23, 1994. If such date were the applicable Valuation Date, the Cash
Settlement Value of the Warrants would be zero. The Index was established on
June 25, 1993, on which date it was set at a value of 350.00.
The Warrants are unsecured contractual obligations of Holdings and will rank
on a parity with Holdings' other unsecured contractual obligations and with
Holdings' unsecured and unsubordinated debt.
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS IF THE LEVEL OF THE INDEX DECREASES. PURCHASERS SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS AND ARE ADVISED TO
CONSIDER CAREFULLY THE INFORMATION UNDER "CERTAIN IMPORTANT INFORMATION
CONCERNING THE WARRANTS" HEREIN AND "RISK FACTORS RELATING TO THE WARRANTS"
HEREIN, AS WELL AS OTHER INFORMATION HEREIN.
The Warrants have been approved for listing on the American Stock Exchange,
Inc. (the "AMEX"), subject to notice of issuance, under the symbol "LHW.WS."
Lehman Brothers Inc., a wholly owned subsidiary of Holdings, may, but is not
obligated to, purchase and sell Warrants for its own account for the purpose of
making a market in the Warrants.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) HOLDINGS(2)
- -------------------------------------------------------------------------------------------------
Per Warrant....................... $4.50 $0.225 $4.275
- -------------------------------------------------------------------------------------------------
Total(3).......................... $4,500,000 $225,000 $4,275,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Holdings has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting" herein.
(2) Before deducting expenses estimated at approximately $75,000, which are
payable by Holdings.
(3) Holdings has granted to the Underwriter an option, exercisable within 30
days of the date hereof, to purchase up to 150,000 additional Warrants, on
the same terms, solely to cover over-allotments, if any. If the Underwriter
exercises such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Holdings will be $5,175,000,
$258,750 and $4,916,250, respectively. See "Underwriting" herein.
---------------------
The Warrants offered by this Prospectus Supplement are offered by the
Underwriter subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriter
and to certain further conditions. The Underwriter reserves the right to reject
orders in whole or in part. It is expected that delivery of the Warrant
Certificates will be made at the offices of Lehman Brothers Inc., New York, New
York, on or about August 30, 1994.
This Prospectus Supplement together with the accompanying Prospectus may
also be used by Lehman Brothers Inc. in connection with offers and sales of
Warrants related to market making transactions, by and through Lehman Brothers
Inc., at negotiated prices related to prevailing market prices at the time of
sale or otherwise. Lehman Brothers Inc. may act as principal or agent in such
transactions.
LEHMAN BROTHERS
- ---------------
* The use of, and reference to, the term "Index" herein has been consented to
by the AMEX. The "AMEX Hong Kong 30 Index" is a service mark of the AMEX.
August 23, 1994
<PAGE> 2
The valuation of and payment for any exercised Warrant may be postponed as
a result of an Exercise Limitation Event (as defined herein) or an Extraordinary
Event (as defined herein) or as a result of the exercise of a number of Warrants
exceeding the limits on exercise described herein under "Description of
Warrants -- Maximum Exercise Amount," in which case the Warrantholder (as
defined herein) will receive a Cash Settlement Value or, under certain
circumstances, the Alternative Settlement Amount (as defined herein) for such
Warrant, in either case determined as of a later date. See "Description of the
Warrants -- Extraordinary Events and Exercise Limitation Events" and "-- Maximum
Exercise Amount" herein.
The Warrants will be exercisable immediately upon issuance and may be
exercised until 3:00 P.M., New York City time, on the earlier of (i) the New
York Business Day (as defined herein) immediately preceding the Expiration Date
of February 26, 1996, or (ii) the last New York Business Day prior to the
effective date of their delisting from, or permanent suspension from trading on,
the AMEX and failure to be accepted at the same time for trading pursuant to the
rules of another self-regulatory organization (a "Self-Regulatory Organization")
that are filed with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 (the "Delisting Date"). Any Warrant not exercised at or
before 3:00 P.M., New York City time, on such New York Business Day will be
automatically exercised. A Warrantholder may exercise no fewer than 500 Warrants
at any one time, except in the case of automatic exercise or cancellation. A
Warrantholder tendering Warrants for exercise will have the option of specifying
that, unless an Alternative Settlement Amount is payable in respect of such
Warrants, such Warrants are not to be exercised if the Spot Index as of the
applicable Valuation Date is 5% or more lower than the most recent closing level
of the Index prior to exercise. See "Certain Important Information Concerning
the Warrants" and "Description of the Warrants" herein.
The Warrants will be originally issued as certificates in registered form.
Forty-five calendar days after the closing of the offering, each Warrantholder
will have the option to convert the form in which such Warrantholder holds his
Warrants from certificated to book-entry within a forty-five calendar day period
as described herein. Ownership of converted warrants will be maintained in
book-entry form by or through DTC (as defined herein). Beneficial owners of
Warrants in book-entry form will not have the right to receive physical
certificates evidencing their ownership except under limited circumstances
described herein.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WARRANTS
OFFERED HEREBY AT A LEVEL ABOVE THAT 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.
S-2
<PAGE> 3
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus and this Prospectus Supplement
and in the documents incorporated therein by reference.
THE OFFERING
ISSUER..................... Lehman Brothers Holdings Inc. ("Holdings").
SECURITIES OFFERED......... 1,000,000 AMEX Hong Kong 30 Index Call Warrants
(the "Warrants") expiring February 26, 1996. Each
Warrant will entitle the beneficial owner thereof
to receive from Holdings, upon exercise (including
automatic exercise), an amount in U.S. dollars
computed by reference to increases in the Index.
Such amount (the "Cash Settlement Value") will
equal the quotient (rounded down to the nearest
cent) of (A) the amount, if any, by which the Spot
Index (as defined herein) for the applicable
Valuation Date (as defined herein) exceeds the
Strike Index (as defined herein) divided by (B)
2.5, divided by (C) the fixed Hong Kong dollar/U.S.
dollar exchange rate of H.K.$7.7278 per U.S.$1.00.
If the Strike Index for a Valuation Date is equal
to or exceeds the Spot Index, the corresponding
Cash Settlement Value will be zero; in which case,
the Warrantholder (as defined herein) will be
permitted, subject to certain exceptions, to
re-exercise such Warrant prior to the Expiration
Date (as defined herein) or the Delisting Date (as
defined herein).
The Strike Index is 463.55, which is equal to the
closing level of the Index on August 23, 1994. If
such date were the applicable Valuation Date, the
Cash Settlement Value of the Warrants would be
zero.
PRICE...................... U.S.$4.50 per Warrant.
THE AMEX HONG KONG
30 INDEX................. The Index, a service mark of the AMEX, is a
capitalization-weighted stock index, designed,
developed, maintained and operated by the AMEX. The
Index is being used by Holdings with the permission
of the AMEX. The Index measures the composite price
performance of 30 selected stocks trading on The
Stock Exchange of Hong Kong Ltd. (the "HKSE") and
is designed to represent a substantial segment of
the Hong Kong stock market. Business sector
representation in the Index consists primarily of
finance, property development, utilities,
conglomerates and food retailing, and also includes
hotel/leisure, property investment, airlines and
luxury retailing. The Index was established on June
25, 1993 at a value of 350.00. See Appendix A
hereto.
Stocks that comprise the Index may be changed or
substituted by the AMEX based on certain criteria.
The AMEX is under no obligation to continue the
calculation or the dissemination of the Index. See
"The Index" herein. If the AMEX discontinues
publication of the Index and/or any Successor Index
(as defined herein), the Calculation Agent (as
defined herein) shall determine the Cash Settlement
Value, based on the formula and method used in
calculating the Index or any Successor Index as in
effect on the date the Index or such Successor
Index was last published. See "Certain Important
Information Concerning the Warrants" herein.
S-3
<PAGE> 4
EXERCISE OF WARRANTS....... The Warrants will be immediately exercisable upon
issuance (subject to postponement as described
herein under "Description of the Warrants --
Extraordinary Events and Exercise Limitation
Events") and may be exercised until 3:00 P.M., New
York City time, on the earlier of (i) the New York
Business Day (as defined herein) immediately
preceding the Expiration Date for the Warrants,
which will be February 26, 1996 (the "Expiration
Date"), or (ii) the last New York Business Day
prior to the Delisting Date. See "Description of
the Warrants -- Exercise and Settlement of
Warrants" herein.
EXERCISE AMOUNT A Warrantholder may exercise no fewer than 500
Warrants at any one time, except as provided
herein. See "Description of the Warrants -- Minimum
Exercise Amount" herein. All exercises of Warrants
(other than on the Expiration Date or the Delisting
Date) are subject, at the Calculation Agent's
option, to the limitation that not more than
1,000,000 Warrants in total may be exercised on any
Exercise Date and not more than 250,000 Warrants
may be exercised by or on behalf of any person or
entity, either individually or in concert with any
other person or entity, on any Exercise Date. See
"Description of the Warrants -- Maximum Exercise
Amount."
EXTRAORDINARY EVENTS AND
EXERCISE LIMITATION
EVENTS See "Description of the Warrants -- Extraordinary
Events and Exercise Limitation Events" herein for a
description of such events and the consequences of
the declaration of such an event by Holdings.
CERTAIN RISK FACTORS The Warrants involve a high degree of risk,
including risks arising from fluctuations in the
prices of the Underlying Stocks (as defined
herein), risks relating to the Index and general
risks applicable to the HKSE (the exchange on which
the Underlying Stocks are traded), such as market
disruption events, suspensions and trading halts.
Prospective purchasers should recognize that their
Warrants may expire worthless and should be
prepared to sustain a total loss of the purchase
price of their Warrants. The Warrants are
appropriate investments only for investors with
options approved accounts who are able to
understand and bear the risk of a speculative
investment in the Warrants.
It is not possible to predict how the Warrants will
trade in the secondary market or whether such
market will be liquid or illiquid.
If the Warrants are delisted from, or permanently
suspended from trading on, the AMEX and are not
accepted for listing on another Self-Regulatory
Organization, Warrants not previously exercised
will be deemed automatically exercised on the
Delisting Date, and the Cash Settlement Value, if
any, shall be calculated and settled as provided
below under "Description of the
Warrants -- Automatic Exercise". See "Description
of the Warrants -- Delisting of Warrants" herein.
In connection with a delisting or permanent
suspension of trading on the AMEX, Holdings will
use its reasonable best efforts to list the
Warrants on another Self-Regulatory Organization.
To the extent Warrants are exercised, the number of
Warrants outstanding will decrease, resulting in a
decrease in the liquidity of the Warrants.
S-4
<PAGE> 5
The Index has experienced significant price
fluctuations in the past, and it is impossible to
predict its future direction. See "The Index --
Historical Data on the Index" herein.
If the AMEX discontinues publication of the Index
and/or any Successor Index, the Calculation Agent
will determine the Cash Settlement Value based on
the formula used in calculating the Index or such
Successor Index as in effect on the date the Index
or such Successor Index was last published. If the
Calculation Agent determines that either an
Extraordinary Event or an Exercise Limitation Event
has occurred and is continuing on the Hong Kong
Business Day on which the Cash Settlement Value is
to be determined, then the Calculation Agent will
determine, compose or calculate the amount (the
"Alternative Settlement Amount") that each
Warrantholder is to receive in lieu of the Cash
Settlement Value. Potential investors should be
aware that Lehman Brothers Inc., in its capacity as
Calculation Agent, is under no obligation to take
the interests of Holdings or the Warrantholders
into consideration in the event that it is called
on to determine, compose or calculate the Cash
Settlement Value or Alternative Settlement Amount.
Lehman Brothers Inc., as a registered
broker-dealer, is required to maintain policies and
procedures regarding the handling and use of
confidential proprietary information, and such
policies and procedures will be in effect
throughout the term of the Warrants to restrict the
use of information relating to the calculation of
the Cash Settlement Value or Alternative Settlement
Amount prior to its dissemination. Moreover, Lehman
Brothers Inc. is obligated to carry out its duties
and functions as Calculation Agent in good faith
and using its reasonable judgment.
Except for cases of automatic exercise or
cancellation, a Warrantholder must tender at least
500 Warrants at any one time in order to exercise
its Warrants. Thus, except in such cases,
Warrantholders with fewer than 500 Warrants must,
as a practical matter, either sell their Warrants
or purchase additional Warrants, incurring
transaction costs in each case, in order to realize
upon their investment.
A Warrantholder will not be able to determine, at
the time of exercise of a Warrant, the Spot Index
that will be used in calculating the Cash
Settlement Value of such Warrant (and will thus be
unable to determine the Cash Settlement Value)
since the Valuation Date will occur subsequent to
the Exercise Date. In addition, the Valuation Date
for exercised Warrants may be postponed upon the
occurrence and continuation of an Extraordinary
Event or an Exercise Limitation Event, or as the
result of the exercise of a number of Warrants
exceeding the Maximum Exercise Amount. (See
"Description of the Warrants -- Extraordinary
Events and Exercise Limitation Events" and
"-- Maximum Exercise Amount"). For example,
circumstances existed from October 20 through
October 23, 1987 and on July 22, 1992 (prior to the
inception of the Index) and on September 17, 1993,
that would have constituted either an Extraordinary
Event or an Exercise Limitation Event. See
"Description of the Warrants -- Extraordinary
Events and Exercise Limitation Events" herein. Any
change in the level of the Index between the time a
Warrantholder submits an Exercise Notice (as
defined herein) and the time the Spot Index for
such exercise is determined (which period will, at
a minimum, represent an entire Hong Kong
S-5
<PAGE> 6
Business Day (as defined herein) and, in
the case of a Valuation Date that is
postponed following an Extraordinary Event
or an Exercise Limitation Event, may be
substantially longer) will result in such
Warrantholder receiving a Cash Settlement
Value or Alternative Settlement Amount (as
defined herein) (including a zero Cash
Settlement Value or Alternative Settlement
Amount) that may be different from the
Cash Settlement Value anticipated by such
Warrantholder based on the level of the
Index most recently reported prior to such
exercise. The AMEX will generally
calculate the Index once each day based
upon the most recent official closing
prices of each of the Underlying Stocks as
reported by the HKSE. Due to time
differences, trading on the HKSE occurs
when the AMEX is closed for business.
If the Calculation Agent determines that on a
Valuation Date an Extraordinary Event or Exercise
Limitation Event has occurred and is continuing,
then the Cash Settlement Value may be calculated on
the basis that the Valuation Date shall be later
than the date otherwise provided herein.
The value of the Index, and therefore the potential
Cash Settlement Value or Alternative Settlement
Amount, as the case may be, may be adversely
affected by political, economic or social
instability, or developments and changes in law or
regulations, particularly in Hong Kong and the
People's Republic of China. See "Risk Factors
Relating to the Warrants."
Investors are advised to consider carefully the
foregoing risk factors and the risks and other
matters discussed under "Certain Important
Information Concerning the Warrants", "Risk Factors
Relating to the Warrants", "Description of the
Warrants" and "Certain United States Federal Income
Tax Considerations" prior to purchasing Warrants.
WHO SHOULD INVEST.......... The AMEX requires that the Warrants be sold only to
investors whose accounts have been approved for
options trading. In addition, the AMEX requires
that its members and member organizations and
registered employees thereof make certain
suitability determinations before recommending
transactions in Warrants.
Investment decisions relating to the Warrants
require an investor to predict the direction of
movements in the Index as well as the amount and
timing of those movements. The Warrants may change
substantially in value, or lose all of their value,
with relatively small movements in the Index.
Moreover, in the absence of countervailing factors,
such as an offsetting movement in the level of the
Index, the market value of a Warrant will tend to
decrease over time and the Warrant will have no
market value after the time for exercise has
expired. Accordingly, the Warrants involve a high
degree of risk and are not appropriate for every
investor. As such, investors who are considering
purchasing the Warrants must have an options
approved account and should be able to understand
and bear the risk of a speculative investment in
the Warrants, be experienced with respect to
options and option transactions and understand the
risks of stock index transactions. Such investors
should reach an investment decision only after
careful consideration with their advisers of the
suitability of the Warrants in light of their
particular financial circumstances and the
information set forth in this Prospectus Supple-
S-6
<PAGE> 7
ment. See "Certain Important Information
Concerning the Warrants" and "Risk Factors
Relating to the Warrants" herein. As
indicated above, investors should be
prepared to sustain a total loss of the
purchase price of the Warrants.
DEFINED TERMS.............. Refer to the "Glossary" herein for a listing of
certain defined terms used herein.
S-7
<PAGE> 8
USE OF PROCEEDS
Substantially all of the net proceeds from the sale of the Warrants will be
used by Holdings or one or more of its subsidiaries in connection with hedging
the obligations represented by the Warrants. In connection with such hedging
transactions, Holdings or one or more of its subsidiaries will purchase or
maintain positions in a variety of financial instruments relating to the Index
and the Underlying Stocks (as defined herein). Depending on future market
conditions and the actual amount of Warrants outstanding from time to time,
among other things, the aggregate amount and the composition of such positions
are likely to vary over time. Holdings expects that it or its subsidiaries may
take positions in (i) futures contracts on indices related to the Index, (ii)
listed or over-the-counter options contracts on the Underlying Stocks, (iii)
other derivative or synthetic instruments relating to the Underlying Stocks and
(iv) some or all of the Underlying Stocks. In addition, depending on market
conditions (including the prevailing H.K.$/U.S.$ exchange rate from time to
time), in connection with hedging such exchange risks, Holdings expects that it
or its subsidiaries may (i) take positions in U.S.$ or H.K.$ currency forward
contracts, (ii) take positions in U.S.$ or H.K.$ currency spot contracts, (iii)
enter into currency swap arrangements, and (iv) take positions in any other
available financial instruments relating to the H.K.$/U.S.$ exchange rate. There
can be no assurance that Holdings or one or more of its subsidiaries did not or
will not affect the prices of the Underlying Stocks or the Index as a result of
its hedging activities. Any remaining net proceeds are intended to be used for
the general business of Holdings.
CERTAIN IMPORTANT INFORMATION
CONCERNING THE WARRANTS
A holder of Warrants (each, a "Warrantholder" and collectively, the
"Warrantholders") will receive a cash payment upon exercise (including automatic
exercise) only if such Warrant has a Cash Settlement Value (or, if applicable,
upon the occurrence of an Extraordinary Event or an Exercise Limitation Event as
described under "Description of the Warrants -- Extraordinary Events and
Exercise Limitation Events" herein, an Alternative Settlement Amount) greater
than zero at such time. Prospective purchasers of the Warrants should recognize
that their Warrants may expire worthless and they should be prepared to sustain
a total loss of the purchase price of their Warrants. The Cash Settlement Value
of a Warrant will be an amount in U.S. dollars equal to the quotient (rounded
down to the nearest cent) of (A) the amount, if any, by which the Spot Index for
the applicable Valuation Date exceeds the Strike Index divided by (B) 2.5,
divided by (C) the fixed Hong Kong dollar/U.S. dollar exchange rate of
H.K.$7.7278 per U.S.$1.00.
The "Strike Index" is 463.55, which is equal to the closing level of the
Index on August 23, 1994. The "Spot Index" for any date means the closing level
on such date of the Index as compiled and published by the AMEX. See "The Index"
herein. In the event that the Index is not published by the AMEX but is
published by another person not affiliated with Holdings and acceptable to the
Calculation Agent (a "Third Party"), then the Spot Index will be determined
based on the closing level of the Index as published by such Third Party. If the
AMEX or any Third Party, as the case may be, discontinues publication of the
Index and publishes a successor or substitute index that the Calculation Agent
determines to be comparable to the Index (a "Successor Index"), then the Spot
Index for any date thereafter will be determined by the Calculation Agent based
on the closing level of the Successor Index on such date. If the AMEX or any
Third Party makes a material change in the formula for, or the method of
calculating, the Index or any Successor Index, the Calculation Agent shall make
such calculations as may be required to determine the Cash Settlement Value
using the formula and method of calculating the Index or any Successor Index as
in effect prior to such change or modification. If the AMEX and/or any Third
Party discontinues publication of the Index and/or any Successor Index and no
further Successor Index is published, the Calculation Agent will thereafter
determine the Cash Settlement Value based on the formula and method used in
calculating the Index or any Successor Index as in effect on the date the Index
or such Successor Index was last published without change or modification.
Except under the circumstances described in the next paragraph, the
Valuation Date for an exercised Warrant will be the first Index Calculation Day
(as defined herein) after the related Exercise Date. The
S-8
<PAGE> 9
Exercise Date for an exercised Warrant, subject to certain exceptions described
under "-- Exercise and Settlement of Warrants", "-- Limit Option" and
"-- Automatic Exercise" under "Description of the Warrants" herein, will be the
New York Business Day on which such Warrant and an Exercise Notice in proper
form are received by the Warrant Agent (as defined herein) if received at or
prior to 3:00 P.M., New York City time, on such day; if such Warrant and
Exercise Notice are received after such time, the Exercise Date will be the next
succeeding New York Business Day. See "Description of the Warrants -- Exercise
and Settlement of Warrants" herein.
The Valuation Date for an exercised Warrant will occur after the Exercise
Date (see "Description of the Warrants -- Exercise and Settlement of Warrants"
herein). Therefore, a Warrantholder will not be able to determine, at the time
of exercise of a Warrant, the Spot Index that will be used in calculating the
Cash Settlement Value of such Warrant (and will thus be unable to determine the
Cash Settlement Value). In addition, the Valuation Date for exercised Warrants
may be postponed upon the occurrence and continuation of an Extraordinary Event
or an Exercise Limitation Event, or as the result of the exercise of a number of
Warrants exceeding the Maximum Exercise Amount (see "Description of the
Warrants -- Extraordinary Events and Exercise Limitation Events" and "-- Maximum
Exercise Amount"). Any change in the level of the Index between the time a
Warrantholder submits an Exercise Notice and the time the Spot Index for such
exercise is determined (which period will, at a minimum, represent an entire
Hong Kong Business Day and, in the case of a Valuation Date postponed following
an Extraordinary Event or an Exercise Limitation Event, may be substantially
longer) may, subject to the Limit Option described below and under "Description
of the Warrants -- Limit Option" herein, result in such Warrantholder receiving
a Cash Settlement Value or Alternative Settlement Amount (including a Cash
Settlement Value or an Alternative Settlement Amount that is equal to zero) that
is different from the applicable Cash Settlement Value anticipated by such
Warrantholder based on the closing level of the Index most recently reported
prior to exercise. The AMEX will calculate the Index once each day based upon
the most recent official closing prices of each of the Underlying Stocks as
reported by the HKSE. Due to time differences, trading on the HKSE occurs when
the AMEX is closed for business.
The Warrants will originally be issued as certificates in registered form.
Accordingly, a beneficial owner of Warrants holding such Warrants indirectly may
exercise such Warrants only through such owner's registered holder. For
instance, in the case of a beneficial owner holding Warrants through his broker
in "street name" who wishes to exercise his Warrants, such beneficial owner must
direct his broker, who may in turn need to direct another intermediary, to
deliver an Exercise Notice and the related Warrants to the Warrant Agent. To
ensure that an Exercise Notice and the related Warrants will be delivered to the
Warrant Agent before 3:00 P.M., New York City time, on a particular New York
Business Day, a beneficial holder of Warrants may need to give exercise
instructions to his broker or other intermediary substantially earlier than 3:00
P.M., New York City time, on such day. Different brokerage firms may have
different cut-off times and other exercise mechanics. See "-- Exercise and
Settlement of Warrants" and "-- Limit Option" under "Description of the
Warrants" herein.
Forty-five calendar days after the closing of the offering, each
Warrantholder will have the option to convert the form in which such
Warrantholder holds his Warrants from certificated to book-entry form (the
"Conversion Option"). The Conversion Option will be available for forty-five
calendar days. Such conversion will occur through the facilities of The
Depository Trust Company, New York, New York ("DTC", which term, as used herein,
includes any successor depository selected by the Company). To exercise
Warrants, a Warrantholder who has utilized the Conversion Option must direct a
broker, who may in turn need to direct an entity entitled to execute, clear and
settle transactions through DTC (a "Participant"), to transfer Warrants held by
DTC on behalf of such Warrantholder and to submit an Exercise Notice, to the
Warrant Agent. A Warrantholder may desire that the New York Business Day on
which his Warrants and an Exercise Notice are delivered on his behalf to the
Warrant Agent will constitute the Exercise Date for the Warrants being exercised
(for example, to utilize the Limit Option most effectively). To achieve such
objective, the Warrantholder must cause such Warrants to be transferred free on
the records of DTC to, and such Exercise Notice to be received by, the Warrant
Agent at or prior to 3:00 P.M., New York City time, on such New York Business
Day. To ensure that such Warrants and Exercise Notice will be received by the
Warrant Agent at or
S-9
<PAGE> 10
prior to such time, such Warrantholder must give the appropriate directions to
his broker before such broker's (and, if such broker is not a Participant, the
applicable Participant's) cut-off time for accepting exercise instructions from
customers for that day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders holding their Warrants in book-entry form should
consult with their brokers or other intermediaries, if applicable, as to
applicable cut-off times and other exercise mechanics. See "-- Exercise and
Settlement of Warrants" and "-- Limit Option" under "Description of the
Warrants" herein. FORMS OF EXERCISE NOTICE FOR WARRANTS HELD IN BOOK-ENTRY FORM
MAY BE OBTAINED AT THE WARRANT AGENT'S OFFICE (AS DEFINED HEREIN) DURING THE
WARRANT AGENT'S NORMAL BUSINESS HOURS. SEE "DESCRIPTION OF THE
WARRANTS -- GENERAL" HEREIN. Neither Holdings, the Warrant Agent nor the
Calculation Agent will have any responsibility for the performance of DTC (or
its Participants or indirect participants) of its obligations under the rules
and procedures governing its operations.
If the Calculation Agent determines that an Extraordinary Event or an
Exercise Limitation Event has occurred and is continuing on any day that would
otherwise be a Valuation Date for any exercised Warrant, then the Valuation Date
for such Warrant will be postponed to the next Index Calculation Day following
the Hong Kong Business Day on which there is no Extraordinary Event or Exercise
Limitation Event; provided, that if the postponed Valuation Date has not
occurred on or prior to the Expiration Date or the Delisting Date, the
Warrantholders will receive the Alternative Settlement Amount (as described
below) in lieu of the Cash Settlement Value; provided, further, that, in the
case of an Extraordinary Event, if the Calculation Agent determines that such
Extraordinary Event is expected to continue and Holdings notifies the Warrant
Agent that it is cancelling the Warrants, then the date on which such notice is
given (whether or not such date is a New York Business Day) will become the
Valuation Date for such Warrant, in which case such Warrantholder will receive,
in lieu of the Cash Settlement Value, the Alternative Settlement Amount of such
Warrant. The Cash Settlement Value or the Alternative Settlement Amount of a
Warrant determined as of any such postponed Valuation Date may be substantially
lower (including zero) than the otherwise relevant Cash Settlement Value
thereof. See "Description of the Warrants -- Extraordinary Events and Exercise
Limitation Events" herein, which includes a description of events, circumstances
or causes constituting Extraordinary Events and Exercise Limitation Events and a
description of the circumstances under which Holdings may cancel the Warrants.
The level of the Index will determine whether the Warrants have a Cash
Settlement Value greater than zero on any given day. The Cash Settlement Value
of the Warrants will be zero when initially offered. The Cash Settlement Value
of the Warrants will be greater than zero on any given day only if the level of
the Index increases so that the Spot Index is above the Strike Index (i.e., if
the level of the Index is above 463.55). An increase in the level of the Index
will result in a greater Cash Settlement Value, and a decrease in the level of
the Index will result in a lesser or zero Cash Settlement Value. Potential
profit or loss upon exercise (including automatic exercise) of a Warrant will be
a function of the Cash Settlement Value (or, if applicable, the Alternative
Settlement Amount) of such Warrant upon exercise, the purchase price of such
Warrant and any related transaction costs.
If a Warrant is not exercised prior to 3:00 P.M. on (i) the New York
Business Day preceding the Expiration Date or (ii) the last New York Business
Day prior to the Delisting Date, and if the Strike Index on the applicable
Valuation Date equals or exceeds the Spot Index, such Warrant will expire
worthless and the Warrantholder will have sustained a total loss of the purchase
price of such Warrant. See "Risk Factors Relating to the Warrants" herein.
Except in the case of automatic exercise or cancellation, a Warrantholder
may be able to limit to some extent the risk associated with any change in the
Index between an Exercise Date and the applicable Valuation Date if such
Warrantholder, in connection with an exercise of Warrants, elects the Limit
Option. Pursuant to the Limit Option, Warrants tendered for exercise will not be
exercised if the Spot Index as of the applicable Valuation Date is 5% or more
lower than the closing level of the Index on the applicable Exercise Date or, if
such Exercise Date is not an Index Calculation Day, on the immediately preceding
Index Calculation Day. See "Description of the Warrants -- Limit Option" herein.
In the event of automatic exercise or cancellation resulting in the payment to
Warrantholders of an Alternative Settlement Amount in lieu of the Cash
Settlement Value, the Limit Option will not preclude the exercise of Warrants as
described herein under "Description of the Warrants -- Extraordinary Events and
Exercise Limitation Events".
S-10
<PAGE> 11
A Warrantholder may exercise no fewer than 500 Warrants at any time, except
in the case of automatic exercise or exercise upon cancellation. Accordingly,
except in the case of automatic exercise or exercise upon cancellation of the
Warrants, Warrantholders with fewer than 500 Warrants will need either to sell
their Warrants or to purchase additional Warrants, thereby incurring transaction
costs, in order to realize upon their investment.
In addition, all exercises of Warrants (other than upon automatic exercise
or cancellation) are subject, at the Calculation Agent's option, to the
limitation that not more than 1,000,000 Warrants in total may be exercised and
not more than 250,000 Warrants may be exercised by or on behalf of any person or
entity, on any Exercise Date. In such case, the Warrant Agent will select
Warrants for which such day will be the Exercise Date on a pro rata basis from
among the Warrants exercised with appropriate adjustments so that, if
practicable, the number of Warrants exercised by any Warrantholder for which
such day will be the Exercise Date will not be less than 500, and the Exercise
Date for the balance of the Warrants will be postponed. See "Description of the
Warrants -- Maximum Exercise Amount."
If the AMEX or a Third Party discontinues publication of the Index and/or
any Successor Index, the Calculation Agent will determine the Cash Settlement
Value based on the formula and method used in calculating the Index or such
Successor Index as in effect on the date the Index or such Successor Index was
last published. If the Calculation Agent determines that either an Extraordinary
Event or an Exercise Limitation Event has occurred and is continuing (i) on the
Hong Kong Business Day on which the Cash Settlement Value is to be determined
and Holdings determines to cancel the Warrants or (ii) on the Expiration Date or
the Delisting Date, then the Calculation Agent will determine, compose or
calculate the Alternative Settlement Amount that each Warrantholder is to
receive in lieu of the Cash Settlement Value. Potential investors should be
aware that Lehman Brothers Inc., in its capacity as Calculation Agent, is under
no obligation to take the interests of Holdings or the Warrantholders into
consideration in the event it determines, composes or calculates the Cash
Settlement Value or Alternative Settlement Amount. Lehman Brothers Inc., as a
registered broker-dealer, is required to maintain policies and procedures
regarding the handling and use of confidential proprietary information, and such
policies and procedures will be in effect throughout the term of the Warrants to
restrict the use of information relating to the calculation of the Cash
Settlement Value or Alternative Settlement Amount prior to its dissemination.
Moreover, Lehman Brothers Inc. is obligated to carry out its duties and
functions as Calculation Agent in good faith and using its reasonable judgment.
Also, Lehman Brothers Inc. may from time to time engage in transactions
involving the Underlying Stocks for their proprietary accounts and for other
accounts in their custody and under their control, which may influence the value
of such Underlying Stocks.
The initial offering price of the Warrants may be in excess of the price
that a commercial user of options on the Index might pay for a comparable option
in a private transaction.
Prospective purchasers intending to utilize the Warrants to hedge a Hong
Kong stock portfolio against market risk should recognize that the effect of
changes in the Hong Kong dollar/U.S. dollar exchange rate on the value of such
portfolio cannot be hedged by holding the Warrants. On October 17, 1983, after a
period of instability in the exchange rate of the Hong Kong dollar, a revised
exchange rate system was introduced. Under this system, any bank in Hong Kong
which is authorized by law to issue Hong Kong dollar bank notes is required to
hold, as cover for such issuance, certificates of indebtedness issued by the
Hong Kong Government. Such certificates of indebtedness are issued and redeemed
by the Hong Kong Government against payments in U.S. dollars at a fixed exchange
rate of H.K.$7.80 to U.S.$1.00. There can be no assurance as to whether such
fixed exchange rate between the Hong Kong dollar and the U.S. dollar will remain
in effect or be changed. Since January 29, 1988, the actual market exchange rate
between the U.S. dollar and the Hong Kong dollar has varied within H.K.$7.82 and
H.K.$7.72 per U.S.$1.00 (based on the Noon Buying Rate of The Federal Reserve
Bank of New York). See also "Risk Factors Relating to the Warrants -- Certain
Considerations Regarding Hedging" herein.
On August 23, 1994 the closing level of the Index was 463.55.
References herein to "U.S. dollar", "U.S.$" or "$" are to the lawful
currency of the United States of America. References to "Hong Kong dollar" or
"H.K.$" are to the lawful currency of Hong Kong. As used
S-11
<PAGE> 12
herein, "New York Business Day" means any day other than a Saturday or a Sunday
or a day on which either the AMEX or the New York Stock Exchange is not open for
securities trading or commercial banks in New York City are required or
authorized by law or executive order to remain closed, and "Hong Kong Business
Day" means any day other than a Saturday or a Sunday or a day on which
commercial banks in Hong Kong are not open for a full day of business. As used
herein, "Index Calculation Day" means any day on which the Index or any
Successor Index is calculated and published.
RISK FACTORS RELATING TO THE WARRANTS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING RISKS ARISING FROM
FLUCTUATIONS IN THE PRICES OF THE UNDERLYING STOCKS, RISKS RELATING TO THE
INDEX, GENERAL RISKS APPLICABLE TO THE STOCK MARKET (OR MARKETS) ON WHICH THE
UNDERLYING STOCKS ARE TRADED AND THE POTENTIAL ILLIQUIDITY OF THE SECONDARY
MARKET FOR THE WARRANTS. PROSPECTIVE PURCHASERS OF THE WARRANTS SHOULD RECOGNIZE
THAT THEIR WARRANTS MAY EXPIRE WORTHLESS AND SHOULD BE PREPARED TO SUSTAIN A
TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS. INVESTORS CONSIDERING
PURCHASING THE WARRANTS SHOULD BE EXPERIENCED WITH RESPECT TO OPTIONS AND OPTION
TRANSACTIONS AND UNDERSTAND THE RISKS OF STOCK INDEX TRANSACTIONS AND SHOULD
REACH AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING ALL THE RISK
FACTORS SET FORTH IN THIS SECTION OF THIS PROSPECTUS SUPPLEMENT, THE SUITABILITY
OF THE WARRANTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND ALL THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT.
Possible Illiquidity of Trading Market. Investors should be aware that it
is not possible to predict how the Warrants will trade in the secondary market
or whether such market will be liquid or illiquid.
Minimum Exercise Amount. Except for cases of automatic exercise or
cancellation, a Warrantholder must tender at least 500 Warrants, as the case may
be, at any one time in order to exercise its Warrants. Thus, except in cases of
automatic exercise or exercise upon cancellation of the Warrant, Warrantholders
with fewer than 500 Warrants will need either to sell their Warrants or to
purchase additional Warrants, incurring transaction costs in either case, in
order to realize upon their investment. Furthermore, such Warrantholders incur
the risk that there may be differences between the trading price of the Warrants
and the Cash Settlement Value of such Warrants.
Maximum Exercise Amount. All exercises of Warrants (other than on the
Expiration Date, the Delisting Date or the Cancellation Date) are subject, at
the Calculation Agent's option, to the limitation that not more than 1,000,000
Warrants in total may be exercised on any Exercise Date and not more than
250,000 Warrants may be exercised by or on behalf of any person or entity,
either individually or in concert with any other person or entity, on any
Exercise Date. If any New York Business Day would otherwise, under the terms of
the Warrant Agreement, be the Exercise Date in respect of more than 1,000,000
Warrants, then at the Calculation Agent's election, 1,000,000 of such Warrants
shall be deemed exercised on such Exercise Date (selected by the Warrant Agent
on a pro rata basis, but if, as a result of such pro rata selection, any
Warrantholders would be deemed to have exercised less than 500 Warrants, then
the Warrant Agent, to the extent possible, shall first select additional of such
holders' Warrants so that no holder shall be deemed to have exercised less than
500 Warrants), and the remainder of such Warrants (the "Remaining Warrants")
shall be deemed exercised on the following New York Business Day (subject to
successive applications of this provision); provided that, any Remaining Warrant
for which a notice of exercise was delivered on a given Exercise Date shall be
deemed exercised before any other Warrants for which a notice of exercise was
delivered on a later Exercise Date. As a result of any postponed exercise,
Warrantholders will receive a Cash Settlement Value determined as of a date
later than the otherwise applicable Valuation Date. In any such case, as a
result of any such postponement, the Cash Settlement Value actually received by
Warrantholders may be lower than the otherwise applicable Cash Settlement Value
if the Valuation Date of the Warrants had not been postponed.
Offering Price of Warrants. The initial public offering price of the
Warrants may be in excess of the price that a commercial user of or dealer in
options on the Index might pay for a comparable option in a private transaction.
S-12
<PAGE> 13
Time Lag After Exercise Instructions Given. In the case of any exercise of
Warrants, there will be a time lag between the time a Warrantholder gives
instructions to exercise and the time the Spot Index relating to such exercise
is determined. Therefore, a Warrantholder will not be able to determine, at the
time of exercise of a Warrant, the Spot Index that will be used in calculating
the Cash Settlement Value of such Warrant (and will thus be unable to determine
the related Cash Settlement Value). The delay will, at a minimum, amount to
almost an entire day and could be much longer (e.g., an exercise notice received
by the Warrant Agent after 3:00 p.m. Friday would generally result in the Spot
Index being determined the following Tuesday). Any downward movement in the
level of the Index between the time a Warrantholder exercises a Warrant and the
time the Spot Index for such exercise is determined will result in such holder
receiving a Cash Settlement Value that is less than the Cash Settlement Value
anticipated by such holder based on the closing level of the Index most recently
reported prior to exercise. A Warrantholder that has not exercised a Warrant
prior to the New York Business Day preceding the Expiration Date or the
Delisting Date will, pursuant to the provision for automatic exercise, have the
Spot Index with respect to such Warrant determined on the Index Calculation Day
following the deemed exercise day. The value of the Index may change
significantly during any such period, and such movements could adversely affect
the Cash Settlement Value of the Warrants being exercised.
Further delay may occur if an Exercise Limitation Event or Extraordinary
Event has occurred, in which case the Cash Settlement Value in respect of
exercised Warrants will be calculated as of the next succeeding Index
Calculation Day that is a Hong Kong Business Day on which there is no Exercise
Limitation Event or Extraordinary Event. If the Calculation Agent determines
that on a Valuation Date an Exercise Limitation Event or Extraordinary Event is
continuing, the Valuation Date shall be postponed to the first succeeding Index
Calculation Day that is a Hong Kong Business Day on which there is no Exercise
Limitation Event or Extraordinary Event; provided that, if the Valuation Date
has not occurred on or prior to the Expiration Date or Delisting Date, the
Warrantholders will receive the Alternative Settlement Amount in lieu of the
Cash Settlement Value, which Alternative Settlement Amount shall be calculated
as if the Warrants had been canceled on the Expiration Date or the Delisting
Date, as the case may be.
Time Difference. The Index is calculated on the basis of price quotations
from the HKSE for the stocks underlying the Index. There will be a time
difference between New York City time and the local time in Hong Kong. Since the
AMEX is closed while the HKSE is open, significant movements in the value of the
Index may take place which will not be reflected in the last sale price of a
Warrant on the AMEX.
Fixed Exchange Rate. The Cash Settlement Value or Alternative Settlement
Amount, as the case may be, of a Warrant will be calculated using a fixed
exchange rate of H.K.$7.7278 per U.S.$1.00 which was the Hong Kong dollar/U.S.
dollar spot rate as quoted by Lehman Brothers Inc. as of 10:00 a.m. New York
City time on August 23, 1994. Accordingly, the Cash Settlement Value or
Alternative Settlement Amount, as the case may be, in U.S. Dollars which a
Warrantholder may receive upon exercise, expiration or cancellation of its
Warrants will not be affected, as such, by fluctuations in the actual H.K.
dollar/U.S. dollar exchange rate -- i.e., the Cash Settlement Value or the
Alternative Settlement Amount, as applicable, will not decrease to reflect
appreciation in the Hong Kong Dollar against the U.S. Dollar or increase to
reflect depreciation in the Hong Kong Dollar against the U.S. Dollar.
Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading on, the AMEX,
and the Warrants are not simultaneously accepted for trading pursuant to the
rules of another Self-Regulatory Organization, Warrants not previously exercised
will be deemed automatically exercised on the Delisting Date and the Cash
Settlement Value, if any, shall be calculated and settled as provided under
"Description of the Warrants -- Automatic Exercise." Holdings will notify
Warrantholders as soon as practicable of such delisting or trading suspension.
However, if Holdings first receives notice of the delisting or suspension on the
same day on which the Warrants are delisted or suspended, such day will
nevertheless be deemed to be the Delisting Date. At the applicable Valuation
Date with respect to such automatic exercise, the Warrants may be
out-of-the-money so that the Cash Settlement Value would equal zero.
S-13
<PAGE> 14
Cancellation of the Warrants upon Occurrence of an Extraordinary
Event. Holdings shall have the right to cancel the Warrants if the Calculation
Agent shall have determined that an Extraordinary Event has occurred and is
continuing and if the Calculation Agent expects such Extraordinary Event to
continue. In such circumstances Holdings will, however, pay to each
Warrantholder in respect of each Warrant held by it the Alternative Settlement
Amount which shall equal the sum of (a) an amount calculated with reference to
the Cash Settlement Value of the Warrants on or about such date, subject to
certain exceptions and adjustments, and (b) an amount calculated with reference
to the remaining time value of the Warrants. See "Description of the
Warrants -- Extraordinary Events and Exercise Limitation Events."
Certain Factors Affecting the Value of the Warrant. Investment decisions
relating to the Warrants require the investor to predict the direction of
movements in the Index as well as the amount and timing of those movements. The
Warrants may change substantially in value, or lose all of their value, with
relatively small movements in the Index. Moreover, in the absence of
countervailing factors, such as an offsetting movement in the level of the
index, the market value of an index warrant will tend to decrease over time and
the warrant will have no market value after the time for exercise has expired.
Accordingly, the Warrants involve a high degree of risk and are not appropriate
for every investor. As such, investors who are considering purchasing the
Warrants must be able to understand and bear the risk of a speculative
investment in the Warrants, be experienced with respect to options and option
transactions and understand the risks of stock index transactions. Such
investors should reach an investment decision only after careful consideration,
with their advisers, of the suitability of the Warrants in light of their
particular financial circumstances and the information set forth in this
Prospectus Supplement and in the Prospectus. The AMEX requires that the Warrants
be sold only to investors whose accounts have been approved for options trading.
In addition, the AMEX requires that its members and member organizations and
registered employees thereof make certain suitability determinations before
recommending transactions in Warrants. Before making any investment in the
Warrants, it is important that a prospective investor become informed about and
understand the nature of the Warrants in general, the specific terms of the
Warrants and the nature of the Index. An investor should understand the
consequences of liquidating his investment in a Warrant by exercising it as
opposed to selling it. This includes knowing when the Warrants are exercisable
and how to exercise them.
The Cash Settlement Value of the Warrants at any time prior to expiration
is expected typically to be less than the trading price of the Warrants at that
time. The difference between the trading price and the Cash Settlement Value
will reflect, among other things, a "time value" for the Warrants. The "time
value" of the Warrants will depend partly upon the length of the period
remaining to expiration and expectations concerning the level of the Index
during the period as compared to the Strike Index. Before exercising or selling
Warrants, Warrantholders should carefully consider, among other things, (i) the
trading price of the Warrants, (ii) the level of the Index at such time, (iii)
the time remaining to expiration, (iv) the probable range of Cash Settlement
Values and (v) any related transaction costs.
The trading price of a Warrant at any time is expected to be dependent on
(i) the relationship between the Strike Index and the level of the Index at such
time and (ii) a number of other interrelated factors, including those listed
below. The relationship among these factors is complex. However, the expected
effect on the trading price of a Warrant of each of the factors listed below,
assuming in each case that all other factors are held constant, is as follows:
(1) The prevailing level of the AMEX Hong Kong 3O Index. If the level
of the Index rises in relation to the Strike Index, the trading price of a
Warrant is expected to increase; if the level of the Index falls in
relation to the Strike Index, the trading price of a Warrant is expected to
decrease. However, as a result of other factors, the trading price of a
Warrant may decline significantly even if there is an increase in the level
of the Index as compared to the Strike Index.
(2) The volatility of the Index. If volatility increases, the trading
price of Warrants is expected to increase; if volatility decreases, the
trading price of Warrants is expected to decrease.
(3) The time remaining to the expiration date of the Warrants. As the
time remaining to the expiration date of the Warrants decreases, the
trading price of Warrants is expected to decrease.
S-14
<PAGE> 15
(4) The prevailing interest rates. If the prevailing interest rates
in Hong Kong increase, then, assuming no change in the value of the Index,
the trading value of a Warrant is expected to increase. If such interest
rates decrease, then, assuming no change in the value of the Index, the
trading value of a Warrant is expected to decrease. Increases and decreases
in prevailing interest rates in other countries may also affect the value
of the Warrants.
(5) Dividend rates. If dividend rates on the Underlying Stocks
increase, then, assuming no change in the value of the Index, the trading
value of a Warrant is expected to decrease. However, increased dividend
rates may positively affect the value of the Index, which will tend to
positively affect the trading value of a Warrant. If such dividend rates
decrease, then, assuming no change in the value of the Index, the trading
value of a Warrant is expected to increase. However, decreased dividend
rates may negatively affect the value of the Index, which will tend to
negatively affect the trading value of a Warrant.
Some of the factors referred to above are in turn influenced by
various political, economic and other factors referred to herein that can
affect trading prices of the Underlying Stocks and the level of the Index
and currency exchange rates.
As noted above, these hypothetical scenarios are based on the assumption
that all other factors are held constant. In reality, it is unlikely that only
one factor would change in isolation, because changes in one factor usually
cause, or result from, changes in others. Some of the factors referred to above
are, in turn, influenced by the political and economic factors discussed herein.
The Index. The stocks underlying the Index have been issued by companies
organized or having major business interests in Hong Kong. The prices of such
Underlying Stocks will be affected by foreign political, economic and other
developments.
The HKSE has adopted certain measures intended to prevent any extreme
short-term price fluctuations resulting from order imbalances or market
volatility. When the HKSE considers it necessary for the protection of the
investor or the maintenance of an orderly market, it may at any time suspend
dealings in any securities or cancel the listing of any securities in such
circumstances and subject to such conditions as it thinks fit, whether requested
by the listed issuer or not. The HKSE may also do so when: (1) an issuer fails,
in a manner which the HKSE considers material, to comply with the HKSE Listing
Rules or its Listing Agreements; or (2) the HKSE considers there are
insufficient securities in the hands of the public; or (3) the HKSE considers
that the listed issuer does not have a sufficient level of operations or
sufficient assets to warrant the continued listing of the issuer's securities;
or (4) the HKSE considers that the issuer or its business is no longer suitable
for listing. Investors should also be aware that the HKSE may suspend the
trading of individual stocks in certain limited and extraordinary circumstances,
until certain price-sensitive information has been disclosed to the public.
Since the stocks underlying the Index are traded on the HKSE, changes in the
Index may be limited by suspensions of trading generally or of one or more of
the stocks underlying the Index, which limitations may, in turn, adversely
affect the value of the Warrants.
Warrants Not Standardized Options Issued by the Options Clearing
Corporation. The Warrants are unsecured contractual obligations of Holdings and
will rank on a parity with Holdings' other unsecured contractual obligations and
with Holdings' unsecured and unsubordinated debt. The Warrants are not
standardized stock index options of the type issued by the Options Clearing
Corporation (the "OCC"), a clearing agency regulated by the Securities and
Exchange Commission. For example, unlike purchasers of OCC standardized options
who have the credit benefits of guarantees and margin and collateral deposits by
OCC clearing members to protect the OCC from a clearing member's failure,
purchasers of Warrants must look solely to Holdings for performance of its
obligations to pay the Cash Settlement Value or Alternative Settlement Value on
the exercise of Warrants. Further, the market for the Warrants is not expected
to be generally as liquid as the market for OCC standardized options.
Risk Factors Relating to Hong Kong and China. Investors should realize
that the value of the Index, and therefore the potential Cash Settlement Value
or Alternative Settlement Amount, as the case may be, may be adversely affected
by political, economic or social instability, or developments and changes in law
or
S-15
<PAGE> 16
regulations, particularly in Hong Kong and the People's Republic of China
("China"). Certain of these factors are discussed below.
Hong Kong's Reversion to Chinese Sovereignty. In December 1984, Great
Britain and China signed an agreement (the "Sino-British Accord") under which
Hong Kong will revert to Chinese sovereignty effective July 1, 1997. Although
China has committed by treaty to preserve for 50 years the economic and social
freedoms currently enjoyed in Hong Kong, the continuation of the economic system
in Hong Kong after the reversion will be dependent on the Chinese government.
Any increase in uncertainty as to the future economic and political status of
Hong Kong could have a materially adverse effect on the economy of Hong Kong and
on the Index.
It is not clear how future developments in Hong Kong and China may affect
the implementation of the Basic Law (as defined herein) after the transfer of
sovereignty in 1997. (The Basic Law of The Hong Kong Special Administrative
Region (the "Hong Kong SAR") provides the basic policies of China regarding Hong
Kong, including that the Hong Kong dollar will remain the legal tender in the
Hong Kong SAR after the transfer of sovereignty, that no exchange control
policies will be applied in the Hong Kong SAR and that the Hong Kong dollar will
remain freely convertible.) As a result of this political and legal uncertainty,
the economic prospects of Hong Kong and the companies whose stocks comprise the
Index are uncertain. Accordingly, the HKSE has been, and can be expected to
remain, highly volatile and sensitive to adverse political developments with
regard to Hong Kong's future and to perceptions of such actual or potential
adverse political developments. For this reason, among others, the Index and the
value of the Warrants can also be expected to be volatile.
A significant portion of the economic activity in China is related to
exports and may therefore be affected by developments in the economies of
China's principal trading partners. The United States annually reconsiders the
renewal of "Most Favored Nation" ("MFN") trading status for China, which
provides it with the trading privileges available generally to trading partners
of the United States. Loss of China's MFN status would subject Chinese exports
to the United States to higher tariffs and could have a material adverse effect
on China's economy. Loss of MFN status or any friction resulting from the
imposition of conditions on China could also negatively impact the economy of
Hong Kong. On May 28, 1993, the President of the United States signed an
executive order which renewed China's MFN status for another year but set forth
certain conditions to be met if the status were to be renewed for 1994. On June
2, 1994, the President made a determination that China's MFN status be renewed
for another year without such conditions. In making such determination, the
President also announced that the United States would no longer link the annual
extension of MFN status for China to non-trade conditions such as those set
forth in the May 28, 1993 executive order.
Underlying Stocks. The performance of certain companies listed on the HKSE
is linked to the economic climate of China. Any downturn in economic growth or
other negative developments affecting the economic climate of China could have a
materially adverse effect on the value of the Index. In addition, the Hong Kong
securities markets are currently characterized by a high level of investment by
and interest among United States and other non-Hong Kong persons. Changes in the
level of investment or interest could have a materially adverse effect on the
level of the Index.
Factors Relating to Real Estate and Property Development. Underlying
Stocks representing approximately one-third of the market capitalization of the
Index are companies engaged in real estate asset management, development,
leasing, property sales and other related activities. Many factors may have an
adverse impact on the credit quality of these real estate companies and,
indirectly, on the Index. Generally, these include economic recession, the
cyclical nature of real estate markets, overbuilding, changing demographics,
changes in governmental regulations (including tax laws and environmental,
building, zoning and sales regulations), increases in real estate taxes or costs
of material and labor, the inability to secure performance guarantees or
insurance as required, the unavailability of investment capital and the
inability to obtain construction financing or mortgage loans at rates acceptable
to builders and purchasers of real estate. Additional risks include an inability
to reduce expenditures associated with a property (such as mortgage payments and
property taxes) when rental revenue declines, and possible loss upon foreclosure
of mortgaged properties if mortgage payments are not paid when due.
S-16
<PAGE> 17
General Risk Considerations. Options and warrants pose risks to investors
as a result of fluctuations in the value of the underlying investment. In
general, certain of the risks associated with the Warrants are similar to those
generally applicable to other options or warrants of private corporate issuers.
However, unlike options or warrants on equities or debt securities, which are
traded primarily on the basis of the value of a single underlying security, the
trading value of a Warrant is likely to reflect primarily the extent of the
appreciation or depreciation, if any, as the case may be, in the Index.
The purchaser of a Warrant may lose his entire investment. This risk
reflects the nature of a Warrant as an asset which tends to decline in value
over time and which may, depending on the relative value of the Index, become
worthless when it expires. Assuming all other factors are held constant, the
more a Warrant is out-of-the-money and the shorter its remaining term to
expiration, the greater the risk that a purchaser of the Warrant will lose all
of his investment. This means that the purchaser of a Warrant who does not sell
it in the secondary market or exercise it prior to expiration will necessarily
lose his entire investment if it expires when the Strike Index is equal to or
exceeds the Spot Index.
The fact that Warrants may become valueless upon expiration means that, in
order to recover and realize a return upon his investment, a purchaser of a
Warrant must generally be correct about the direction, timing and magnitude of
anticipated changes in the value of the Index. If the value of the Index does
not increase to an extent sufficient to cover an investor's cost of the Warrant
(i.e., the purchase price plus transaction costs, if any) before the Warrant
expires, the investor will lose all or a part of his investment in the Warrant
upon expiration. The Cash Settlement Value is based on a given level of the
Index and will not be affected by changes in the Hong Kong/U.S. dollar exchange
rate. However, a number of economic factors, including the Hong Kong/U.S. dollar
exchange rate, could affect the value of the Underlying Stocks and, therefore,
the value of the Index.
It is suggested that investors considering purchasing Warrants be
experienced with respect to options and option transactions and understand the
risks of stock index transactions and reach an investment decision only after
carefully considering, with their advisers, the suitability of the Warrants in
light of their particular circumstances. INVESTORS SHOULD BE PREPARED TO SUSTAIN
A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS.
The AMEX may replace the Index with a Successor Index or may cease
publishing the Index entirely. If the AMEX or any Third Party makes a material
change in the formula for, or the method of calculating, the Index or any
Successor Index, the Calculation Agent shall make such calculations as may be
required to determine the Cash Settlement Value, using the formula and method of
calculating the Index or any Successor Index as in effect prior to such change
or modification. If the AMEX and/or any Third Party discontinues publication of
the Index and/or any Successor Index, the Calculation Agent will determine the
Cash Settlement Value, based on the formula and method used in calculating the
Index or any Successor Index as in effect on the date the Index or such
Successor Index was last published. Although the method used will generally be
intended to enable the Cash Settlement Values to be determined on as consistent
a basis as practicable, discontinuities may arise in such circumstances.
Moreover, information regarding the current level of certain substitute indices
may not be readily available to Warrantholders, which may adversely affect the
trading market for their Warrants.
CERTAIN CONSIDERATIONS REGARDING HEDGING
Prospective purchasers intending to purchase Warrants to hedge against the
market risk associated with investing in one or more individual Underlying
Stocks and/or other stocks should recognize the complexities of utilizing
Warrants in this manner. Prospective purchasers intending to use Warrants in
this manner should also understand that they remain subject to issuer
risk -- that is, the risk that factors affecting a particular issuer, such as
its market position or the quality of its management, may cause its stock to
perform differently than the market as a whole. In addition, prospective
purchasers intending to utilize Warrants to hedge a stock portfolio against
market risk should understand that unless the stocks in the portfolio exactly
mirror the Underlying Stocks, the portfolio and the Index may respond
differently to a given market influence (including in different directions and
to different extents). For this reason, the use of Warrants for hedging purposes
involves special risks that are not present with "true" hedges -- i.e., hedges
composed of options on the
S-17
<PAGE> 18
specific stocks in the hedged position. In addition, in the case of Warrants
relating to a foreign stock index, such as the Index, the effect of changes in
the relevant currency exchange rate on the Cash Settlement Value of such
Warrants could complicate any hedging strategy. See "Certain Important
Information Concerning the Warrants."
DESCRIPTION OF THE WARRANTS
The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement"), to be dated as of August 30, 1994, between the Company, Citibank,
N.A., as Warrant Agent (the "Warrant Agent"), and Lehman Brothers Inc., as
Calculation Agent.
The following summaries of certain provisions of the Warrant Agreement and
the Warrants do not purport to be complete and are subject to, and qualified in
their entirety by reference to, all of the provisions of the Warrant Agreement
(including the forms of Warrant certificates and forms of global Warrant
certificates attached as exhibits thereto). The Warrant Agreement will be
available for inspection by any Warrantholder at the office of the Warrant Agent
(the "Warrant Agent's Office"), which is currently located at 120 Wall St., 13th
floor, New York, New York 10043, during the Warrant Agent's normal business
hours.
The aggregate number of Warrants to be issued will be 1,000,000, subject to
the over-allotment option granted by Holdings to the Underwriter and to the
right of Holdings to "reopen" the issue of Warrants and issue additional
Warrants with substantially identical terms at a later time.
A Warrant will not require or entitle a Warrantholder to purchase or take
delivery of any shares of any component stock underlying the Index or any
Successor Index (an "Underlying Stock") or any other securities to Holdings.
Holdings is under no obligation to, nor will it, deliver or sell any shares of
any Underlying Stock or any other securities from Warrantholders in connection
with the exercise of any Warrants. Upon exercise of a Warrant, Holdings will
make only a U.S. dollar cash payment in the amount of the applicable Cash
Settlement Value or Alternative Settlement Amount, if any and as applicable, of
such Warrant. Warrantholders will not receive any interest on any applicable
Cash Settlement Value or Alternative Settlement Amount, and the Warrants will
not entitle the Warrantholders to any of the rights of holders of any Underlying
Stock or any other securities.
The Warrants are unsecured contractual obligations of Holdings and will
rank on a parity with Holdings' other unsecured contractual obligations and with
Holdings' unsecured and unsubordinated debt.
CASH SETTLEMENT VALUE
Each Warrant will entitle the Warrantholder to receive, upon exercise
(including automatic exercise), the applicable Cash Settlement Value of such
Warrant, except that, under certain circumstances described under
"-- Extraordinary Events and Exercise Limitation Events", such Warrantholder may
instead receive the Alternative Settlement Amount for such Warrant.
The Cash Settlement Value of a Warrant will be an amount in U.S. dollars
equal to the quotient (rounded down to the nearest cent) of (A) the amount, if
any, by which the Spot Index for the Valuation Date for such Warrant, exceeds
the Strike Index of 463.55 divided by (B) 2.5 divided by (C) the fixed Hong Kong
dollar/U.S. dollar exchange rate of HK$7.7278 per U.S.$1.00, as indicated in the
following formula:
Cash Settlement Value of a Warrant =
(Spot Index - Strike Index )
(--------------------------) / HK$7.7278 per U.S.$1.00
( 2.5 )
S-18
<PAGE> 19
HYPOTHETICAL WARRANT VALUES ON EXERCISE
Set forth below is an example of the Cash Settlement Values of a
hypothetical Warrant with a Strike Index of 463.55 (based on an exchange rate of
H.K.$7.7278 per U.S.$1.00 and a divisor of 2.5) and at various hypothetical
levels of the Spot Index. The hypothetical Cash Settlement Values in the table
do not reflect any "time value" for a Warrant, which may be reflected in trading
value, and are not necessarily indicative of potential profit or loss, which are
also affected by purchase price and transaction costs. The numbers in the table
have been rounded down to the nearest cent.
<TABLE>
<CAPTION>
APPROXIMATE CASH
SETTLEMENT VALUE
HYPOTHETICAL (ALSO KNOWN AS
SPOT "INTRINSIC
AMEX HONG KONG VALUE")
30 INDEX OF WARRANT
-------------- ----------------
<S> <C> <C>
463.55 (Strike
Equal to or lower than.......................... Price) 0
500 $ 1.88
540 $ 3.95
580 $ 6.02
660 $10.16
740 $14.30
</TABLE>
WARRANT CERTIFICATES
The Warrants will be originally issued as certificates in registered form
(each, a "Warrant Certificate"). The Warrant Agent will from time to time
register the transfer of any outstanding Warrant Certificate upon surrender
thereof at the Warrant Agent's Office duly endorsed by, or accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Warrant Agent duly executed by, the registered holder thereof, a duly appointed
legal representative or a duly authorized attorney. Such signature must be
guaranteed by a bank or trust company having a correspondent office in New York
City or a member of a national securities exchange. A new Warrant Certificate
will be issued to the transferee upon any such registration of transfer.
At the option of a Warrantholder, Warrant Certificates may be exchanged for
other Warrant Certificates representing a like number and kind of Warrants upon
surrender to the Warrant Agent at the Warrant Agent's Office of the Warrant
Certificates to be exchanged. Holdings will thereupon execute, and the Warrant
Agent will countersign and deliver, one or more new Warrant Certificates
representing such like number and kind of Warrants.
In the event that, after any exercise of Warrants evidenced by a Warrant
Certificate, the number of Warrants exercised is fewer than the total number of
Warrants evidenced by such certificate, a new Warrant Certificate evidencing the
number of Warrants not exercised will be issued to the registered holder or his
assignee. See "-- Minimum Exercise Amount".
If any Warrant Certificate is mutilated, lost, stolen or destroyed,
Holdings may in its discretion execute, and the Warrant Agent may countersign
and deliver, in exchange and substitution for such mutilated Warrant
Certificate, or in replacement for such lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate representing a like number and kind of
Warrants, but only (in the case of loss, theft or destruction) upon receipt of
evidence satisfactory to Holdings and the Warrant Agent of loss, theft or
destruction of such Warrant Certificate and security or indemnity, if requested,
satisfactory to them. Warrantholders requesting replacement Warrant Certificates
must also comply with such other reasonable regulations and pay such reasonable
charges as Holdings or the Warrant Agent may prescribe. In case all of the
Warrants represented by any such mutilated, lost, stolen or destroyed Warrant
Certificate have been or are about to be exercised (including automatic
exercise), Holdings in its discretion may, instead of issuing a new Warrant
Certificate, direct the Warrant Agent to treat such Warrant Certificate the same
as if the Warrant Agent had received an Exercise Notice in proper form in
respect thereof or as being subject to automatic exercise, as the case may be.
S-19
<PAGE> 20
No service charge will be made for any registration of transfer or exchange
of Warrant Certificates, but Holdings may require the payment of a sum
sufficient to cover any tax or government charge that may be imposed in
connection therewith, other than exchanges not involving any transfer. In the
case of the replacement of mutilated, lost, stolen or destroyed Warrant
Certificates, Holdings may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Warrant Agent) connected
therewith.
BOOK ENTRY CONVERSION
Forty-five calendar days after the closing of the offering each
Warrantholder will have the option to convert the form in which such
Warrantholder holds his Warrants from certificated to book-entry form by
utilizing the Conversion Option. The Conversion Option will be available for
forty-five calendar days (the "Conversion Option Period") and is expected to run
from October 14, 1994 through November 27, 1994.
In order to be exchanged for a Warrant in book-entry form, a Warrant
Certificate must be delivered to DTC, in proper form for deposit, by a
Participant. Accordingly, a Warrantholder who is not a Participant must deliver
its Warrant Certificate, in proper form for deposit, to a Participant, either
directly or through an indirect participant (such as a bank, brokerage firm,
dealer or trust company that clears through, or maintains a custodial
relationship with, a Participant) or brokerage firm which maintains an account
with a Participant, in order to have its Warrant Certificate exchanged for a
Warrant in book-entry form. Such Warrantholders who desire to exchange their
Warrant Certificates for Warrants in book-entry form should contact their
brokers or other Participants or indirect participants to obtain information on
procedures for submitting their Warrant Certificates to DTC, including the
proper form for submission and (during the Conversion Option Period) the cut-off
times for same day and next day exchange. Warrant Certificates which are held by
the Warrantholder in nominee or "street" name may be automatically exchanged
into book-entry form by the broker or other entity in whose name such Warrant
Certificates are registered without action of, or consent by, the beneficial
owner of the related Warrant.
Warrant Certificates received by DTC for exchange during the Conversion
Option Period will be exchanged for Warrants in book-entry form by the close of
business on the New York Business Day that such Warrant Certificates are
received by DTC (if received by DTC at its then applicable cut-off time for same
day credit) or on the following New York Business Day (if received by DTC at its
then applicable cut-off time for next day credit). After the last day of the
Conversion Option Period, DTC will not be required to accept delivery of Warrant
Certificates in exchange for book-entry Warrants, but may permit Warrant
Certificates to be so exchanged on a case-by-case basis. There can be no
assurance however, that such Warrant Certificates will be accepted for exchange.
Warrants surrendered at any time for exchange for book-entry Warrants may not be
exercised or delivered for settlement or transfer until such exchange has been
effected. Accordingly, if an increase in the value of the Index were to occur
after a Warrant Certificate had been surrendered for exchange into book-entry
form, a Warrantholder would not be able to take advantage of the increase by
exercising his Warrant until such exchange had been effected. Since Warrant
Certificates are not required to be exchanged for Warrants in book-entry form,
it is likely that not all Warrant Certificates will be so exchanged.
Accordingly, Warrantholders purchasing Warrants in secondary market trading
after commencement of the Conversion Option Period may wish to make specific
arrangements with brokers or other Participants or indirect participants if they
wish to purchase only Warrants in book-entry form and not Warrant Certificates.
Once a Warrantholder has elected the Conversion Option, such Warrantholder
may hold his Warrants only in book-entry form and will not be able to change his
election or withdraw from the book-entry system during the Conversion Option
Period or thereafter. Accordingly, except in certain limited circumstances as
set forth in "-- Book-Entry Procedures and Settlement," ownership of the
Warrants in certificated form will no longer be available to investors who have
elected the Conversion Option.
S-20
<PAGE> 21
BOOK-ENTRY PROCEDURES AND SETTLEMENT
DTC has advised Holdings as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities of Participants and
to facilitate the clearance and settlement of securities transactions among its
Participants through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of
certificates. Such participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to DTC's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
Ownership of beneficial interests in a global certificate to be deposited
with, or on behalf of, DTC, and registered in the name of a nominee of DTC will
be limited to Participants or persons that may hold beneficial interests through
Participants. Ownership of beneficial interests in a global certificate will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC for such global certificate or by Participants or
persons that hold through Participants. Unless and until it is exchanged in
whole or in part for the individual Warrants represented thereby, a global
certificate may not be transferred except as a whole by DTC to a nominee of DTC
or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of DTC or a nominee of such successor. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities. Such limits and such laws may limit the market for beneficial
interests in a global certificate.
So long as DTC or its nominee is the owner of such global certificate, DTC
or such nominee, as the case may be, will be considered the sole holder of the
individual Warrants represented by such global certificate for all purposes
under the Warrant Agreement governing such Warrants. Except as set forth below,
owners of beneficial interests in a global certificate will not be entitled to
have any of the individual Warrants represented by such global certificate
registered in their names, will not receive or be entitled to receive physical
delivery of any such Warrants and will not be considered the holders thereof
under the Warrant Agreement governing such Warrants.
The applicable Cash Settlement Value and, if applicable, the Alternative
Settlement Amount payable in respect of the Warrants will be paid by the Warrant
Agent to DTC or to the Participants, as may be applicable. Neither Holdings nor
the Warrant Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial interests in
such global certificate or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
Holdings expects that DTC, upon receipt of any payment in respect of any
applicable Cash Settlement Value and, if applicable, any Alternative Settlement
Amount with respect to any Warrants, will credit immediately Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the applicable global certificate as shown on the records of DTC.
Holdings also expects that payments by Participants to owners of beneficial
interests in such global certificate held through such Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of such Participants.
Neither Holdings, the Warrant Agent nor the Calculation Agent will have any
responsibility for the performance by DTC (or its Participants or indirect
participants) of its obligations under the rules and procedures governing its
operations.
EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants will be immediately exercisable upon issuance, subject to
postponement upon the occurrence of an Extraordinary Event or an Exercise
Limitation Event as described under " -- Extraordinary Events and Exercise
Limitation Events", and will expire on the Expiration Date. Warrants not
exercised
S-21
<PAGE> 22
(including by reason of any such postponed exercise) at or before 3:00 P.M., New
York City time, on the earlier of (i) the New York Business Day immediately
preceding the Expiration Date and (ii) the last New York Business Day prior to
the Delisting Date, will be automatically exercised as described under " --
Automatic Exercise". See " -- Minimum Exercise Amount" below.
A Warrantholder may exercise certificated Warrants on any New York Business
Day during the period from the date of issuance of such Warrants until 3:00
P.M., New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) the last New York Business
Day prior to the Delisting Date, by delivering or causing to be delivered to the
Warrant Agent the Warrant Certificate representing such Warrants with the
irrevocable notice of exercise on the reverse thereof (or a notice of exercise
in substantially identical form delivered therewith) (such notice, an "Exercise
Notice") duly completed and executed. The Warrant Agent's telephone number and
facsimile transmission number for this purpose are (212) 657-7269 and (212)
825-3483, respectively.
In the case of book-entry Warrants held through the facilities of DTC, a
Warrantholder may exercise such Warrants on any New York Business Day during the
period from the date of issuance of such Warrants until 3:00 P.M., New York City
time, on the earlier of (i) the New York Business Day immediately preceding the
Expiration Date and (ii) the last New York Business Day prior to the Delisting
Date, by causing (x) such Warrants to be transferred free to the Warrant Agent
on the records of DTC and (y) a duly completed and executed Exercise Notice to
be delivered by a Participant on behalf of the Warrantholder to the Warrant
Agent. Forms of Exercise Notice for book-entry Warrants held through the
facilities of DTC may be obtained from the Warrant Agent at the Warrant Agent's
Office. The Warrant Agent's telephone number and facsimile transmission number
for this purpose are (201) 262-5444 and (201) 262-7521, respectively.
Except for Warrants subject to automatic exercise, and subject to the Limit
Option, the "Exercise Date", as the case may be for a Warrant will be (i) if the
Warrant Agent receives the Warrant and Exercise Notice in proper form with
respect to such Warrant, at or prior to 3:00 P.M., New York City time, on a New
York Business Day, such New York Business Day, or (ii) if the Warrant Agent
receives such Warrant and Exercise Notice on a day which is not a New York
Business Day or after 3:00 P.M., New York City time, on a New York Business Day,
then the New York Business Day next succeeding such non-New York Business Day or
New York Business Day, as the case may be.
To ensure that an Exercise Notice and the related Warrants will be
delivered to the Warrant Agent before 3:00 P.M., New York City time, on a given
New York Business Day, a Warrantholder may need to give exercise instructions to
his broker or other intermediary substantially earlier than 3:00 PM., New York
City time, on such day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders should consult with their brokers and other
intermediaries, if applicable, as to applicable cut-off times and other exercise
mechanics. See "Certain Important Information Concerning the Warrants".
Except in the case of Warrants subject to automatic exercise and for
Warrants that upon exercise will entitle the holder thereof to receive an
Alternative Settlement Amount in lieu of the Cash Settlement Value, if on any
Valuation Date the Cash Settlement Value for any Warrants would be zero, then
the attempted exercise of any such Warrants will be void and of no effect and,
in the case of certificated Warrants, the Warrant Certificate evidencing such
Warrants will be returned to the registered holder by first class mail at the
Calculation Agent's expense or, in the case of book-entry Warrants held through
the facilities of DTC, such Warrants will be transferred back to the Participant
that submitted them free on the records of DTC, and, in any such case, such
Warrantholder will be permitted to re-exercise such Warrants prior to the
Expiration Date or prior to the Delisting Date, as the case may be.
The "Valuation Date" for a Warrant will be the first Index Calculation Day
following the applicable Exercise Date, subject to postponement upon the
occurrence of an Extraordinary Event or an Exercise Limitation Event as
described under " -- Extraordinary Events and Exercise Limitation Events". The
AMEX will calculate the Index once on each Index Calculation Day based on the
last reported closing prices of the Underlying Stocks on the HKSE. Due to time
differences, trading on the HKSE occurs when the AMEX is closed for business.
S-22
<PAGE> 23
The following is an illustration of the timing of an Exercise Date, the
ensuing Valuation Date and the Limit Option Reference Index (as defined herein),
assuming that all relevant dates are New York Business Days and Index
Calculation Days and assuming the absence of any intervening Extraordinary Event
or Exercise Limitation Event.
If the Warrant Agent receives a Warrantholder's Warrants and Exercise
Notice in proper form at or prior to 3:00 P.M., New York City time, on
Wednesday, November 9, 1994, the Exercise Date for such Warrants will be
November 9 and the Valuation Date for such Warrants will be Thursday, November
10, 1994. The Spot Index used to determine the applicable Cash Settlement Value
of such Warrants will be the closing level of the Index on November 10 (i.e.,
the level of the Index calculated using values for the Underlying Stocks as of
the close of the HKSE on November 10 (assuming such day is a Hong Kong Business
Day), which, because of time differences, will occur at 2:30 A.M. in New York on
November 10 (or 3:30 A.M. in New York City during the months in which Eastern
Daylight Savings Time is in effect)). If the Warrantholder elected the Limit
Option in connection with the exercise of such Warrants, the Limit Option
Reference Index would be the closing level of the Index on November 9. If the
Warrant Agent were to receive such Warrantholders Warrants and Exercise Notice
after 3:00 P.M., New York City time, on November 9, 1994 then the Exercise Date
for such Warrants would instead be November 10, the Valuation Date would be
November 11 and the applicable Limit Option Reference Index would be the closing
level of the Index on November 10 (which will not have been calculated at the
time such Warrantholder tendered his Exercise Notice on November 10).
Following receipt of Warrants and the related Exercise Notice in proper
form, the Warrant Agent will, not later than 5:00 P.M., New York City time, on
the applicable Valuation Date (or, if such Valuation Date is not a New York
Business Day, on the next succeeding New York Business Day) (i) obtain from the
Calculation Agent the Spot Index (which will be the level of the Index on such
Valuation Date), (ii) determine the Cash Settlement Value of such Warrants and
(iii) advise Holdings of the aggregate Cash Settlement Value of the exercised
Warrants. Provided that Holdings has made adequate funds available to the
Warrant Agent in a timely manner, which shall (A) in the case of Warrants not
held through the facilities of DTC, in no event be later than 3:00 p.m., New
York City time, on the fifth New York Business Day following a Valuation Date
(or, if the Valuation Date is not a New York Business Day, on the fifth New York
Business Day following the New York Business Day next succeeding the Valuation
Date) and (B) in the case of Warrants held through the facilities of DTC, in no
event be later than 3:00 p.m., New York City time, on the sixth New York
Business Day following a Valuation Date (or, if the Valuation Date is not a New
York Business Day, on the sixth New York Business Day following the New York
Business Day next succeeding the Valuation Date) (the "Settlement Date"), the
Warrant Agent will be responsible for making its payment available either (i)
for certificated Warrants, to each appropriate registered holder in the form of
a cashier's check or an official bank check, or (in the case of payments of at
least $100,000) by wire transfer to a U.S. dollar account maintained by such
registered holder in the United States (at such registered holder's election as
specified in the applicable Exercise Notice), after 3:00 p.m., New York City
time, but prior to the close of business, on the first New York Business Day
immediately succeeding such Settlement Date or (ii) for book-entry Warrants, to
each appropriate Participant in the form of a cashier's check or an official
bank check, or (in the case of payments of at least $100,000) by wire transfer
to a U.S. Dollar account maintained by such Participant in the United States (at
the Participant's election as specified in the Exercise Notice), after 3:00
p.m., New York City time, but prior to the close of business, on the first New
York Business Day immediately succeeding such Settlement Date. For either clause
(i) or (ii) above, such payment shall be in the amount of the aggregate Cash
Settlement Value in respect of the Warrant Certificates or Warrants that were
delivered to the Warrant Agent (together with the related Exercise Notice). Such
Participant will be responsible for disbursing payments to the Warrantholders it
represents, and such Participant will be responsible for disbursing such
payments to the Warrantholders it represents and to each brokerage firm for
which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the Warrantholders it represents.
"Calculation Agent" means Lehman Brothers Inc. or, in lieu thereof, another
firm selected by Holdings to perform the functions of the Calculation Agent in
connection with the Warrants. Lehman Brothers Inc., in its capacity as
Calculation Agent, will have no obligation to take the interests of Holdings or
the
S-23
<PAGE> 24
Warrantholders into consideration in the event it determines, composes or
calculates the Cash Settlement Value or Alternative Settlement Amount. Lehman
Brothers Inc., as a registered broker-dealer, is required to maintain policies
and procedures regarding the handling and use of confidential proprietary
information, and such policies and procedures will be in effect throughout the
term of the Warrants to restrict the use of information relating to any
calculation of the Cash Settlement Value or Alternative Settlement Amount prior
to its dissemination. Moreover, Lehman Brothers Inc. is obligated to carry out
its duties and functions as Calculation Agent in good faith and using its
reasonable judgment. Also, Lehman Brothers may from time to time engage in
transactions involving the Underlying Stocks, including for their proprietary
accounts and for other accounts in their custody and under their control, which
may influence the value of such Underlying Stocks.
MINIMUM EXERCISE AMOUNT
No fewer than 500 Warrants may be exercised by a Warrantholder at any one
time, except in the case of automatic exercise or exercise upon cancellation of
the Warrants as described under " -- Extraordinary Events and Exercise
Limitation Events" below. Accordingly, except in the case of automatic exercise
of the Warrants or exercise upon cancellation of the Warrants, Warrantholders
with fewer than 500 Warrants will need either to sell their Warrants or to
purchase additional Warrants, thereby incurring transaction costs, in order to
realize upon their investment. Warrantholders must satisfy the minimum exercise
amount requirement separately with respect to both certificated and book-entry
Warrants even if more than one kind of Warrant is to be exercised at the same
time. Thus, a Warrantholder seeking to exercise both certificated and book-entry
Warrants at the same time must exercise a minimum of 500 of each kind of Warrant
in order to satisfy such requirement. In addition, book-entry Warrants held
through one Participant may not be combined with book-entry Warrants held
through another Participant in order to satisfy the minimum exercise
requirement.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than on the Expiration Date, the Delisting
Date or the Cancellation Date) are subject, at the Calculation Agent's option,
to the limitation that not more than 1,000,000 Warrants in total may be
exercised on any Exercise Date and not more than 250,000 Warrants may be
exercised by or on behalf of any person or entity, either individually or in
concert with any other person or entity, on any Exercise Date. If any New York
Business Day would otherwise, under the terms of the Warrant Agreement, be the
Exercise Date in respect of more than 1,000,000 Warrants, then at the
Calculation Agent's election, 1,000,000 of such Warrants shall be deemed
exercised on such Exercise Date (selected by the Warrant Agent on a pro rata
basis, but if, as a result of such pro rata selection, any Warrantholders would
be deemed to have exercised less than 500 Warrants, then the Warrant Agent shall
first select additional of such holders' Warrants so that no holder shall be
deemed to have exercised less than 500 Warrants), and the Remaining Warrants
shall be deemed exercised on the following New York Business Day (subject to
successive applications of this provision); provided that, any Remaining Warrant
for which a notice of exercise was delivered on a given Exercise Date shall be
deemed exercised before any other Warrants for which a notice of exercise was
delivered on a later Exercise Date. As a result of any postponed exercise as
described above, Warrantholders will receive a Cash Settlement Value determined
as of a date later than the otherwise applicable Valuation Date. In any such
case, as a result of any such postponement, the Cash Settlement Value actually
received by Warrantholders may be lower than the otherwise applicable Cash
Settlement Value if the Valuation Date of the Warrants had not been postponed.
LIMIT OPTION
Except for Warrants subject to automatic exercise and except as described
below with respect to payments of any Alternative Settlement Amount, each
Warrantholder, in connection with any exercise of Warrants (including a
postponed exercise following an Extraordinary Event or an Exercise Limitation
Event), will have the option (the "Limit Option") to specify that such Warrants
are not to be exercised if the Spot Index that would otherwise be used to
determine the Cash Settlement Value of such Warrants is 5% or more
S-24
<PAGE> 25
lower than the closing level of the Index for the day specified below (such
closing level is referred to herein as the "Limit Option Reference Index"). A
Warrantholder's election of the Limit Option must be specified in the applicable
Exercise Notice delivered to the Warrant Agent. The Limit Option Reference Index
will be the closing level of the Index on the relevant Exercise Date (or, if
such date is not an Index Calculation Day, on the immediately preceding Index
Calculation Day). If an Exercise Notice and the related Warrants are received
after 3:00 P.M., New York City time, on a given day, the applicable Limit Option
Reference Index will be determined as of the next day that is also a New York
Business Day (or, if such day is not an Index Calculation Day, as of the
immediately preceding Index Calculation Day).
To ensure that the Limit Option will have its intended effect of limiting
the risk of any downward movement in the level of the Index between the date on
which a Warrantholder submits an Exercise Notice and the related Valuation Date,
such Exercise Notice and the related Warrants generally must be received by the
Warrant Agent not later than 3:00 P.M., New York City time, on the New York
Business Day on which it is submitted and the Exercise Date must also be an
Index Calculation Day. See the example under " -- Exercise and Settlement of
Warrants" above and "Certain Important Information Concerning the Warrants".
Following receipt of an Exercise Notice and the related Warrants subject to
the Limit Option, the Warrant Agent will obtain the applicable Limit Option
Reference Index and will determine whether such Warrants will not be exercised
because of the Limit Option. Warrants that are not exercised will be treated as
not having been tendered for exercise, and either the Warrant Certificate
evidencing such Warrants will be returned to the registered holder by
first-class mail at the Calculation Agent's expense or, in the case of book-
entry Warrants held through the facilities of DTC, such Warrants will be
transferred to the account at DTC from which they were transferred to the
Warrant Agent. To exercise such returned or transferred Warrants, a
Warrantholder will be required to cause the Warrants and a related Exercise
Notice to be submitted again to the Warrant Agent.
Even if the Valuation Date for such Warrants is postponed, once elected by
a Warrantholder in connection with an exercise of Warrants, the Limit Option
will continue to apply to the Warrants that are submitted to the Warrant Agent
until the applicable Valuation Date for such Warrants, on the basis of the Limit
Option Reference Index as initially determined for such Warrants, except when
such Valuation Date is postponed until the Expiration Date, the Delisting Date
or the Cancellation Date (as defined herein), as described under
" -- Extraordinary Events and Exercise Limitation Events". Pursuant to the Limit
Option, Warrants that are subject to the Limit Option will either (i) be
exercised if the applicable Spot Index on the postponed Valuation Date is not
less than the Limit Option Reference Index by 5% or more, or (ii) be excluded
from being exercised if, on any applicable postponed Valuation Date, the
applicable Spot Index is less than the Limit Option Reference Index by 5% or
more.
In connection with any exercise of 500 or more Warrants, a Warrantholder
may elect to subject the exercise of only a portion of such Warrants to the
Limit Option, provided, that the number of Warrants subject to the Limit Option
and the number of Warrants not subject to the Limit Option shall in each case
not be less than 500. A Warrantholder may not combine certificated and
book-entry Warrants in order to meet the 500 Warrant minimum requirement. See
" -- Minimum Exercise Amount".
AUTOMATIC EXERCISE
All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 3:00 P.M., New York City time, on (i) the New York
Business Day immediately preceding the Expiration Date or (ii) the last New York
Business Day prior to the Delisting Date, as the case may be, or for which the
Warrant Agent has received a valid Exercise Notice but with respect to which
timely delivery of the relevant Warrants has not been made, together with any
Warrants the Valuation Date for which has at such time been postponed as
described under " -- Extraordinary Events and Exercise Limitation Events", will
be automatically exercised. The Exercise Date for such Warrants will be the
Expiration Date or the Delisting Date, as the case may be, or, if such date is
not a New York Business Day, the next succeeding New York Business Day. The
Warrant Agent will obtain the Spot Index (determined as of the first Index
Calculation Day following
S-25
<PAGE> 26
such date, which will be the Valuation Date for such Warrants, except in the
case of a postponed exercise following the occurrence of an Extraordinary Event
or an Exercise Limitation Event as described under " -- Extraordinary Events and
Exercise Limitation Events"), and will determine the Cash Settlement Value, if
any, of such Warrants.
Except in the case of a postponed exercise following the occurrence of an
Extraordinary Event or an Exercise Limitation Event as described under
" -- Extraordinary Events and Exercise Limitation Events" or in the case of
book-entry Warrants held through the facilities of DTC, Holdings will be
required to make adequate funds available to the Warrant Agent, not later than
3:00 p.m., New York City time, on the fourth New York Business Day following the
Valuation Date for automatically exercised Warrants (or if such Valuation Date
is not a New York Business Day, on the fourth New York Business Day following
the New York Business Day succeeding the Valuation Date) (in any such case, the
"Automatic Settlement Date"), and the Warrant Agent will thereafter be
responsible for making a payment available to each registered holder of a
Warrant in the form of a cashier's check or official bank check or (in the case
of payments of at least $100,000) by wire transfer to a U.S. dollar account
maintained by such holder in the United States (at such holder's election) after
3:00 P.M., New York City time, but prior to the close of business, on the
Automatic Settlement Date, against receipt by the Warrant Agent at the Warrant
Agent's Office of such holder's Warrant Certificates. Such payment will be in an
amount equal to the aggregate Cash Settlement Value of the Warrants evidenced by
such Warrant Certificates.
In the case of book-entry Warrants held through the facilities of DTC, and,
except in the case of a postponed exercise following the occurrence of an
Extraordinary Event or an Exercise Limitation Event as described under
" -- Extraordinary Events and Exercise Limitation Events", Holdings will be
required to make available to the Warrant Agent, no later than 3:00 P.M., New
York City time, on the Automatic Settlement Date, funds in an amount sufficient
to pay such aggregate Cash Settlement Value. If Holdings has made such funds
available by such time, the Warrant Agent will thereafter be responsible for
making funds available to DTC, against receipt of the global Warrant
certificate, after 3:00 p.m., New York City time, but prior to the close of
business, on the Automatic Settlement Date, in an amount sufficient to pay the
aggregate Cash Settlement Value of the Warrants. DTC will be responsible for
disbursing such funds to each appropriate Participant and such Participant will
be responsible for disbursing such payment to the Warrantholders it represents
and to each brokerage firm for which it acts as agent. Each such brokerage firm
will be responsible for disbursing funds to the Warrantholders it represents.
EXTRAORDINARY EVENTS AND EXERCISE LIMITATION EVENTS
Extraordinary Events. If the Calculation Agent determines that an
Extraordinary Event has occurred and is continuing on the Hong Kong Business Day
with respect to which the Spot Index on a Valuation Date is to be determined
(the "Applicable Hong Kong Business Day"), then the Cash Settlement Value in
respect of the exercise shall be calculated on the basis that the Valuation Date
shall be the next Index Calculation Day following an Applicable Hong Kong
Business Day on which there is no Extraordinary Event or Exercise Limitation
Event; provided, that if the Valuation Date has not occurred on or prior to the
Expiration Date or the Delisting Date, the Warrantholders will receive the
Alternative Settlement Amount in lieu of the Cash Settlement Value, which
Alternative Settlement Value shall be calculated as if the Warrants had been
cancelled on the Expiration Date or the Delisting Date, as the case may be.
Holdings shall promptly give notice to Warrantholders, by publication in a
United States newspaper with a national circulation (currently expected to be
The Wall Street Journal), if an Extraordinary Event shall have occurred.
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading on the HKSE of all of the
Underlying Stocks which then comprise the Index or a Successor Index;
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or any other U.S. or
non-U.S. governmental authority which would make it unlawful for Holdings
to perform any of its obligations under the Warrant Agreement or the
Warrants; or
S-26
<PAGE> 27
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crisis (including, without limitation, natural
calamities which in the opinion of Holdings may materially and adversely
affect the economy of Hong Kong or the trading of securities generally on
the HKSE) which has or will have a material adverse effect on the ability
of Holdings to perform its obligations under the Warrants or to modify the
hedge of its position with respect to the Index.
For the purpose of determining whether an Extraordinary Event has occurred:
(1) a limitation on the hours or number of days of trading will not constitute
an Extraordinary Event if it results from an announced change in the regular
business hours of the HKSE, and (2) an "absence of trading" on the HKSE will not
include any time when the HKSE is closed for trading under ordinary
circumstances.
To Holdings' knowledge, no circumstances have arisen since the inception of
the Index that could have constituted an Extraordinary Event, except that on
September 17, 1993 trading on the HKSE and The Hong Kong Futures Exchange Ltd.
(the "HK Futures Exchange") was suspended due to a typhoon in Hong Kong (the
"September 1993 Suspension"). Prior to the inception of the Index, and based on
the information published by the HKSE, trading on the HKSE was suspended, during
the time of other world market breaks, from October 20 through October 23, 1987.
Trading in Hang Seng Index Futures traded on the HK Futures Exchange also was
suspended during the same four-day period (collectively, the "October 1987
Suspension"). The existence of such circumstances in the past, however, is not
necessarily indicative of the likelihood of such circumstances arising or not
arising in the future. See "The Index -- The HKSE" below.
If the Calculation Agent determines that an Extraordinary Event has
occurred and is continuing, and if the Extraordinary Event is expected by the
Calculation Agent to continue, Holdings may immediately cancel the Warrants by
notifying the Warrant Agent of such cancellation (the date such notice is given
being the "Cancellation Date"), and each Warrantholder's rights under the
Warrants and the Warrant Agreement shall thereupon cease; provided that each
Warrant shall be exercised (even if such Warrant would not otherwise be
exercisable on such date because of the Limit Option) on the basis that the
Valuation Date for such Warrant shall be the Cancellation Date and the holder of
each such Warrant will receive, in lieu of the Cash Settlement Value of such
Warrant, the Alternative Settlement Amount, determined by the Calculation Agent,
equal to "X", calculated using the formula set forth below:
<TABLE>
<S> <C> <C> <C> <C> <C>
X = I + [ T X (A) ]
---- ----
2 (B)
</TABLE>
where
<TABLE>
<S> <C> <C>
I = The Cash Settlement Value of the Warrants determined as described under " --Cash
Settlement Value" above, but calculated with a Spot Index determined by the Calculation
Agent which, in the reasonable opinion of the Calculation Agent, fairly reflects the
value of the Underlying Stocks on the Cancellation Date.
T = U.S.$4.50, the initial offering price per Warrant;
A = the total number of days from but excluding the Cancellation Date for such Warrants to
and including the Expiration Date; and
B = the total number of days from but excluding the date the Warrants were initially sold
to and including the Expiration Date.
</TABLE>
Any such calculations will be made available to a Warrantholder for
inspection at the Warrant Agent's Office. Neither Holdings nor the Calculation
Agent shall have any responsibility for good faith errors or omissions in
calculating the Alternative Settlement Amount.
Exercise Limitation Events. If the Calculation Agent determines that on an
applicable Hong Kong Business Day an Exercise Limitation Event has occurred and
is continuing, then the Cash Settlement Value in respect of an exercise shall be
calculated on the basis that the Valuation Date shall be the next Index
Calculation Day following an Applicable Hong Kong Business Day on which there is
no Exercise Limitation Event or Extraordinary Event; provided, that if the
Valuation Date has not occurred on or prior to the
S-27
<PAGE> 28
Expiration Date or the Delisting Date, the Warrantholders will receive the
Alternative Settlement Amount in lieu of the Cash Settlement Value, which
Alternative Settlement Amount shall be calculated as if the Warrants had been
cancelled on the Expiration Date or the Delisting Date, as the case may be.
Holdings shall promptly give notice to Warrantholders, by publication in a
United States newspaper with a national circulation (currently expected to be
The Wall Street Journal), if an Exercise Limitation Event shall have occurred.
"Exercise Limitation Event" means either of the following events:
(i) a suspension or absence of trading on the HKSE of (a) 20% or more
of the Underlying Stocks and/or (b) the stocks of any three of the four
most highly capitalized companies included in the Underlying Stocks which
then comprise the Index or a Successor lndex, or
(ii) the suspension or material limitation on the HK Futures Exchange
or any other major futures or securities market (which as of the date of
this Prospectus Supplement includes only the HK Futures Exchange, but which
in Holdings' judgment may change in the future) of trading in futures or
options contracts related to the stock index maintained by the Hang Seng
Bank Ltd., the Index or a Successor Index.
For purposes of determining whether an Exercise Limitation Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Exercise Limitation Event if it results from an announced change
in the regular business hours of the relevant exchange, (2) a decision
permanently to discontinue trading in the relevant futures or options contract
will not constitute an Exercise Limitation Event, (3) a suspension in trading in
a futures or options contract on the stock index maintained by the Hang Seng
Bank Ltd., the Index or a Successor Index by the HK Futures Exchange or other
major futures or securities market (which as of the date of this Prospectus
Supplement includes only the HK Futures Exchange, but which in Holdings'
judgment may change in the future) by reason of (x) a price change violating
limits set by the HK Futures Exchange or such futures or securities market, (y)
an imbalance of orders relating to such contracts or (z) a disparity in bid and
ask quotes relating to such contracts, will constitute a suspension or material
limitation of trading in futures or options contracts related to the stock index
maintained by the Hang Seng Bank Ltd. (for a brief description of the stock
index maintained by the Hang Seng Bank Ltd., see "The Index -- The HKSE"), the
Index or a Successor Index, (4) an "absence of trading" on the HK Futures
Exchange or a major futures or securities market on which futures or options
contracts relating to the stock index maintained by the Hang Seng Bank Ltd., the
Index or a Successor Index are traded will not include any time when the HK
Futures Exchange or such futures or securities market, as the case may be,
itself is closed for trading under ordinary circumstances and (5) the occurrence
of an Extraordinary Event described in clause (i) of the definition of
Extraordinary Event will not constitute, and will supersede the occurrence of,
an Exercise Limitation Event.
It is Holdings' understanding that during the past six years there have
been no suspensions of trading on the HKSE and no suspensions of trading on the
HK Futures Exchange under circumstances that could have constituted an Exercise
Limitation Event, except for the September 1993 Suspension and the October 1987
Suspension. The absence of such suspensions over the period indicated is not
necessarily indicative of the number or frequency of any future suspensions. See
"The Index -- The HKSE" below.
With respect to all Warrants as to which the Valuation Date has been
postponed or which have been canceled as described above, Holdings shall make
available to the Warrant Agent not later than 3:00 p.m., New York City time, on
the fourth New York Business Day following the date on which the Cash Settlement
Value or Alternative Settlement Amount, as the case may be, has been calculated
(the "Alternative Settlement Date"), funds in an amount equal to, and for the
payment of the aggregate Cash Settlement Value or Alternative Settlement Amount,
as applicable, of such Warrants. Subject to such funds having been made
available as provided in the preceding sentence, the Warrant Agent will be
responsible for making a payment (i) with respect to the Warrants as to which
the Valuation Date has been postponed as described above and as to which the
Cash Settlement Value is payable, (A) in the case of certificated Warrants, to
each registered holder that has submitted its Warrant Certificate for exercise
or (B) in the case of book-entry Warrants, to each appropriate Participant,
after 3:00 p.m., New York City time, but prior to the close of business on, the
S-28
<PAGE> 29
Alternative Settlement Date, in an amount equal to the aggregate Cash Settlement
Value of such exercised Warrants, or (ii) with respect to the Warrants as to
which the Valuation Date has been postponed and has not occurred on or prior to
the Expiration Date or the Delisting Date or with respect to the Warrants which
have been canceled as described above, (A) in the case of certificated Warrants,
to each registered holder that has submitted its Warrant Certificate for
exercise or (B) in the case of book-entry Warrants, to DTC, after 3:00 p.m., New
York City time, but prior to the close of business on, the Alternative
Settlement Date, in amount equal to the aggregate Alternative Settlement Amount
of such exercised Warrants. DTC will be responsible for disbursing such funds to
each appropriate Participant and such Participant will be responsible for
disbursing such payments to the Warrantholders it represents and to each
brokerage firm for which it acts as agent. Each such brokerage firm will be
responsible for disbursing funds to the Warrantholders it represents.
As a result of any postponed exercise as described above, Warrantholders
will receive a Cash Settlement Value (or, if applicable, an Alternative
Settlement Amount) determined as of a date later than the otherwise applicable
Valuation Date. In any such case, as a result of any such postponement, the Cash
Settlement Value (or Alternative Settlement Amount) actually received by
Warrantholders may be substantially lower (or may be zero) than the otherwise
applicable Cash Settlement Value if the valuation of the Warrants had not been
postponed.
LISTING
The Warrants have been approved for listing on the AMEX, subject to notice
of issuance, under the symbol "LHW.WS."
DELISTING OF WARRANTS
In the event that the Warrants are delisted from, or permanently suspended
from trading on, the AMEX, and not accepted at the same time for listing on
another Self-Regulatory Organization, Warrants not previously exercised will be
deemed to be automatically exercised on the Delisting Date and the Cash
Settlement Value, if any, shall be calculated and settled as provided above
under "Automatic Exercise." Holdings will notify Warrantholders as soon as
practicable of such delisting or trading suspension. However, if Holdings first
receives notice of the delisting or suspension on the same day on which the
Warrants are delisted or suspended, such day will nevertheless be deemed to be
the Delisting Date. Holdings will covenant in the Warrant Agreement that it will
not seek delisting of the Warrants from, or suspension of their trading on, the
AMEX unless Holdings has, at the same time, arranged for listing of the Warrants
on another Self-Regulatory Organization.
THE INDEX
Unless otherwise stated, all information herein on the Index is derived
from the AMEX or other publicly available sources. Such information reflects the
policies of the AMEX as stated in such sources and such policies are subject to
change by the AMEX.
The Index, a service mark of the AMEX is a capitalization weighted stock
index designed, developed, maintained and operated by the AMEX that measures the
market value performance (share price times the number of shares outstanding) of
selected HKSE listed stocks. The Index currently is based on the capitalization
of 30 Underlying Stocks trading on the HKSE and is designed to represent a
substantial segment of the Hong Kong stock market. The HKSE is the primary
trading market for 27 of the 30 Underlying Stocks. The primary trading market
for all of the Underlying Stocks is either Hong Kong or London. Business sector
representation in the Index consists primarily of finance, property development,
utilities, conglomerates and food retailing, and also includes hotel/leisure,
property investment, airlines and luxury retailing. The Index was established on
June 25, 1993. (See Appendix A hereto for a list of the Underlying Stocks as of
August 23, 1994.) As of August 23, 1994, the five largest Underlying Stocks
accounted for approximately 43.63% of the market capitalization of the Index,
with the largest being Hong Kong Telecommunications Ltd. (11.82%), HSBC Holdings
plc (9.59%), Hutchison Whampoa Ltd. (8.25%),
S-29
<PAGE> 30
Sun Hung Kai Properties Ltd. (7.56%) and Hang Seng Bank Ltd. (6.41%). The lowest
weighted Underlying Stock, as of August 23, 1994, was Dickson Concepts
(International) Ltd. (0.26%).
The Index will be maintained by the AMEX and will contain at least 30
Underlying Stocks at all times. In addition, the Underlying Stocks must meet
certain listing and maintenance standards as discussed below. The AMEX may
change the composition of the Index at any time in order to more accurately
reflect the composition and track the movement of the Hong Kong stock market.
Any replacement Underlying Stock must also meet the Underlying Stock listing and
maintenance standards as discussed below. Further, the AMEX may replace
Underlying Stocks in the event of certain corporate events, such as takeovers or
mergers, that change the nature of the security.
The AMEX will select Underlying Stocks on the basis of their market weight,
trading liquidity and representation of the business industries reflected on the
HKSE. The AMEX will require that each Underlying Stock be one issued by an
entity with major business interests in Hong Kong, be listed for trading on the
HKSE, and have its primary trading market located in a country with which the
AMEX has an effective surveillance sharing agreement. The AMEX will remove any
Underlying Stock failing to meet the above listing and maintenance criteria
within 30 days after such failure occurs. In order to ensure that the Index does
not contain a large number of thinly-capitalized, low priced securities with
small public floats and low trading volumes, the AMEX has also established
additional qualification criteria for the inclusion and maintenance of
Underlying Stocks, based on the following standards: (1) all Underlying Stocks
selected for inclusion in the Index must have, and thereafter maintain, an
average daily capitalization, as calculated by the total number of shares
outstanding times the latest price per share (in Hong Kong dollars), measured
over the prior 6-month period, of at least H.K.$3,000,000,000 (approximately
U.S.$388,198,758 as of August 23, 1994); (2) all Underlying Stocks selected for
inclusion in the Index must have, and thereafter maintain, an average daily
closing price, measured over the prior 6-month period, not lower than H.K.$2.50
(approximately U.S.$0.32 as of August 23, 1994); (3) all Underlying Stocks
selected for inclusion in the Index must have, and thereafter maintain, an
average daily trading volume, measured over the prior 6-month period, of more
than 1,000,000 shares per day, although up to, but no more than, three
Underlying Stocks may have an average daily trading volume, measured over the
prior 6-month period, of less than 1,000,000 shares per day, but in no event
less than 500,000 shares per day; and (4) all Underlying Stocks selected for
inclusion in the Index must have, and thereafter maintain, a minimum "free
float" value (total freely tradeable outstanding shares minus insider holdings),
based on a monthly average measured over the prior 3-month period, of
U.S.$238,000,000, although up to, but no more than, three Underlying Stocks may
have a free float value of less than U.S.$238,000,000 but in no event less than
U.S.$150,000,000, measured over the same period. The AMEX will review and apply
the above qualification criteria relating to the Underlying Stocks on a
quarterly basis, conducted the last business day in January, April, July and
October. Any Underlying Stock failing to meet the above listing and maintenance
criteria will be reviewed on the second Friday of the second month following the
quarterly review to again determine compliance with the above criteria. Any
Underlying Stock failing this second review will be replaced by a "qualified"
Underlying Stock effective upon the close of business on the following Friday
provided, however, that if such Friday is not a New York Business Day, the
replacement will be effective at the close of business on the first preceding
New York Business Day. For example, if an Underlying Stock was found to be below
the maintenance criteria on Monday, October 31, 1994, it would be reviewed again
on December 9 and, if ineligible, would be replaced by a qualified security at
the close of business on December 16, 1994. If December 16 happened not to be a
New York Business Day, the replacement would be effective at the close of
business on the preceding Thursday, December 15, 1994, assuming that Thursday
was a New York Business Day. The AMEX will notify its membership immediately
after it determines to replace an Underlying Stock.
The annual reports and prospectuses of the companies listed on the HKSE are
available for investors' inspection in the City Hall Library (a public library
in Hong Kong, Central). The HKSE library also has information for each listed
company but it is available only to members of the HKSE.
A company whose stock is included in the Index is not required to be
incorporated under the laws of Hong Kong. As of August 23, 1994, eight of the
thirty companies whose stocks comprise the Underlying Stocks are not
incorporated in Hong Kong: Dairy Farm International Holding's Ltd., Dickson
Concepts
S-30
<PAGE> 31
(International) Ltd., Great Eagle Holdings Ltd., Hong Kong Land Holdings Ltd.,
HSBC Holdings plc, Jardine Matheson Holdings Ltd., Jardine Strategic Holdings
Ltd. and Tai Cheung Holdings Ltd. All are incorporated in Bermuda, except HSBC
Holdings plc, which is incorporated in England.
The Index is a capitalization-weighted index. A company's market
capitalization is calculated by multiplying the number of shares outstanding by
the company's current share price (in Hong Kong dollars). For valuation purposes
unrelated to the Warrants, one Index unit (1.0) is assigned a fixed value of one
U.S. dollar. The AMEX Hong Kong Index measures the average changes in price of
the Underlying Stocks, weighted according to the respective market
capitalizations, so that the effect of a percentage price change in an
Underlying Stock will be greater the larger the Underlying Stock's market
capitalization. The Index was established by the AMEX on June 25, 1993, on which
date the Index value was set at 350.00. The daily calculation and public
dissemination by the AMEX of the Index value commenced on September 1, 1993. The
data relating to the Index was back-calculated by the AMEX from January 2, 1989
to August 31, 1993. The Index is calculated by (i) aggregating the market
capitalization of each Underlying Stock and (ii) dividing such sum by an
adjusted base market capitalization or divisor. On June 25, 1993, the market
value of the Underlying Stocks was approximately H.K.$1,152,829,149,500
(equivalent to approximately U.S.$149,175,614,583 as of August 23, 1994) and the
divisor used to calculate the Index was 3,293,797,570. The AMEX selected that
particular divisor number in order, among other things, to ensure that the Index
was set at a general price level consistent with other well recognized stock
market indexes. The divisor is subject to periodic adjustments as set forth
below. The Index is calculated once every Index Calculation Day by the AMEX
based on the most recent official closing prices of each of the Underlying
Stocks reported by the HKSE. Pricing of the Index will be performed each day and
will be disseminated before the opening of trading via the Consolidated Tape
Authority Network-B and continuously during each New York Business Day. The
dissemination value, however, will remain the same throughout the trading day
because the trading hours of the HKSE do not overlap with AMEX trading hours.
Accordingly, updated price information will be unavailable. At the close of the
market on August 23, 1994, the Index level was 463.55.
In order to maintain continuity in the level of the Index in the event of
certain changes due to non-market factors affecting the Underlying Stocks, such
as the addition or deletion of stocks, substitution of stocks, stock dividends,
stock splits, distributions of assets to stockholders or other capitalization
events, the divisor used in calculating the Index is adjusted in a manner
designed to prevent any instantaneous change or discontinuity in the level of
the Index and in order that the value of the Index immediately after such change
will equal the level of the Index immediately prior to the change. Thereafter,
the divisor remains at the new value until a further adjustment is necessary as
the result of another change. Nevertheless, changes in the identities and
characteristics of the Underlying Stocks may significantly affect the behavior
of the Index over time.
The AMEX is under no obligation to continue the calculation and
dissemination of the Index and the method by which the Index is calculated and
the name "The Index" may be changed at the discretion of the AMEX. The Warrants
are not sponsored, endorsed, sold or promoted by the AMEX. No inference should
be drawn from the information contained in this Prospectus Supplement that the
AMEX makes any representation or warranty, implied or express, to Holdings, the
Warrantholders or any member of the public regarding the advisability of
investing in securities generally or in the Warrants in particular or the
ability of the Index to track general stock market performance. The AMEX has no
obligation to take the needs of Holdings or the Warrantholders into
consideration in determining, composing or calculating the Index. The AMEX is
not responsible for, and has not participated in the determination of the timing
of, prices for, or quantities of, the Warrants to be issued or in the
determination or calculation of the equation by which the Warrants are to be
settled in cash. The AMEX has no obligation or liability in connection with the
administration, marketing or trading of the Warrants.
The use of and reference to the Index in connection with the Warrants have
been consented to by the AMEX.
Except with respect to the responsibility of the Calculation Agent to make
certain calculations under certain circumstances as described herein, none of
Holdings, the Warrant Agent, the Calculation Agent or the Underwriters accepts
any responsibility for the calculation, maintenance or publication of the Index
or any Successor Index. The AMEX disclaims all responsibility for any
inaccuracies in the data on which the Index
S-31
<PAGE> 32
is based, or any mistakes or errors or omissions in the calculation or
dissemination of the Index or for the manner in which such index is applied in
determining the Cash Settlement Value or Alternative Settlement Amount upon
exercise of the Warrants.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing level of the Index at the end of
each month in the period from January 1989 through July 1994 and at the end of
August 23, 1994. All historical data presented in the following table relating
to periods before September 1, 1993 (the date the AMEX commenced the daily
calculation and public dissemination of the Index) is presented as if the Index
had existed during such periods, based on the Underlying Stocks contained in the
Index as of June 25, 1993, and such closing levels have been calculated
hypothetically on the same basis that the AMEX 30 Hong Kong Index is calculated,
but without making certain of the adjustments referred to above to take account
of non-market factors. All historical data presented in the following table
relating to periods after September 1, 1993 are based on actual data from the
Index. These historical data on the Index are not necessarily indicative of the
future performance of the Index or what the value of the Warrants may be. Any
historical upward or downward trend in the closing level of the Index during any
period set forth below is not any indication that the Index is more or less
likely to decline at any time during the term of the Warrants:
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1989:
January......................... 149.88
February........................ 147.27
March........................... 146.46
April........................... 152.01
May............................. 133.76
June............................ 110.46
July............................ 125.78
August.......................... 123.02
September....................... 135.71
October......................... 135.04
November........................ 136.23
December........................ 140.32
1990:
January......................... 136.29
February........................ 146.44
March........................... 149.57
April........................... 146.77
May............................. 156.58
June............................ 164.36
July............................ 172.48
August.......................... 154.24
September....................... 137.78
October......................... 149.74
November........................ 148.38
December........................ 151.46
1991:
January......................... 162.42
February........................ 177.56
March........................... 187.39
April........................... 179.85
May............................. 186.43
June............................ 184.68
July............................ 201.91
August.......................... 201.49
September....................... 200.42
October......................... 204.76
November........................ 209.96
December........................ 217.58
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1992:
January......................... 233.06
February........................ 250.01
March........................... 249.71
April........................... 271.89
May............................. 308.30
June............................ 309.67
July............................ 296.24
August.......................... 282.96
September....................... 276.67
October......................... 311.14
November........................ 291.86
December........................ 276.73
1993:
January......................... 287.74
February........................ 318.99
March........................... 319.68
April........................... 341.75
May............................. 369.20
June............................ 354.06
July............................ 348.06
August.......................... 374.08
September....................... 382.05
October......................... 467.64
November........................ 458.93
December........................ 598.98
1994:
January......................... 576.69
February........................ 519.77
March........................... 452.60
April........................... 449.25
May............................. 479.28
June............................ 437.47
July............................ 474.92
August (through August 23)...... 463.55
</TABLE>
S-32
<PAGE> 33
The following graph sets forth the historical performance of the Index at
the end of each month from January 1989 through July 1994 and at the end of
August 23, 1994. Past movements of the Index are not necessarily indicative of
the future Index values.
INDEX -- HISTORICAL PERFORMANCE
Closing Values Through August 23, 1994
[GRAPH]
Source: Prepared by Holdings from data obtained from the AMEX.
The August 23, 1994 closing level of the Index was 463.55.
S-33
<PAGE> 34
THE HKSE
The HKSE market is a continuous market where trading is order-based through
a computer-assisted system. Transactions are generally conducted by telephone.
However, broker-dealers continue to operate from the stock exchange floor, and
trading is therefore occasionally face-to-face. There are no market-makers on
the HKSE, but exchange dealers may act as dual capacity broker-dealers. All of
the Underlying Stocks of the Index are traded through the computerized trading
system. Trading is undertaken from 10:00 A.M. to 12:30 P.M. and then from 2:20
P.M. to 3:30 P.M. (Hong Kong time) every Hong Kong Business Day. Hong Kong time
is 12 hours ahead of Eastern Daylight Savings Time and 13 hours ahead of Eastern
Standard Time. Settlement of trade is required within 48 hours and requires
either delivery of share certificates or book-entry delivery through the Central
Clearing and Settlement System.
Due to the time differences between New York City and Hong Kong, on any
normal trading day, trading on the HKSE of the Underlying Stocks currently will
cease at 2:30 A.M. or 3:30 A.M., New York City time. Using the last reported
closing prices of the Underlying Stocks on the HKSE, the closing level of the
Index on any such trading day generally will be calculated, published and
disseminated by the AMEX in the United States shortly before the opening of
trading on the AMEX in New York on the same calendar day.
The HKSE has adopted certain measures intended to prevent any extreme
short-term price fluctuations resulting from order imbalances or market
volatility. Where the HKSE considers it necessary for the protection of the
investor or the maintenance of an orderly market, it may at any time suspend
dealings in any securities or cancel the listing of any securities in such
circumstances and subject to such conditions as it thinks fit, whether requested
by the listed issuer or not. The HKSE may also do so where: (1) an issuer fails,
in a manner which the HKSE considers material, to comply with the HKSE Listing
Rules or its Listing Agreement; (2) the HKSE considers there are insufficient
securities in the hands of the public; (3) the HKSE considers that the listed
issuer does not have a sufficient level of operations or sufficient assets to
warrant the continued listing of the issuer's securities; or (4) the HKSE
considers that the issuer or its business is no longer suitable for listing.
An issuer may apply for suspension of its own accord. A suspension request
will normally only be acceded to in the following circumstances: (1) where, for
a reason acceptable to the HKSE, price-sensitive information cannot at that time
be disclosed; (2) where the issuer is subject to an offer, but only where terms
have been agreed in principle and require discussion with, and agreement by, one
or more major shareholders (suspensions will only normally be appropriate where
no previous announcement has been made); (3) to maintain an orderly market; (4)
where there is an occurrence of certain levels of notifiable transactions, such
as substantial changes in the nature, control or structure of the issuer, where
publication of full details is necessary to permit a realistic valuation to be
made of the securities concerned, or the approval of shareholders is required;
(5) where the issuer is no longer suitable for listing, or becomes a "cash"
company; or (6) for issuers going into receivership or liquidation. In cases
where the suspension is temporary pending an announcement, the suspension will
be lifted as soon as possible after an appropriate announcement has been made
but in other cases suspension will only be lifted when other relevant
requirements have been met. Investors should also be aware that the HKSE may,
even without a request from a listed issuer, suspend trading of individual
stocks if, in its judgment, this is in the best interest of the market and
investors in general; for example, if there were a leak of price-sensitive
information through an improper channel and/or the HKSE considers that improper
use was being made of price-sensitive information.
As a result of the foregoing, variations in the Index may be limited by
suspension of trading of individual stocks which comprise the Index which may,
in turn, adversely affect the value of the Warrants. In addition, a suspension
or absence of trading on the HKSE of (a) 20% or more of the Underlying Stocks
and/or (b) stocks of any three of the four most highly capitalized companies
included in the Underlying Stocks would result in an Exercise Limitation Event
and a halt in trading of all of the Underlying Stocks would result in an
Extraordinary Event, if such events were declared by the Calculation Agent. As a
result, the Valuation Date of exercised Warrants would be postponed and the Cash
Settlement Value (or Alternative Settlement Amount) actually received by
Warrantholders may be substantially lower (including zero) than the otherwise
Cash
S-34
<PAGE> 35
Settlement Value if the valuation of the Warrants had not been postponed. See
"Description of the Warrants -- Extraordinary Events and Exercise Limitation
Events" herein.
In 1977, the Hong Kong government authorized futures trading in
commodities. The HK Futures Exchange currently provides for trading in gold,
sugar and soybeans in addition to the stock index maintained by the Hang Seng
Bank Ltd. and Hong Kong Interbank Offered Rate contracts.
The stock index futures contracts traded on the HK Futures Exchange are
based upon the stock index maintained by the Hang Seng Bank Ltd. (such index,
the "HSI") and its four sub-indices: properties, utilities, finance, and
commerce and industry. The HSI is a value-weighted index of approximately 33
stocks and every stock in the HSI is represented in one of the four sub-indices.
The following Underlying Stocks of the Index (as of August 23, 1994) are not
constituent securities of the HSI: Amoy Properties Ltd., Dickson Concepts
(International) Ltd., Henderson Investment Ltd. and Tai Cheung (Holdings) Ltd.
The following constituent securities of the HSI (as of August 23, 1994) are not
Underlying Stocks of the Index: Hong Kong Aircraft Eng. Co. Ltd., Lai Sun
Garment International Ltd., Mandarin Oriental International Ltd., Miramar Hotel
and Inv. Co. Ltd., Shun Tak Holdings Ltd., Television Broadcasts Ltd. and
Windsor Industrial Corporation Ltd. The Index also differs from the HSI in that,
among other things, the selection, maintenance and replacement criteria for the
constituent securities of the two indices are not the same and they are operated
and governed by the rules of different entities.
Currently, the contracts listed on the HK Futures Exchange are HSI futures,
HSI sub-indices futures, HSI options, gold and Hong Kong Interbank Offered Rate
futures. There is a daily maximum fluctuation limit of 300 points imposed on the
HSI contracts (not applicable to spot mark contracts). Once the limit is
touched, orders cannot be transacted above (the upside limit) or below (the
downside limit) but orders within the range can continue to trade.
The foregoing discussion reflects the current rules governing the HKSE and
the HK Futures Exchange, which are subject to change.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Simpson Thacher & Bartlett, special counsel to Holdings,
the following discussion is an accurate summary of the material United States
federal income tax consequences of the purchase, ownership, exercise or other
disposition of the Warrants. The following summary describes certain United
States federal income tax consequences of the ownership of a Warrant as of the
date hereof. Except where noted, it deals only with Warrants held as capital
assets by United States Holders and does not deal with those with special
situations, such as dealers in options or persons who hold a Warrant in the
ordinary course of business, financial institutions, life insurance companies or
purchasers holding Warrants as a part of a hedging transaction or a "straddle."
Moreover, the summary does not consider the possible application of the
"conversion transaction" rules to a holder who holds a Warrant as part of an
integrated investment comprised of a Warrant and one or more other positions.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF WARRANTS 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 LAWS OF ANY OTHER TAXING
JURISDICTION.
As used herein, a "United States Holder" of a Warrant 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.
TAXATION OF WARRANTS
Each Warrant will be treated as a cash settlement option. Accordingly, a
United States Holder will be required to recognize gain or loss with respect to
a Warrant on the sale, exchange, exercise (including automatic exercise) or
other disposition of the Warrant. As discussed below, the Warrants may become
S-35
<PAGE> 36
subject to the "mark-to-market" rules under section 1256 of the Code if (i) the
Commodities Futures Trading Commission ("CFTC") designates a contract market for
a contract based on the Index or (ii) the Secretary of the Treasury determines
that the Warrants meet the requirements of law for such a designation.
SALE, EXCHANGE AND EXERCISE OF WARRANTS
A United States Holder's tax basis in the Warrant will be equal to such
holder's cost. Upon sale, exchange or exercise (including automatic exercise) of
a Warrant, a United States Holder will recognize gain or loss equal to the
difference between the amount realized, if any, and the United States Holder's
tax basis in the Warrant. Any such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange or
exercise (including automatic exercise) the Warrant has been held for more than
one year. Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
MARK-TO-MARKET RULES
If, subsequent to the issuance of the Warrants, the CFTC designates a
contract market for a contract based on the Index or the Secretary of the
Treasury determines that the Warrants meet the requirements of law for such a
designation, and in either case the Warrants continue to be listed on the AMEX
(or remain traded on or subject to the rules of a "qualified board or exchange"
as defined in section 1256(g)(7) of the Code), it is unclear whether the
Warrants would be treated as section 1256 contracts and would be "marked-
to-market" (i.e., treated as sold at fair market value) on the last business day
of each taxable year. Should the Warrants become subject to the mark-to-market
rules, a United States Holder might incur federal income tax liability on an
annual basis in respect of an increase in the value of the Warrant without a
corresponding receipt of cash. A United States Holder of a Warrant that is a
section 1256 contract will recognize capital gain or loss equal to the
difference between the fair market value of the Warrant on the last business day
of each taxable year (as determined by the Warrant's trading price) and the
United States Holder's tax basis for the Warrant. Any capital gain or loss
recognized with respect to a Warrant that is a section 1256 contract will be 60%
long-term capital gain or loss and 40% short-term capital gain or loss. A United
States Holder's tax basis in a Warrant that is a section 1256 contract would
equal the amount paid for the Warrant, plus or minus the net gain or loss
recognized by the United States Holder in respect of the Warrant in prior
taxable years.
BACKUP WITHHOLDING
The proceeds received from a sale, exchange or exercise (including
automatic exercise) of a Warrant may be subject to a 31 percent backup
withholding tax if the United States Holder thereof (other than certain exempt
recipients such as corporations) fails to supply an accurate taxpayer
identification number or otherwise comply with applicable information reporting
or certification requirements.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated as of August 23, 1994 (the "Underwriting Agreement"), Holdings has agreed
to sell to Lehman Brothers Inc. (the "Underwriter"), and the Underwriter has
agreed to purchase, all of the Warrants offered hereby.
Holdings has been advised that the Underwriter proposes initially to offer
the Warrants to the public at the 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 $0.14 per Warrant. After the initial public offering, the
public offering price and such concession may be changed.
The Underwriter has advised Holdings that it intends to make a market in
the Warrants but the Underwriter is not obliged 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 Warrants.
S-36
<PAGE> 37
Holdings has granted an option to the Underwriter, exercisable within 30
days of the date of this Prospectus Supplement, to purchase up to an additional
150,000 Warrants 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.
The Underwriter is a wholly owned subsidiary of Holdings. The participation
of the Underwriter in the offer and sale of the Warrants complies with the
requirements of Schedule E of the By-Laws of the NASD regarding underwriting
securities of an affiliate.
This Prospectus Supplement together with the accompanying Prospectus may
also be used by the Underwriter in connection with offers and sales of Warrants
related to market making transactions, by and through the Underwriter, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. The Underwriter may act as principal or agent in such transactions.
Holdings has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act.
S-37
<PAGE> 38
GLOSSARY
Definitions for the following terms are set forth in this Prospectus
Supplement at the pages indicated:
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM TERM IS DEFINED
- ---- ----------------
<S> <C>
Alternative Settlement Amount................................................. S-5
Alternative Settlement Date................................................... S-28
AMEX.......................................................................... Cover Page
Applicable Hong Kong Business Day............................................. S-26
Automatic Settlement Date..................................................... S-26
Calculation Agent............................................................. S-23
Cancellation Date............................................................. S-27
Cash Settlement Value......................................................... Cover Page
China......................................................................... S-16
Code.......................................................................... S-35
Conversion Option............................................................. S-9
Conversion Option Period...................................................... S-20
Delisting Date................................................................ S-2
DTC........................................................................... S-9
Exercise Date................................................................. S-22
Exercise Limitation Event..................................................... S-28
Exercise Notice............................................................... S-22
Expiration Date............................................................... S-4
Extraordinary Event........................................................... S-26
HK Futures Exchange........................................................... S-27
HKSE.......................................................................... S-3
Holdings...................................................................... Cover Page
Hong Kong Business Day........................................................ S-12
HSI........................................................................... S-35
Index......................................................................... Cover Page
Index Calculation Day......................................................... S-12
Limit Option.................................................................. S-24
Limit Option Reference Index.................................................. S-25
New York Business Day......................................................... S-12
Participant................................................................... S-9
Remaining Warrants............................................................ S-12
Self-Regulatory Organization.................................................. S-2
Settlement Date............................................................... S-23
Spot Index.................................................................... S-8
Strike Index.................................................................. S-8
Successor Index............................................................... S-8
Third Party................................................................... S-8
United States Holder.......................................................... S-35
Underlying Stock.............................................................. S-18
Underwriter................................................................... S-36
Underwriting Agreement........................................................ S-36
Valuation Date................................................................ S-22
Warrant....................................................................... Cover Page
Warrant Agent................................................................. S-18
Warrant Agent's Office........................................................ S-18
Warrant Agreement............................................................. S-18
Warrant Certificate........................................................... S-19
Warrantholder................................................................. S-8
</TABLE>
S-38
<PAGE> 39
APPENDIX A
THE AMEX HONG KONG 30 INDEX -- UNDERLYING STOCKS
The following is a list of the issuers of the 30 stocks constituting the
Index as of August 23, 1994. Such information was obtained from the AMEX. The
AMEX may delete, add or substitute any stock underlying the Index. See "The
Index" in this Prospectus Supplement.
STOCKS INCLUDED IN THE INDEX AS OF AUGUST 23, 1994, TOGETHER WITH THEIR
PERCENTAGE WEIGHT IN THE INDEX AS OF AUGUST 23, 1994 ARE SET FORTH BELOW:
<TABLE>
<CAPTION>
PERCENTAGE
STOCK WEIGHT
----- ----------
<S> <C>
Amoy Properties, Ltd. ........................................................... 1.33%
The Bank of East Asia, Ltd. ..................................................... 1.45%
Cathay Pacific Airways Ltd. ..................................................... 2.23%
Cheung Kong (Holdings) Ltd. ..................................................... 5.00%
China Light & Power Co., Ltd. ................................................... 4.95%
CITIC Pacific Ltd. .............................................................. 3.00%
Dairy Farm International Holdings Ltd. .......................................... 1.25%
Dickson Concepts (International) Ltd. ........................................... 0.26%
Great Eagle Holdings Ltd. ....................................................... 0.61%
Hang Lung Development Co. Ltd. .................................................. 1.02%
Hang Seng Bank Ltd. ............................................................. 6.41%
Henderson Investment Ltd. ....................................................... 1.07%
Henderson Land Development Co. Ltd. ............................................. 4.08%
The Hong Kong & China Gas Co. Ltd. .............................................. 1.81%
The Hong Kong and Shanghai Hotels, Ltd. ......................................... 0.81%
Hong Kong Electric Holdings Ltd. ................................................ 3.19%
Hong Kong Land Holdings Ltd. .................................................... 3.23%
Hong Kong Telecommunications Ltd. ............................................... 11.82%
Hopewell Holdings Ltd. .......................................................... 1.84%
HSBC Holdings plc. .............................................................. 9.59%
Hutchison Whampoa Ltd. .......................................................... 8.25%
Hysan Development Co. Ltd. ...................................................... 1.43%
Jardine Matheson Holdings Ltd. .................................................. 3.00%
Jardine Strategic Holdings Ltd. ................................................. 1.77%
New World Development Co., Ltd. ................................................. 2.49%
Sun Hung Kai Properties Ltd. .................................................... 7.56%
Swire Pacific Ltd. 'A'........................................................... 3.72%
Tai Cheung Holdings Ltd. ........................................................ 0.43%
The Wharf (Holdings) Ltd. ....................................................... 4.24%
Wheelock and Co. Ltd. (formerly World International (Holdings) Ltd.) ............ 2.18%
----------
Total.................................................................. 100.00%*
=========
</TABLE>
As of August 23, 1994, the total capitalization of the Index was
approximately H.K.$1,552.2 billion (approximately U.S.$200.9 billion)
* Due to rounding of Percentage Weights, Percentage Weights may not total 100%.
A-1
<PAGE> 40
LEHMAN BROTHERS HOLDINGS INC.
DEBT SECURITIES, DEBT WARRANTS, CURRENCY WARRANTS,
INDEX WARRANTS AND INTEREST RATE WARRANTS
------------------------
Lehman Brothers Holdings Inc. ("Holdings"), may offer from time to time (i)
unsecured debt securities (the "Debt Securities") consisting of debentures,
notes and/or other evidences of indebtedness, (ii) warrants to purchase Debt
Securities ("Debt Warrants"), (iii) warrants entitling the holders thereof to
receive from Holdings, upon exercise, the cash value of the right to purchase
("Currency Call Warrants") and to sell ("Currency Put Warrants" and, together
with the Currency Call Warrants, the "Currency Warrants") a certain amount of
one currency or currency unit for a certain amount of a different currency or
currency unit, all as shall be designated by Holdings at the time of offering,
(iv) warrants entitling the holders thereof to receive from Holdings, upon
exercise, an amount in cash determined by reference to decreases ("Index Put
Warrants") or increases ("Index Call Warrants") in the level of a specified
index (an "Index") which may be based on one or more U.S. or foreign stocks,
bonds or other securities, one or more U.S. or foreign interest rates, one or
more currencies or currency units, or any combination of the foregoing, or
determined by reference to the differential between any two Indices ("Index
Spread Warrants" and, together with the Index Put Warrants and the Index Call
Warrants, the "Index Warrants") and (v) warrants entitling the holders thereof
to receive from Holdings, upon exercise, an amount in cash determined by
reference to decreases ("Interest Rate Put Warrants") or increases ("Interest
Rate Call Warrants" and, together with the Interest Rate Put Warrants, the
"Interest Rate Warrants") in the yield or closing price of one or more specified
debt instruments issued either by the United States government or by a foreign
government (the "Debt Instrument"), in the interest rate or interest rate swap
rate established from time to time by one or more specified financial
institutions (the "Rate") or in any specified combination of Debt Instruments
and/or Rates, for aggregate proceeds of up to U.S.$618,062,720, or the
equivalent thereof in one or more foreign currencies or foreign currency units
(such amount being the aggregate proceeds to Holdings from all Debt Securities,
Debt Warrants, Currency Warrants, Index Warrants and Interest Rate Warrants
(collectively, the "Securities") issued and the exercise price of any Debt
Securities issuable upon the exercise of any Debt Warrants). The Securities may
be offered either together or separately and in one or more series in amounts,
at prices and on terms to be determined at the time of the offering. Unless
otherwise specified in an applicable Prospectus Supplement, the Securities will
be sold for, and the Debt Warrants, Currency Warrants, Index Warrants or
Interest Rate Warrants (collectively, the "Warrants") will be exercisable in,
United States dollars, and the principal of and interest, if any, on the Debt
Securities and the cash payments, if any, in respect of the Currency Warrants,
the Index Warrants and the Interest Rate Warrants will be payable in United
States dollars. If this Prospectus is being delivered in connection with the
offering and sale of Debt Securities, the specific designation, priority,
aggregate principal amount, the currency or currency unit for which the Debt
Securities may be purchased, the currency or currency unit in which the
principal and interest, if any, is payable, the rate (or method of calculation)
and time of payment of interest, if any, authorized denominations, maturity, any
redemption terms, any listing on a securities exchange and the initial public
offering price, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto and any other
terms in connection with such offering and sale are set forth in an applicable
Prospectus Supplement. If this Prospectus is being delivered in connection with
the offering and sale of Warrants, the specific designation, aggregate number of
warrants, the currency or currency unit for which the warrants may be purchased,
the currency or currency unit in which the cash settlement value or the exercise
price, if applicable, is payable, the method of calculation of the cash
settlement value, if applicable, the date on which such warrants become
exercisable and the expiration date, provisions, if any, for the automatic
exercise and/or cancellation prior to the expiration date, the initial public
offering price, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto and any other
terms in connection with such offering and sale will be set forth in an
applicable Prospectus Supplement.
The Debt Securities and the Debt Warrants may be issued in registered form
or bearer form with, in the case of Debt Securities, coupons attached. The
Currency Warrants, Index Warrants and Interest Rate Warrants will be issued in
registered form only. In addition, all or a portion of the Securities of a
series may be issued in global form. Debt Securities in bearer form will be
offered only outside the United States to non-United States persons and to
offices located outside the United States of certain United States financial
institutions. See "Description of Debt Securities -- Limitations on Issuance of
Bearer Securities."
Discussions of certain United States federal income taxation consequences to
holders of Securities and certain of the risks associated with an investment in
Securities will be set forth in the applicable Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities will be sold either through underwriters, dealers or agents,
or directly by Holdings. The applicable Prospectus Supplement sets forth the
names of any underwriters or agents (which may include Lehman Brothers Inc., a
subsidiary of Holdings ("Lehman Brothers")) involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the proposed
amounts, if any, to be purchased by underwriters and the compensation, if any,
of such underwriters or agents.
This Prospectus together with the applicable Prospectus Supplement may also
be used by Lehman Brothers, in connection with offers and sales of Securities
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
------------------------
July 20, 1994
<PAGE> 41
AVAILABLE INFORMATION
Holdings is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"SEC"). Such reports and information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the SEC: New
York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison
Street, Chicago, Illinois 60661-2511; and copies of such material can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates. Holdings' 8 3/4% Notes Due 2002 are listed on the New York
Stock Exchange, Inc. (the "Exchange") and Holdings' $55 Million Serial Zero
Coupon Senior Notes Due May 16, 1998, FT-SE Eurotrack 200 Index Call Warrants
Expiring June 4, 1996, Japanese Yen Bear Warrants Expiring September 15, 1995,
7 1/4% Oracle Yield Enhanced Equity Linked Debt SecuritiesSM Due 1996, 6 1/2%
Amgen Yield Enhanced Equity Linked Debt Securities Due 1997, Japanese Yen Bear
Warrants Expiring March 5, 1996 and Stock Upside Note SecuritiesSM Due 2000 are
listed on the American Stock Exchange, Inc. and reports and other information
concerning Holdings may also be inspected at the offices of the Exchange at 20
Broad Street, New York, New York 10005 and at the offices of the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York 10006.
Holdings has filed with the SEC a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by Holdings with the SEC pursuant
to the Exchange Act are hereby incorporated by reference in this Prospectus:
(1) Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
(2) Holdings' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994.
(3) Holdings' Current Reports on Form 8-K dated February 24, 1994,
April 14, 1994, April 26, 1994, June 7, 1994 and June 15, 1994.
Each document filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered by an applicable
Prospectus Supplement shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein,
in an applicable Prospectus Supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
Holdings will provide without charge to each person, including any
beneficial owner of any Security, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Mary J. Capko,
the Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial
Center, 27th Floor, New York, New York 10285 (telephone (212) 526-0660).
2
<PAGE> 42
THE COMPANY
Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries
hereinafter referred to as the "Company" unless the context otherwise requires)
is one of the leading global investment banks serving institutional, corporate,
government and high net worth individual clients and customers. The Company's
worldwide headquarters in New York and regional headquarters in London and Tokyo
are complemented by offices in 19 additional locations in the United States, 11
in Europe and the Middle East, four in Latin America and seven in the Asia
Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; institutional
asset management; research; and the trading of foreign exchange, derivative
products and certain commodities. The Company acts as a market maker in all
major equity and fixed income products in both the domestic and international
markets. Lehman Brothers is a member of all principal securities and commodities
exchanges in the United States, as well as the National Association of
Securities Dealers, Inc. ("NASD"), and holds memberships or associate
memberships on several principal international securities and commodities
exchanges, including the London, Tokyo, Hong Kong, Frankfurt and Milan stock
exchanges.
Holdings was incorporated in Delaware on December 29, 1983. Holdings'
principal executive offices are located at 3 World Financial Center, New York,
New York 10285 (telephone (212) 526-7000).
USE OF PROCEEDS
Except as otherwise may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, Holdings intends to apply the net proceeds from
the sale of the Securities for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for each of the five years in the period ended December 31, 1993 and
for three months ended March 31, 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
- ----------------------------------------- ------------------
1989 1990 1991 1992 1993 1994
- ----- ----- ----- ----- ----- ------------------
<S> <C> <C> <C> <C> <C>
1.01 * 1.03 * 1.00 1.06
</TABLE>
- ---------------
* Earnings were inadequate to cover fixed charges and would have had to increase
approximately $766 million and $247 million in order to cover the deficiencies
for the periods ended December 31, 1990 and December 31, 1992, respectively.
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
3
<PAGE> 43
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either Senior Debt (as defined below)
or Subordinated Debt (as defined below) of Holdings. The Debt Securities
constituting Senior Debt will be issued under an indenture, dated as of
September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented
and amended by Supplemental Indentures dated as of November 25, 1987, as of
November 27, 1990, as of September 13, 1991 and as of October 4, 1993 (the
"Senior Indenture"), and the Debt Securities constituting Subordinated Debt will
be issued under an indenture between Holdings and Chemical Bank, Trustee (the
"Subordinated Indenture"). The Senior Indenture and the Subordinated Indenture
are hereinafter collectively referred to as the "Indentures" and, individually,
as an "Indenture". Each Indenture will incorporate by reference certain Standard
Multiple-Series Indenture Provisions, filed with the SEC on July 30, 1987 and as
amended and refiled with the SEC on November 16, 1987. This Prospectus contains
descriptions of all material provisions of the Indentures. The summary of such
provisions of the Indentures does not purport to be complete; copies of such
Indentures are filed as exhibits to the Registration Statement of which this
Prospectus is a part. All articles and sections of the applicable Indenture, and
all capitalized terms set forth below, have the meanings specified in the
applicable Indenture.
GENERAL
Neither Indenture limits the amount of debentures, notes or other evidences
of indebtedness which may be issued thereunder. Each Indenture provides that
Debt Securities may be issued from time to time in one or more series. Since
Holdings, as a holding company, does not have any significant assets other than
the equity securities of its subsidiaries, its cash flow and consequent ability
to service its debt, including the Debt Securities, are dependent upon the
earnings of its subsidiaries and the distribution of those earnings to Holdings,
or upon loans or other payments of funds by those subsidiaries to Holdings.
Holdings' subsidiaries, including Lehman Brothers, are separate and distinct
legal entities and will have no obligation, contingent or otherwise, to pay any
interest or principal on the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. Dividends, loans and
other payments by Lehman Brothers are restricted by net capital and other rules
of various regulatory bodies. See "Capital Requirements." The payment of
dividends by Holdings' subsidiaries is contingent upon the earnings of those
subsidiaries and is subject to various business considerations in addition to
net capital requirements and contractual restrictions.
Since the Debt Securities will be obligations of a holding company, the
ability of holders of the Debt Securities to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Debt Securities being offered
thereby: (1) the title of such Debt Securities and whether such Debt Securities
will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) whether the Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, and if Bearer
Securities are issued, whether Bearer Securities may be exchanged for Registered
Securities and the circumstances and places for such exchange, if permitted; (4)
whether the Debt Securities are to be issued in whole or in part in the form of
one or more temporary or permanent global Debt Securities ("Global Securities")
in registered or bearer form and, if so, the identity of the depositary, if any,
for such Global Security or Securities; (5) the date or dates (or manner of
determining the same) on which such Debt Securities will mature; (6) the rate or
rates (or manner of determining the same) at which such Debt Securities will
bear interest, if any, and the date or dates from which such interest will
accrue; (7) the dates (or manner of determining the same) on which such interest
will be payable and the Regular Record Dates for such Interest Payment Dates for
Debt Securities which are Registered Securities, and the extent to which, or the
manner in which, any interest payable on a temporary or permanent global Debt
Security on an Interest Payment Date will be paid if other than in the manner
described under "Global Securities" below; (8) any mandatory or optional sinking
fund or analogous provisions; (9) each office or agency where, subject to the
terms of the applicable Indenture as described below under "Payment and Paying
Agents", the principal of and premium, if any, and interest, if any, on the Debt
Securities will be payable and each office or agency where, subject to the terms
of the applicable Indenture as described below under
4
<PAGE> 44
"Denominations, Registration and Transfer," the Debt Securities may be presented
for registration of transfer or exchange; (10) the date, if any, after which,
and the price or prices in the currency or currency unit in which, such Debt
Securities are payable pursuant to any optional or mandatory redemption
provision; (11) any provisions for payment of additional amounts for taxes and
any provision for redemption, in the event the Company must comply with
reporting requirements in respect of a Debt Security or must pay such additional
amounts in respect of any Debt Security; (12) the terms and conditions, if any,
upon which the Debt Securities of such series may be repayable prior to maturity
at the option of the holder thereof (which option may be conditional) and the
price or prices in the currency or currency unit in which such Debt Securities
are payable; (13) the denominations in which any Debt Securities which are
Registered Securities will be issuable if other than denominations of $1,000 and
any integral multiple thereof, and the denomination or denominations in which
any Debt Securities which are Bearer Securities will be issuable if other than
the denomination of $5,000; (14) the currency, currencies or currency units for
which such Debt Securities may be purchased and the currency, currencies or
currency units in which the principal of and interest, if any, on such Debt
Securities may be payable; (15) any index used to determine the amount of
payments of principal of and premium, if any, and interest, if any, on such Debt
Securities; and (16) other terms of the Debt Securities. (Section 301).
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of or interest, if any, on any series of Debt
Securities is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Debt Securities and such currencies or currency
units will be set forth in an applicable Prospectus Supplement relating thereto.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be in
an applicable Prospectus Supplement.
SENIOR DEBT
The Debt Securities constituting part of the senior debt of Holdings (the
"Senior Debt") will rank equally with all other unsecured debt of Holdings
except Subordinated Debt.
SUBORDINATED DEBT
The Debt Securities constituting part of the subordinated debt of Holdings
(the "Subordinated Debt") will be subordinate and junior in the right of
payment, to the extent and in the manner set forth in the Subordinated
Indenture, to all present or future Senior Debt. "Senior Debt" is defined to
mean (a) any indebtedness for money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness under capitalized leases,
(c) any indebtedness representing the deferred and unpaid purchase price of any
property or business, and (d) all deferrals, renewals, extensions and refundings
of any such indebtedness or obligation; except that the following does not
constitute Senior Debt: (i) indebtedness evidenced by the Subordinated Debt,
(ii) indebtedness which is expressly made equal in right of payment with the
Subordinated Debt or subordinate and subject in right of payment to the
Subordinated Debt, (iii) indebtedness for goods or materials purchased in the
ordinary course of business or for services obtained in the ordinary course of
business or indebtedness consisting of trade payables or (iv) indebtedness which
is subordinated to any obligation of Holdings of the type specified in clauses
(a) through (d) above. The effect of clause (iv) is that Holdings may not issue,
assume or guaranty any indebtedness for money borrowed which is junior to the
Senior Debt and senior to the Subordinated Debt. (Subordinated Indenture Section
1401).
Upon the failure to pay the principal or premium, if any, on Senior Debt
when due or upon the maturity of any Senior Debt by lapse of time, acceleration
or otherwise, all principal thereof, interest thereon, if any, and other amounts
due in connection therewith shall first be paid in full, before any payment is
made on account of the principal, premium, if any, or interest, if any, on the
Subordinated Debt or to acquire any of the Subordinated Debt or on account of
the redemption, sinking fund or analogous provisions in the Subordinated
5
<PAGE> 45
Indenture. (Subordinated Indenture Section 1402). Upon any distribution of
assets of Holdings pursuant to any dissolution, winding up, liquidation or
reorganization of Holdings, payment of the principal, premium, if any, and
interest, if any, on the Subordinated Debt will be subordinated, to the extent
and in the manner set forth in the Subordinated Indenture, to the prior payment
in full of all Senior Debt. (Subordinated Indenture Section 1403). By reason of
such subordination, in the event of insolvency, creditors of Holdings who are
holders of Senior Debt may recover more ratably than the holders of Subordinated
Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise provided with respect to a series of Debt Securities, the
Debt Securities will be issuable as Registered Securities without coupons and in
denominations of $1,000 or any integral multiple thereof. Debt Securities of a
series may be issuable in whole or in part in the form of one or more Global
Securities, as described below under "Global Securities." One or more Global
Securities will be issued in a denomination or aggregate denominations equal to
the aggregate principal amount of Debt Securities of the series to be
represented by such Global Security or Securities. If so provided with respect
to a series of Debt Securities, Debt Securities of such series will be issuable
solely as Bearer Securities with coupons attached or as both Registered
Securities and Bearer Securities. (Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold) no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the applicable Indenture, to the effect that such Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is owned by or on behalf of a United States
person, that such United States person (i) acquired and holds the Bearer
Security through a foreign branch of a United States financial institution, (ii)
is a foreign branch of a United States financial institution purchasing for its
own account or resale (and in either case, (i) or (ii), such financial
institution agrees to comply with the requirements of Section 165(j)(3)(A), (B)
or (C) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder) or (iii) is a financial institution purchasing for
resale during the restricted period only to non-United States persons outside
the United States (Sections 303, 304). See "Global Securities -- Bearer Debt
Securities" and "Limitations on Issuance of Bearer Securities."
Registered Securities of any series (other than a Global Security) will be
exchangeable for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. In
addition, if Debt Securities of any series are issuable as both Registered
Securities and as Bearer Securities, at the option of the Holder upon request
confirmed in writing, and subject to the terms of the applicable Indenture,
Bearer Securities (with all unmatured coupons, except as provided below, and all
matured coupons in default) of such series will be exchangeable into Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor. Unless otherwise indicated in an
applicable Prospectus Supplement, any Bearer Security surrendered in exchange
for a Registered Security between a Regular Record Date or a Special Record Date
and the relevant date for payment of interest shall be surrendered without the
coupon relating to such date for payment of interest and interest will not be
payable in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the terms of the applicable Indenture. (Section 305). Except as
provided in an applicable Prospectus Supplement, Bearer Securities will not be
issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by Holdings for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental
6
<PAGE> 46
charges as described in each Indenture. Such transfer or exchange will be
effected upon the Security Registrar or such transfer agent, as the case may be,
being satisfied with the documents of title and identity of the person making
the request. Holdings has appointed each Trustee as Security Registrar under the
applicable Indenture. (Section 305). If a Prospectus Supplement refers to any
transfer agents (in addition to the Security Registrar) initially designated by
Holdings with respect to any series of Debt Securities, Holdings may at any time
rescind the designation of any such transfer agent or approve a change in the
location through which any such transfer agent acts, except that, if Debt
Securities of a series are issuable only as Registered Securities, Holdings will
be required to maintain a transfer agent in each Place of Payment for such
series and, if Debt Securities of a series are issuable as Bearer Securities,
Holdings will be required to maintain (in addition to the Security Registrar) a
transfer agent in a Place of Payment for such series located outside the United
States. Holdings may at any time designate additional transfer agents with
respect to any series of Debt Securities. (Section 1002).
In the event of any redemption in part, Holdings shall not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on (A) if Debt Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of redemption
and (B) if Debt Securities of the series are issuable as Bearer Securities, the
day of the first publication of the relevant notice of redemption or, if Debt
Securities of the series are also issuable as Registered Securities and there is
no publication, the mailing of the relevant notice of redemption; (ii) register
the transfer of or exchange any Registered Security, or portion thereof, called
for redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption. (Section 305).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Bearer Securities will
be payable, subject to any applicable laws and regulations, at the offices of
such Paying Agents outside the United States as Holdings may designate from time
to time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. (Sections
307 and 1002). Unless otherwise indicated in an applicable Prospectus
Supplement, payment of interest on Bearer Securities on any Interest Payment
Date will be made only against surrender of the coupon relating to such Interest
Payment Date. (Section 1001). No payment of interest on a Bearer Security will
be made unless on the earlier of the date of the first such payment by Holdings
or the delivery by Holdings of the Bearer Security in definitive form (including
interests in a permanent Global Security) (the "Certification Date"), a written
certificate in the form and to the effect described under "Denominations,
Registration and Transfer" is provided to Holdings. No payment with respect to
any Bearer Security will be made at any office or agency of Holdings in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States.
Notwithstanding the foregoing, payment of principal of (and premium, if any) and
interest on Bearer Securities denominated and payable in U.S. dollars will be
made at the office of Holdings' Paying Agent in the Borough of Manhattan, The
City of New York if, and only if, payment of the full amount thereof in U.S.
dollars at all offices or agencies outside the United States is illegal or
effectively precluded by exchange controls or other similar restrictions.
(Section 1002).
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Registered Securities
(other than a Global Security) will be made at the office of such Paying Agent
or Paying Agents as Holdings may designate from time to time, except that at the
option of Holdings payment of any interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 305,
307, 1002). Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any instalment of interest on
7
<PAGE> 47
Registered Securities will be made to the Person in whose name such Registered
Security is registered at the close of business on the Regular Record Date for
such interest payment. (Section 307).
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of each Trustee under the applicable Indenture in The City of
New York will be designated as Holdings' sole Paying Agent for payments with
respect to Debt Securities which are issuable solely as Registered Securities
and as Holdings' Paying Agent in the Borough of Manhattan, The City of New York,
for payments with respect to Debt Securities (subject to the limitations
described above in the case of Bearer Securities) which may be issuable as
Bearer Securities. Any Paying Agents outside the United States and any other
Paying Agents in the United States initially designated by Holdings for the Debt
Securities will be named in an applicable Prospectus Supplement. Holdings may at
any time designate additional Paying Agents or rescind the designation of any
Paying Agents or approve a change in the office through which any Paying Agent
acts, except that, if Debt Securities of a series are issuable only as
Registered Securities, Holdings will be required to maintain a Paying Agent in
each Place of Payment for such series, and if Debt Securities of a series may be
issuable as Bearer Securities, Holdings will be required to maintain (i) a
Paying Agent in the Borough of Manhattan, The City of New York for payments with
respect to any Registered Securities of the series (and for payments with
respect to Bearer Securities of the series in the circumstances described above,
but not otherwise), and (ii) a Paying Agent in a Place of Payment located
outside the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment; provided that
if the Debt Securities of such series are listed on The Luxembourg Stock
Exchange (the "Stock Exchange") or any other stock exchange located outside the
United States and such stock exchange shall so require, Holdings will maintain a
Paying Agent in Luxembourg or any other required city located outside the United
States, as the case may be, for the Debt Securities of such series. (Section
1002).
All moneys paid by Holdings to a Paying Agent for the payment of principal
of (and premium, if any) or interest on any Debt Security which remain unclaimed
at the end of two years after such principal, premium or interest shall have
become due and payable will be repaid to Holdings and the Holder of such Debt
Security or any coupon will thereafter look only to Holdings for payment
thereof. (Section 1003).
LIMITATION ON LIENS
So long as any Debt Securities remain outstanding, unless an applicable
Prospectus Supplement relating thereto provides otherwise, Holdings will not,
and will not permit any Designated Subsidiary (as defined below), directly or
indirectly, to create, issue, assume, incur or guarantee any indebtedness for
money borrowed which is secured by a mortgage, pledge, lien, security interest
or other encumbrance of any nature on any of the present or future common stock
of a Designated Subsidiary unless the Debt Securities and, if Holdings so
elects, any other indebtedness of Holdings ranking at least pari passu with the
Debt Securities, shall be secured equally and ratably with (or prior to) such
other secured indebtedness for money borrowed so long as it is outstanding.
(Section 1005).
The term "Designated Subsidiary" means any present or future consolidated
subsidiary of Holdings, the consolidated net worth of which constitutes at least
5% of the consolidated net worth of Holdings. As of March 31, 1994, Holdings'
Designated Subsidiaries were Lehman Brothers, Lehman Special Securities Inc.,
Lehman Commercial Paper Inc., Lehman Government Securities Inc., Lehman Brothers
Group Inc., Lehman Brothers Holdings PLC, Lehman Brothers UK Holdings Limited,
Lehman Brothers International (Europe), Lehman Brothers Japan Inc., Lehman
Funding Corp., Lehman Brothers Financial Products Inc., Lehman Brothers
Verwaltungs und Beteiligungsgesellschaft mbH and LB I Group Inc.
EVENTS OF DEFAULT
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, the following are Events of Default
under the Indenture with respect to Debt Securities of such series: (a) failure
to pay principal of or premium, if any, on any Debt Security of that series when
due; (b) failure to pay interest, if any, on any Debt Security of that series
and any related coupons when due, continued for 30 days; (c) failure to deposit
any sinking fund payment or analogous obligation, when due, continued for 30
days, in respect of any Debt Security of that series; (d) failure to perform any
other covenant
8
<PAGE> 48
of Holdings in the Indenture (other than a covenant included in the applicable
Indenture solely for the benefit of a series of Debt Securities other than that
series), continued for 90 days after written notice as provided in the
Indenture; (e) certain events in bankruptcy, insolvency or reorganization in
respect of Holdings; and (f) any other Event of Default provided with respect to
Debt Securities of that series. (Section 501). An Event of Default with respect
to a particular series of Debt Securities does not necessarily constitute an
Event of Default with respect to any other series of Debt Securities issued
under the same or another Indenture. The Trustee may withhold notice to the
Holders of any series of Debt Securities of any default with respect to such
series (except in the payment of principal, premium or interest, if any) if it
considers such withholding to be in the interests of such Holders. (Section
602).
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, unless the principal of all of the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Securities,
such portion of the principal amount as may be specified in the terms of the
series) of all the Debt Securities of that series to be due and payable
immediately. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained and entered, the Holders of a majority
in principal amount of the outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration. (Section 502). For
information as to waiver of defaults, see "Meetings, Modification and Waiver."
Each Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under such Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Section 603). Subject to such
provisions for indemnification of the Trustee, the Holders of a majority in
principal amount of the outstanding Debt Securities of any series will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Debt Securities of that series. (Section 512).
Holdings will be required to furnish to each Trustee annually a statement
as to the performance by Holdings of certain of its obligations under the
applicable Indenture and as to any default in such performance. (Section 1006).
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, each Indenture provides that Holdings
shall be discharged from its obligations under the Debt Securities of such
series (with certain exceptions) at any time prior to the Stated Maturity or
redemption thereof when (a) Holdings has irrevocably deposited with the
applicable Trustee, in trust, (i) sufficient funds in the currency or currency
unit in which the Debt Securities of such series are payable to pay the
principal of (and premium, if any), and interest, if any, to Stated Maturity (or
redemption) on, the Debt Securities of such series, or (ii) such amount of
direct obligations of, or obligations the principal of and interest, if any, on
which are fully guaranteed by, the government which issued the currency in which
the Debt Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series, or (iii) such combination of such funds and securities as
described in (i) and (ii), respectively, as will, together with the
predetermined and certain income to accrue on any such securities as described
in (ii), be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series and (b) Holdings has paid all other sums payable with respect to
the Debt Securities of such series and (c) certain other conditions are met.
Upon such discharge, the Holders of the Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer
9
<PAGE> 49
and exchange of the Debt Securities of such series and replacement of lost,
stolen or mutilated Debt Securities, and shall look only to such deposited funds
or obligations for payment. (Sections 401 and 403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, Holdings may
omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms"), Section 1005 ("Limitations on Liens
on Common Stock of Designated Subsidiaries") and any other specified covenant
and any such omission with respect to such Sections shall not be an Event of
Default with respect to the Debt Securities of such series, if (a) Holdings has
irrevocably deposited with the applicable Trustee, in trust, (i) sufficient
funds in the currency or currency unit in which the Debt Securities of such
series are payable to pay the principal of (and premium, if any), and interest,
if any, to Stated Maturity (or redemption) on, the Debt Securities of such
series, or (ii) such amount of direct obligations of, or obligations the
principal of and interest, if any, on which are fully guaranteed by, the
government which issued the currency in which the Debt Securities of such series
are payable and which are not subject to prepayment, redemption or call, as
will, together with the predetermined and certain income to accrue thereon
without consideration of any reinvestment thereof, be sufficient to pay when due
the principal of (and premium, if any), and interest, if any, to Stated Maturity
(or redemption) on, the Debt Securities of such series or, (iii) such
combination of such funds and securities as described in (i) and (ii),
respectively, as will, together with the predetermined and certain income to
accrue on any such securities as described in (ii), be sufficient to pay when
due the principal of (and premium, if any), and interest, if any, to Stated
Maturity (or redemption) on, the Debt Securities of such series and (b) certain
other conditions are met. The obligations of Holdings under the Indenture with
respect to the Debt Securities of such series, other than with respect to the
covenants referred to above shall remain in full force and effect. (Section
1009).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by Holdings
and the applicable Trustee with the consent of the Holders of not less than
66 2/3% in principal amount of the Outstanding Debt Securities of each series
issued under such Indenture affected by such modification or amendment;
provided, however, that no such modification or amendment may, without the
consent of the Holder of each Outstanding Debt Security affected thereby, (a)
change the Stated Maturity of the principal of, or any instalment of principal
of or interest, if any, on, any Debt Security, (b) reduce the principal amount
of, or the premium, if any, or interest, if any, on, any Debt Security, (c)
change any obligation of Holdings to pay additional amounts, (d) reduce the
amount of principal of an Original Issue Discount Security payable upon
acceleration of the Maturity thereof, (e) adversely affect the right of
repayment or repurchase, if any, at the option of the Holder, (f) reduce the
amount, or postpone the date fixed for, any payment under any sinking fund or
analogous provision, (g) change the currency or currency unit of payment of
principal of or premium, if any, or interest, if any, on any Debt Security, (h)
change or eliminate the right, if any, to elect payment in a coin or currency or
currency unit other than that in which Debt Securities which are Registered
Securities are denominated or stated to be payable, (i) impair the right to
institute suit for the enforcement of any payment on or with respect to any Debt
Security, (j) reduce the percentage in principal amount of Outstanding Debt
Securities of any series, the consent of the Holders of which is required for
modification or amendment of the applicable Indenture or for waiver of
compliance with certain provisions of the applicable Indenture or for waiver of
certain defaults, (k) reduce the requirements contained in either Indenture for
quorum or voting, or (l) change any obligation of Holdings to maintain an office
or agency in the places and for the purposes required in the applicable
Indenture. (Section 902).
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by Holdings with certain restrictive provisions of the applicable
Indenture. (Section 1007). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series may on behalf of the
Holders of all Debt Securities of that series and any coupons appertaining
thereto waive any past default under the applicable Indenture with respect to
that series, except a default in the
10
<PAGE> 50
payment of the principal of or premium, if any, or interest, if any, on any Debt
Security of that series or in the payment of any sinking fund instalment or
analogous obligation or in respect of a provision which under the applicable
Indenture cannot be modified or amended without the consent of the Holder of
each Outstanding Debt Security of that series affected. (Section 513).
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. A meeting may be called at any time by the applicable
Trustee, and also, upon request, by Holdings or Holders of at least 10% in
principal amount of the Outstanding Debt Securities of such series, in any such
case upon notice given in accordance with "Notices" below. (Section 1302).
Except as limited by the proviso in the second preceding paragraph, any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; provided,
however, that, except as limited by the proviso in the second preceding
paragraph, any resolution with respect to any consent or waiver which may be
given by the Holders of not less than 66 2/3% in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or an
adjourned meeting at which a quorum is present only by the affirmative vote of
66 2/3% in principal amount of the Outstanding Debt Securities of that series;
and provided, further, that, except as limited by the proviso in the second
preceding paragraph, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of Outstanding Debt Securities of a series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of Debt Securities of that series and
the related coupons. The quorum at any meeting called to adopt a resolution, and
at any reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series; provided,
however, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than 66 2/3% in
principal amount of the Outstanding Debt Securities of a series, the persons
holding or representing 66 2/3% in principal amount of the Outstanding Debt
Securities of such series will constitute a quorum (Section 1304).
CONSOLIDATION, MERGER AND SALE OF ASSETS
Holdings may, without the consent of any Holders of Outstanding Debt
Securities, consolidate or merge with or into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate or merge with or into, or transfer or lease its assets substantially
as an entirety to, Holdings, provided that (i) the Person (if other than
Holdings) formed by such consolidation or into which Holdings is merged or which
acquires or leases the assets of Holdings substantially as an entirety is
organized under the laws of any United States jurisdiction and assumes Holdings'
obligations on the Debt Securities and under the Indenture, (ii) after giving
effect to the transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have happened
and be continuing, and (iii) certain other conditions are met. (Section 801).
NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, notices to Holders of Bearer Securities
will be given by publication in a daily newspaper in the English language of
general circulation in The City of New York and in London, and so long as such
Bearer Securities are listed on the Stock Exchange and the Stock Exchange shall
so require, in a daily newspaper of general circulation in Luxembourg or, if not
practical, elsewhere in Western Europe. Such publication is expected to be made
in The Wall Street Journal, the Financial Times and the Luxemburger Wort.
Notices to Holders of Registered Securities will be given by mail to the
addresses of such Holders as they appear in the Security Register. (Sections 101
and 106).
11
<PAGE> 51
TITLE
Title to any temporary global Debt Security or permanent global Debt
Security in bearer form or any Bearer Securities and any coupons appertaining
thereto will pass by delivery. Holdings, each Trustee and any agent of Holdings
or the applicable Trustee may treat the bearer of any Bearer Security and the
bearer of any coupon and the registered owner of any Registered Security as the
absolute owner thereof (whether or not such Debt Security or coupon shall be
overdue and notwithstanding any notice to the contrary) for the purpose of
making payment and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Debt Security or a Debt Security with a mutilated coupon
appertaining thereto will be replaced by Holdings at the expense of the Holder
upon surrender of such Debt Security to the applicable Trustee. Debt Securities
or coupons that become destroyed, stolen or lost will be replaced by Holdings at
the expense of the Holder upon delivery to the applicable Trustee of the Debt
Security and coupons or evidence of the destruction, loss or theft thereof
satisfactory to Holdings and the applicable Trustee; in the case of any coupon
which becomes destroyed, stolen or lost, such coupon will be replaced by
issuance of a new Debt Security in exchange for the Debt Security to which such
coupon appertains. In the case of a destroyed, lost or stolen Debt Security or
coupon an indemnity satisfactory to the applicable Trustee and Holdings may be
required at the expense of the Holder of such Debt Security or coupon before a
replacement Debt Security will be issued. (Section 306).
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between, on
the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the Debt Securities to which an
applicable Prospectus Supplement accompanying this Prospectus relates are
described in such Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Denominations, Registration and Transfer"), or delivered in definitive
form in connection with a sale during the restricted period, in the United
States or to United States persons other than to (a) the United States office of
(i) an international organization (as defined in Section 7701 (a)(18) of the
Code), (ii) a foreign central bank (as defined in Section 895 of the Code), or
(iii) any underwriter, agent, or dealer offering or selling Bearer Securities
during the restricted period (a "Distributor") pursuant to a written contract
with the issuer or with another Distributor, that purchases Bearer Securities
for resale or for its own account and agrees to comply with the requirements of
Section 165 (j)(3)(A), (B), or (C) of the Code, or (b) the foreign branch of a
United States financial institution purchasing for its own account or for
resale, which institution agrees to comply with the requirements of Section 165
(j)(3)(A), (B), or (C) of the Code. In addition, a sale of a Bearer Security may
be made during the restricted period to a United States person who acquired and
holds the Bearer Security on the Certification Date through a foreign branch of
a United States financial institution that agrees to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Code. Any Distributor
(including an affiliate of a Distributor) offering or selling Bearer Securities
during the restricted period must agree not to offer or sell Bearer Securities
in the United States or to United States persons (except as discussed above) and
must employ procedures reasonably designed to ensure that its employees or
agents directly engaged in selling Bearer Securities are aware of these
restrictions.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Section 165(j) and 1287(a) of the
Internal Revenue Code."
12
<PAGE> 52
Purchasers of Bearer Securities may be affected by certain limitations
under United States tax laws. See the applicable Prospectus Supplement for a
summary of material U.S. federal income tax consequences to United States
persons investing in Bearer Securities.
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States and an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source, and "United States" means the United States of America (including the
States and the District of Columbia) and its possessions including Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands. The term "Non-United States Holder" means any Holder which is
not an United States person.
DESCRIPTION OF WARRANTS
The Debt Warrants, Currency Warrants, Index Warrants and Interest Rate
Warrants are to be issued under separate warrant agreements (each a "Warrant
Agreement" and respectively a "Debt Warrant Agreement", a "Currency Warrant
Agreement", an "Index Warrant Agreement" and an "Interest Rate Warrant
Agreement") to be entered into between Holdings and one or more banks or trust
companies, as warrant agent (each a "Warrant Agent" and respectively a "Debt
Warrant Agent", a "Currency Warrant Agent", an "Index Warrant Agent" and an
"Interest Rate Warrant Agent"), all as shall be set forth in the Prospectus
Supplement relating to the Warrants being offered thereby. A form of each type
of Warrant Agreement, including a form of warrant certificate representing each
type of Warrant (each a "Warrant Certificate" and respectively a "Debt Warrant
Certificate", a "Currency Warrant Certificate", an "Index Warrant Certificate"
and an "Interest Rate Warrant Certificate"), reflecting the alternative
provisions that may be included in the Warrant Agreements to be entered into
with respect to particular offerings of Warrants, are incorporated by reference
as exhibits to the Registration Statement of which this Prospectus is a part.
The descriptions contained herein of the Warrant Agreements and the Warrant
Certificates and summaries of certain provisions of the Warrant Agreements and
the Warrant Certificates do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
applicable Warrant Agreements and the Warrant Certificates, including the
definitions therein of certain terms not otherwise defined in this Prospectus.
Wherever particular sections of, or terms defined in, the Warrant Agreements are
referred to, such sections or defined terms are incorporated herein by
reference.
The particular terms of each issue of Warrants, as well as any
modifications or additions to the general terms of the applicable Warrant
Agreement or Warrant Certificate, will be described in the Prospectus Supplement
relating to such Warrants. Accordingly, for a description of the terms of a
particular issue of Warrants, reference must be made to the Prospectus
Supplement relating thereto and to the descriptions set forth below.
DEBT WARRANTS
Holdings may issue, together with Debt Securities, Currency Warrants, Index
Warrants or Interest Rate Warrants, or separately, Debt Warrants for the
purchase of Debt Securities. If any of the Debt Warrants are sold for foreign
currencies or foreign currency units or if any series of Debt Warrants is
exercisable in foreign currencies or foreign currency units, the restrictions,
elections, tax consequences, specific terms and other information with respect
to such issue of Debt Warrants and such currencies or currency units will be set
forth in an applicable Prospectus Supplement relating thereto.
If so specified in the applicable Prospectus Supplement, the Debt Warrants
may, in certain circumstances, be cancelled by Holdings prior to their
expiration date and the holders thereof will be entitled to receive only the
applicable Cancellation Amount. The Cancellation Amount may be either a fixed
amount or an amount that varies during the term of the Debt Warrants in
accordance with a schedule or formula.
13
<PAGE> 53
General
The Prospectus Supplement will describe the terms of any Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the title of such Debt Warrants; (2) the aggregate amount of such
Debt Warrants; (3) the initial offering price of such Debt Warrants; (4) the
exercise price; (5) the currency or currency unit in which the initial offering
price and/or the exercise price of such Debt Warrants is payable; (6) whether
the Debt Warrants are to be issuable in registered or bearer form or both, and
if in bearer form, whether such Debt Warrants may be exchanged for Debt Warrants
in registered form and the circumstances and places for such exchange, if
permitted; (7) if applicable, the title and terms of related Debt Securities
with which such Debt Warrants are issued, the number of such Debt Warrants
issued with each such Debt Security and the date, if any, on and after which
such Debt Warrants and such Debt Securities will be separately transferable; (8)
the title, aggregate principal amount and terms of the Debt Securities
purchasable upon exercise of all of such Debt Warrants; (9) the principal amount
of Debt Securities purchasable upon exercise of each Debt Warrant and the price
at which such principal amount of Debt Securities may be purchased upon such
exercise; (10) the date on which the right to exercise such Debt Warrants shall
commence and the date (the "Debt Warrant Expiration Date") on which such right
shall expire; (11) any minimum number of Debt Warrants which must be exercised
at any one time, other than upon automatic exercise; (12) the maximum number, if
any, of such Debt Warrants that may, subject to election by Holdings, be
exercised by all owners (or by any person or entity) on any day; (13) any
provisions for the automatic exercise of such Debt Warrants; (14) whether and
under what circumstances such Debt Warrants may be cancelled by Holdings prior
to expiration; (15) any other procedures and conditions relating to the exercise
of such Debt Warrants; (16) the identity of the Debt Warrant Agent; (17) any
national securities exchange on which such Debt Warrants will be listed; (18)
provisions, if any, for issuing such Debt Warrants in certificated form; (19) if
applicable, a discussion of certain United States federal income tax, accounting
or other special considerations applicable thereto; and (20) any other terms of
the Debt Warrants.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and, if in registered form, may be
presented for registration of transfer and Debt Warrants may be exercised at the
corporate trust office of the Debt Warrant Agent or any other office indicated
in the Prospectus Supplement relating thereto (Section 3.1). Prior to the
exercise of Debt Warrants, holders of Debt Warrants will not be entitled to
payments of principal of (or premium, if any) or interest, if any, on the Debt
Securities purchasable upon such exercise, or to enforce any of the covenants in
the applicable Indenture (Section 4.1).
Exercise of Debt Warrants
Unless otherwise provided in the Prospectus Supplement, each Debt Warrant
will entitle the holder thereof to purchase for cash such principal amount of
Debt Securities at such exercise price as shall in each case be set forth in, or
be determinable as set forth in, the Prospectus Supplement relating to the Debt
Warrants offered thereby (Sections 2.1). Debt Warrants may be exercised at any
time up to the close of business on the Debt Warrant Expiration Date specified
in the Prospectus Supplement relating to the Debt Warrants offered thereby.
After the close of business on the Debt Warrant Expiration Date (or such later
date to which such Debt Warrant Expiration Date may be extended by Holdings),
unexercised Debt Warrants will become void (Section 2.2).
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, Holdings will, as soon as practicable, forward to the
person entitled thereto the Debt Securities purchasable upon such exercise. If
fewer than all of the Debt Warrants represented by such Debt Warrant Certificate
are exercised, a new Debt Warrant Certificate will be issued for the remaining
amount of Debt Warrants (Section 2.3).
14
<PAGE> 54
Other Information
Other important information concerning Debt Warrants is set forth below
under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger,
Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by
Beneficial Owner; Governing Law" and"-- Unsecured Obligations of a Holding
Company".
CURRENCY WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Index
Warrants or Interest Rate Warrants, or separately, Currency Warrants (a) in the
form of Currency Put Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value (as shall be defined in the
Prospectus Supplement) of the right to sell a specified amount of one currency
(whether U.S. dollars or a foreign currency or foreign currency unit) (a "Base
Currency") for a specified amount of a different currency (whether U.S. dollars
or a foreign currency or foreign currency unit) (a "Reference Currency"), (b) in
the form of Currency Call Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value of the right to purchase a
specified amount of a Base Currency for a specified amount of a Reference
Currency, or (c) in such other form as shall be specified in the related
Prospectus Supplement. The Prospectus Supplement for an issue of Currency
Warrants will set forth the formula pursuant to which the Currency Warrant Cash
Settlement Value will be determined, including any multipliers, if
applicable.
The Prospectus Supplement will describe the terms of any Currency Warrants
offered thereby, the Currency Warrant Agreement relating to such Currency
Warrants and the Currency Warrant Certificates representing such Currency
Warrants, including the following: (1) the title of such Currency Warrants; (2)
the aggregate amount of such Currency Warrants; (3) the initial offering price
of such Currency Warrants; (4) the exercise price, if any; (5) the currency or
currency unit in which the initial offering price, the exercise price, if any,
and the Currency Warrant Cash Settlement Value of such Currency Warrants is
payable; (6) the Base Currency and the Reference Currency for such Currency
Warrants; (7) whether such Currency Warrants shall be Currency Put Warrants,
Currency Call Warrants or otherwise; (8) the formula for determining the
Currency Warrant Cash Settlement Value, if applicable, of each Currency Warrant;
(9) whether and under what circumstances a minimum and/or maximum expiration
value is applicable upon the expiration or exercise of such Currency Warrants;
(10) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (11) the date on which the right to exercise such
Currency Warrants shall commence and the date (the "Currency Warrant Expiration
Date") on which such right shall expire; (12) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; (13) the maximum number, if any, of such Currency Warrants that may,
subject to election by Holdings, be exercised by all owners (or by any person or
entity) on any day; (14) any provisions for the automatic exercise of such
Currency Warrants other than at expiration; (15) whether and under what
circumstances such Currency Warrants may be cancelled by Holdings prior to their
expiration date; (16) any other procedures and conditions relating to the
exercise of such Currency Warrants; (17) the identity of the Currency Warrant
Agent; (18) any national securities exchange on which such Currency Warrants
will be listed; (19) provisions, if any, for issuing such Currency Warrants in
certificated form; (20) if such Currency Warrants are not issued in book-entry
form, the place or places at which payments in respect of such Currency Warrants
are to be made by Holdings; (21) if applicable, a discussion of certain United
States federal income tax, accounting or other special considerations applicable
thereto; and (22) any other terms of the Currency Warrants.
Other important information concerning Currency Warrants is set forth below
under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger,
Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by
Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a Holding
Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and
Interest Rate Warrants -- Exercise of Warrants", "-- Market Disruption and Force
Majeure Events" and "-- Settlement Currency", "-- Listing".
15
<PAGE> 55
INDEX WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Interest Rate Warrants, or separately, Index Warrants (a) in the
form of Index Put Warrants, entitling the owners thereof to receive from
Holdings the Index Cash Settlement Value (as shall be defined in the Prospectus
Supplement) in cash, which amount will be determined by reference to the amount,
if any, by which the Fixed Amount (as shall be defined in the Prospectus
Supplement) at the time of exercise exceeds the Index Value (as shall be defined
in the Prospectus Supplement), (b) in the form of Index Call Warrants, entitling
the owners thereof to receive from Holdings the Index Cash Settlement Value in
cash, which amount will be determined by reference to the amount, if any, by
which the Index Value at the time of exercise exceeds the Fixed Amount, (c) in
the form of Index Spread Warrants, entitling the owners thereof to receive from
Holdings the Index Cash Settlement Value in cash, which amount will be
determined by reference to the amount, if any, by which the Reference Index
Value (as shall be defined in the Prospectus Supplement) at the time of exercise
exceeds the Base Index Value (as shall be defined in the Prospectus Supplement)
or (d) in such other form as shall be specified in the related Prospectus
Supplement. The Prospectus Supplement for an issue of Index Warrants will set
forth the formula pursuant to which the Index Cash Settlement Value will be
determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of Index Warrants offered
thereby, the Index Warrant Agreement relating to such Index Warrants and the
Index Warrant Certificate representing such Index Warrants, including the
following: (1) the title of such Index Warrants; (2) the aggregate amount of
such Index Warrants; (3) the initial offering price of such Index Warrants; (4)
the exercise price, if any; (5) the currency or currency unit in which the
initial offering price, the exercise price, if any, and the Index Cash
Settlement Value of such Index Warrants is payable; (6) the Index or Indices for
such Index Warrants, which may be based on one or more U.S. or foreign stocks,
bonds, or other securities, one or more U.S. or foreign interest rates, one or
more currencies or currency units, or any combination of the foregoing, and may
be a preexisting U.S. or foreign index compiled and published by a third party
or an index based on one or more securities, interest rates or currencies
selected by Holdings solely in connection with the issuance of such Index
Warrants, and certain information regarding such Index or Indices and the
underlying securities, interest rates or currencies (including, to the extent
possible, the policies of the publisher of the Index with respect to additions,
deletions and substitutions of such securities, interest rates or currencies);
(7) whether such Index Warrants shall be Index Put Warrants, Index Call
Warrants, Index Spread Warrants or otherwise; (8) the method of providing for a
substitute Index or Indices or otherwise determining the amount payable in
connection with the exercise of such Index Warrants if any Index changes or
ceases to be made available by its publisher; (9) the formula for determining
the Index Cash Settlement Value, if applicable, of each Index Warrant; (10)
whether and under what circumstances a minimum and/or maximum expiration value
is applicable upon the expiration or exercise of such Index Warrants; (11) the
effect or effects, if any, of the occurrence of a Market Disruption Event or
Force Majeure Event; (12) the date on which the right to exercise such Index
Warrants shall commence and the date (the "Index Warrant Expiration Date") on
which such right shall expire; (13) any minimum number of Index Warrants which
must be exercised at any one time, other than upon automatic exercise; (14) the
maximum number, if any, of such Index Warrants that may, subject to election by
Holdings, be exercised by all owners (or by any person or entity) on any day;
(15) any provisions for the automatic exercise of such Index Warrants other than
at expiration; (16) whether and under what circumstances such Index Warrants may
be cancelled by Holdings prior to their expiration date; (17) any provisions
permitting a Holder to condition any notice of exercise on the absence of
certain specified changes in the Index Value, the Base Index Value or the
Reference Index Value after the date of exercise; (18) any other procedures and
conditions relating to the exercise of such Index Warrants; (19) the identity of
the Index Warrant Agent; (20) any national securities exchange on which such
Index Warrants will be listed; (21) provisions, if any, for issuing such Index
Warrants in certificated form; (22) if such Index Warrants are not issued in
book-entry form, the place or places at which payments in respect of such Index
Warrants are to be made by Holdings; (23) if applicable, a discussion of certain
United States federal income tax, accounting or other special considerations
applicable thereto; and (24) any other terms of such Index Warrants.
16
<PAGE> 56
Other important information concerning Index Warrants is set forth below
under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger,
Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by
Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a Holding
Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and
Interest Rate Warrants -- Exercise of Warrants", "-- Market Disruption and Force
Majeure Events", "-- Settlement Currency", "-- Listing".
INTEREST RATE WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Index Warrants or, separately, Interest Rate Warrants (a) in the
form of Interest Rate Put Warrants, entitling the owners thereof to receive from
Holdings the Interest Rate Cash Settlement Value (as shall be defined in the
Prospectus Supplement) in cash, which amount will be determined by reference to
the amount, if any, by which the Spot Amount (as shall be defined in the
Prospectus Supplement) is less than the Strike Amount (as shall be defined in
the Prospectus Supplement) on the applicable valuation date following exercise,
(b) in the form of Interest Rate Call Warrants, entitling the owners thereof to
receive from Holdings the Interest Rate Cash Settlement Value in cash, which
amount will be determined by reference to the amount, if any, by which the Spot
Amount on the applicable valuation date following exercise exceeds the Strike
Amount or (c) in such other form as shall be specified in the related Prospectus
Supplement. The Prospectus Supplement for an issue of Interest Rate Warrants
will set forth the formula pursuant to which the Interest Rate Cash Settlement
Value will be determined, including any multipliers, if applicable. The Strike
Amount may either be a fixed yield, price or rate of a Debt Instrument, a Rate
or any combination of Debt Instruments and/or Rates or a yield, price or rate
that varies during the term of the Interest Rate Warrants in accordance with a
schedule or formula. The Debt Instrument will be one or more instruments
specified in the applicable Prospectus Supplement issued either by the United
States government or by a foreign government. The Rate will be one or more
interest rates or interest rate swap rates established from time to time by one
or more financial institutions specified in the applicable Prospectus
Supplement.
The Prospectus Supplement will describe the terms of Interest Rate Warrants
offered thereby, the Interest Rate Warrant Agreement relating to such Interest
Rate Warrants and the Interest Rate Warrant Certificate representing such
Interest Rate Warrants, including the following: (1) the title of such Interest
Rate Warrants, (2) the aggregate amount of such Interest Rate Warrants; (3) the
initial offering price of such Interest Rate Warrants; (4) the exercise price,
if any; (5) the currency or currency unit in which the initial offering price,
the exercise price, if any, and the Interest Rate Cash Settlement Value of such
Interest Rate Warrants is payable; (6) the Debt Instrument (which may be one or
more debt instruments issued either by the United States government or by a
foreign government), the Rate (which may be one or more interest rates or
interest rate swap rates established from time to time by one or more specified
financial institutions) or the other yield, price or rate utilized for such
Interest Rate Warrants, and certain information regarding such Debt Instrument
or Rate; (7) whether such Interest Rate Warrants shall be Interest Rate Put
Warrants, Interest Rate Call Warrants or otherwise; (8) the Strike Amount, the
method of determining the Spot Amount and the method of expressing movements in
the yield or closing price of the Debt Instrument or in the level of the Rate as
a cash amount in the currency in which the Interest Rate Cash Settlement Value
of such Warrants is payable; (9) the formula for determining the Interest Rate
Cash Settlement Value, if applicable, of each Interest Rate Warrant; (10)
whether and under what circumstances a minimum and/or maximum expiration value
is applicable upon the expiration or exercise of such Interest Rate Warrants;
(11) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (12) the date on which the right to exercise such
Interest Rate Warrants shall commence and the date (the "Interest Rate Warrant
Expiration Date") on which such right shall expire; (13) any minimum number of
Interest Rate Warrants which must be exercised at any one time, other than upon
automatic exercise; (14) the maximum number, if any, of such Interest Rate
Warrants that may, subject to election by Holdings, be exercised by all owners
(or by any person or entity) on any day; (15) any provisions for the automatic
exercise of such Interest Rate Warrants other than at expiration; (16) whether
and under what circumstances such Interest Rate Warrants may be cancelled by
Holdings prior to their expiration date; (17) any provisions permitting a Holder
to condition any notice of exercise on the absence of certain specified changes
in the Spot Amount after the date
17
<PAGE> 57
of exercise; (18) any other procedures and conditions relating to the exercise
of such Interest Rate Warrants; (19) the identity of the Interest Rate Warrant
Agent; (20) any national securities exchange on which such Interest Rate
Warrants will be listed; (21) provisions, if any, for issuing such Interest Rate
Warrants in certificated form; (22) if such Interest Rate Warrants are not
issued in book-entry form, the place or places at which payments in respect of
such Interest Rate Warrants are to be made by Holdings; (23) if applicable, a
discussion of certain United States federal income tax, accounting or other
special considerations applicable thereto; and (24) any other terms of such
Interest Rate Warrants.
Other important information concerning Interest Rate Warrants is set forth
below under "Certain Items Applicable to All Warrants -- Modifications",
"-- Merger, Consolidation, Sale or Other Dispositions", "-- Enforceability of
Rights by Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a
Holding Company" and "Certain Items Applicable to Currency Warrants, Index
Warrants and Interest Rate Warrants -- Exercise of Warrants", "-- Market
Disruption and Force Majeure Events", "-- Settlement Currency", "-- Listing".
CERTAIN ITEMS APPLICABLE TO ALL WARRANTS
Modifications
Each Warrant Agreement and the terms of each issue of Warrants may be
amended by Holdings and the applicable Warrant Agent, without the consent of the
beneficial owners or the registered holders, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained therein, or in any other manner which Holdings
may deem necessary or desirable and which will not adversely affect the
interests of the beneficial owners of the then outstanding unexercised Warrants
in any material respect (Section 6.1).
Holdings and each Warrant Agent also may modify or amend the applicable
Warrant Agreement and the terms of the related Warrants, with the consent of the
beneficial owners of not less than a majority in number of the then outstanding
unexercised Warrants affected, provided that no such modification or amendment
that reduces the amount receivable upon exercise, cancellation or expiration,
shortens the period of time during which the Warrants may be exercised or
otherwise materially and adversely affects the exercise rights of the beneficial
owners of the Warrants or reduces the percentage number of outstanding Warrants
the consent of whose beneficial owners is required for modification or amendment
of the applicable Warrant Agreement or the terms of the Warrants may be made
without the consent of the beneficial owners affected thereby (Section 6.1).
Merger, Consolidation, Sale or Other Dispositions
If at any time there is a merger or consolidation involving Holdings or a
sale, transfer, conveyance or other disposition of all or substantially all of
the assets of Holdings, then in any such event the successor or assuming
corporation shall succeed to and be substituted for Holdings, with the same
effect as if it had been named in the applicable Warrant Agreement and in the
applicable Warrants as Holdings. Holdings shall thereupon be relieved of any
further obligation under such Warrant Agreement or under such Warrants, and, in
the event of any such merger, consolidation, sale, transfer, conveyance or other
disposition, Holdings as the predecessor corporation may thereupon or at any
time thereafter be dissolved, wound up or liquidated (Section 6.2 of the Debt
Warrant Agreement and Section 3.2 of each other Warrant Agreement).
Enforceability of Rights by Beneficial Owner; Governing Law
Each Warrant Agent will act solely as an agent of Holdings in connection
with the issuance and exercise of the applicable Warrants and will not assume
any obligation or relationship of agency or trust for or with any owner of a
beneficial interest in any Warrant or with the registered holder thereof
(Section 5.2). A Warrant Agent shall have no duty or responsibility in case of
any default by Holdings in the performance of its obligations under the
applicable Warrant Agreement or Warrant Certificate including, without
limitation, any duty or responsibility to initiate any proceedings at law or
otherwise or to make any demand upon Holdings (Section 5.2). Beneficial owners
may, without the consent of the applicable Warrant Agent, enforce by
18
<PAGE> 58
appropriate legal action, on their own behalf, their right to exercise their
Warrants, to receive Debt Securities, in the case of Debt Warrants, and to
receive payment, if any, for their Warrants, in the case of Currency Warrants,
Index Warrants or Interest Rate Warrants (Section 4.2 of the Debt Warrant
Agreement and Section 3.1 of each other Warrant Agreement). Except as may
otherwise be provided in the Prospectus Supplement relating thereto, each issue
of Warrants and the applicable Warrant Agreement will be governed by and
construed in accordance with the law of the State of New York (Section 6.5).
Unsecured Obligations of a Holding Company
The Warrants are unsecured obligations of Holdings and, therefore, changes
in the perceived creditworthiness of Holdings may be expected to affect trading
prices in Warrants. Since Holdings, as a holding company, does not have any
significant assets other than the equity securities of its subsidiaries, its
cash flow and consequent ability to satisfy its financial obligations, including
Warrants, are dependent upon the earnings of its subsidiaries and the
distribution of those earnings to Holdings, or upon loans or other payments of
funds by those subsidiaries to Holdings. Holdings' subsidiaries, including
Lehman Brothers, are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any amount in respect of Warrants or
to make any funds available therefor, whether by dividends, loans or other
payments. Dividends, loans and other payments by Lehman Brothers are restricted
by net capital and other rules of various regulatory bodies. See "Capital
Requirements." The payment of dividends by Holdings' subsidiaries is contingent
upon the earnings of those subsidiaries and is subject to various business
considerations in addition to net capital requirements and contractual
restrictions. Additionally, since Warrants will be obligations of a holding
company, the ability of holders of Warrants to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
CERTAIN ITEMS APPLICABLE TO CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE
WARRANTS
Exercise of Warrants
Except as may otherwise be provided in the applicable Prospectus Supplement
relating thereto, (a) each Currency Warrant, Index Warrant and Interest Rate
will entitle the owner, upon payment of the exercise price, if any, to the
applicable Cash Settlement Value of such Warrant, on the applicable Exercise
Date, in each case as such terms will further be defined in the applicable
Prospectus Supplement relating thereto (Section 2.2) and (b) if not exercised
prior to 1:30 p.m., New York City time, on the Business Day preceding the
applicable Warrant Expiration Date, the Warrants will be deemed automatically
exercised on such Warrant Expiration Date (Section 2.3). As described below,
Currency Warrants, Index Warrants and Interest Rate Warrants may also be deemed
to be automatically exercised if they are delisted. Procedures for exercise of
the Currency Warrants, Index Warrants and Interest Rate Warrants will be set out
in the applicable Prospectus Supplement.
Market Disruption and Force Majeure Events
If so specified in the applicable Prospectus Supplement, following the
occurrence of a Market Disruption Event or Force Majeure Event (as each term
shall be defined therein), the Cash Settlement Value of a Currency Warrant, an
Index Warrant or an Interest Rate Warrant may be determined on a different basis
than under normal exercise of a Warrant or the determination of the applicable
Cash Settlement Value. In addition, if so specified in the applicable Prospectus
Supplement, Currency Warrants, Index Warrants and Interest Rate Warrants may, in
certain circumstances, be cancelled by Holdings prior to their expiration date
and the holders thereof will be entitled to receive only the applicable
Cancellation Amount. The Cancellation Amount may be either a fixed amount or an
amount that varies during the term of the Warrants in accordance with a schedule
or formula.
19
<PAGE> 59
Settlement Currency
Currency Warrants, Index Warrants and Interest Rate Warrants will be
settled only in U.S. dollars (unless settlement in a foreign currency is
specified in the applicable Prospectus Supplement and is permissible under
applicable) law and accordingly will not require or entitle an owner to sell,
deliver, purchase or take delivery of the currency, security or other instrument
underlying such Warrants. If any of the Currency Warrants, Index Warrants or
Interest Rate Warrants are sold for, or if the exercise price, if any, is
payable in, foreign currencies or foreign currency units or if the amount
payable by Holdings in respect of any series of Currency Warrants, Index
Warrants or Interest Rate Warrants is payable in foreign currencies or foreign
currency units, the restrictions, elections, tax consequences, specific terms
and other information with respect to such issue of Warrants and such currencies
or currency units will be set forth in an applicable Prospectus Supplement
relating thereto.
Listing
Unless otherwise provided in the Prospectus Supplement, each issue of
Currency Warrants, Index Warrants and Interest Rate Warrants will be listed on a
national securities exchange, as specified in the applicable Prospectus
Supplement, subject only to official notice of issuance, as a pre-condition to
the sale of any such Warrants. It may be necessary in certain circumstances for
such national securities exchange to obtain the approval of the SEC in
connection with any such listing. In the event that the such Warrants are
delisted from, or permanently suspended from trading on, such exchange, and, at
or prior to such delisting or suspension, such Warrants shall not have been
listed on another national securities exchange, any such Warrants not previously
exercised will be deemed automatically exercised on the date such delisting or
permanent trading suspension becomes effective (Section 2.3). The applicable
Cash Settlement Value to be paid in such event will be as set forth in the
applicable Prospectus Supplement. Holdings will notify holders of such Warrants
as soon as practicable of such delisting or permanent trading suspension. The
applicable Warrant Agreement will contain a covenant of Holdings not to seek
delisting of such Warrants from, or permanent suspension of their trading on,
such exchange (Section 2.4 of the Currency Warrant Agreement and the Interest
Rate Warrant Agreement and Section 2.5 of the Index Warrant Agreement).
GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in the form of
one or more Global Securities that will be deposited with or on behalf of a
depository (a "Depository") identified in the Prospectus Supplement relating to
such series. Global Securities representing Debt Securities or Debt Warrants may
be issued in either registered or bearer form. Global Securities representing
Currency Warrants, Index Warrants or Interest Rate Warrants will be issued in
registered form only. Global Securities may be issued in either temporary or
permanent form.
The specific terms of the depository arrangement with respect to any
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depository arrangements.
Unless otherwise specified in an applicable Prospectus Supplement,
Securities which are to be represented by a Global Security in registered form
to be deposited with or on behalf of a Depository will be registered in the name
of such Depository or its nominee. Upon the issuance of a Global Security in
registered form, the Depository for such Global Security will credit the
respective principal amounts, in the case of Debt Securities, and the respective
number of warrants, in the case of Warrants represented by such Global Security
to the accounts of institutions that have accounts with such Depository or its
nominee ("participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Securities or by Holdings, if such Securities are
offered and sold directly by Holdings. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that
20
<PAGE> 60
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depository for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Securities represented by such Global Security for all purposes under the
applicable Indenture, in the case of Debt Securities, or under the applicable
warrant agreement, in the case of Warrants, governing such Securities. Except as
set forth below, owners of beneficial interests in such Global Security will not
be entitled to have Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Securities of such series in definitive form and will not be
considered the owners or holders thereof under the applicable Indenture, in the
case of Debt Securities, or under the applicable warrant agreement, in the case
of Warrants.
Payments in respect of Securities registered in the name of or held by a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner or the holder of the Global Security. None
of Holdings, the applicable Trustee or Warrant agent, any Paying Agent or any
Security Registrar for such Securities will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Holdings expects that the Depository for a permanent Global Security in
registered form, upon receipt of any payment in respect of a permanent Global
Security, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in such Global
Security as shown on the records of such Depository. Holdings also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
A Global Security in registered form may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such Depository
or by a nominee of such Depository to such Depository or another nominee of such
Depository or by such Depository or any such nominee to a successor of such
Depository or a nominee of such successor. If a Depository for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as Depository and a successor Depository is not appointed by Holdings
within 90 days, Holdings will issue Securities in definitive registered form in
exchange for the Global Security representing such Securities. In addition,
Holdings may at any time and in its sole discretion determine not to have any
Securities in registered form represented by one or more Global Securities and,
in such event, will issue Securities in definitive form in exchange for all of
the Global Securities representing such Securities. Further, if Holdings so
specifies with respect to the Securities of a series, an owner of a beneficial
interest in a Global Security representing Securities of such series may, on
terms acceptable to Holdings and the Depository for such Global Security,
receive Securities of such series in definitive form. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to physical
delivery in definitive form of Securities of the series represented by such
Global Security equal in principal amount, in the case of Debt Securities, or
number, in the case of Warrants, to such beneficial interest and to have such
Securities registered in its name (if the Securities of such series are issuable
as registered securities). Unless otherwise specified by Holdings, Securities of
such series so issued in definitive form will be issued either as registered or
bearer securities (if the Securities of such series are issuable in such form)
and in authorized denominations, in the case of Debt Securities, or in
authorized numbers, in the case of Warrants, as specified in the applicable
Prospectus Supplement. See, however, "Description of Debt
Securities -- Limitations on Issuance of Bearer Securities" above for a
description of certain restrictions on the issuance of a Bearer Security in
definitive form in exchange for an interest in a Global Security.
BEARER DEBT SECURITIES
If so specified in an applicable Prospectus Supplement, pending the
availability of a permanent Global Security, all or any portion of the Debt
Securities of a series which may be issuable as bearer securities will
21
<PAGE> 61
initially be represented by one or more temporary Global Securities, without
interest coupons, to be deposited with a common depositary in London for Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euro-clear System ("Euro-clear") and Centrale de Livraison de Valeurs
Mobilieres, S.A. ("CEDEL") for credit to the designated accounts. The interests
of the beneficial owner or owners in such a temporary Global Security in bearer
form will be exchangeable for definitive Debt Securities (including interests in
a permanent Global Security in bearer form), representing Debt Securities having
the same interest rate and Stated Maturity, but only upon written certification
in the form and to the effect described under "Description of Debt
Securities-Denominations, Registration and Transfer" unless such certification
has been provided on an earlier interest payment date. The beneficial owner of a
Debt Security represented by a temporary Global Security in bearer form or a
permanent Global Security in bearer form may, on or after the applicable
exchange date and upon 30 days' notice to the applicable Trustee given through
Euro-clear or CEDEL, exchange its interest for definitive bearer Debt Securities
or, if specified in an applicable Prospectus Supplement, definitive registered
Debt Securities of any authorized denomination. No bearer Debt Security
delivered in exchange for a portion of a temporary Global Security or a
permanent Global Security shall be mailed or otherwise delivered to any location
in the United States in connection with such exchange.
Unless otherwise specified in an applicable Prospectus Supplement, interest
in respect of any portion of such a temporary Global Security in bearer form
payable in respect of an Interest Payment Date occurring prior to the issuance
of a permanent Global Security in bearer form will be paid to each of Euro-clear
and CEDEL with respect to the portion of the temporary Global Security in bearer
form held for its account. Each of Euro-clear and CEDEL will undertake in such
circumstances to credit such interest received by it in respect of a temporary
Global Security in bearer form to the respective accounts for which it holds
such temporary Global Security in bearer form as of the relevant Interest
Payment Date, but only upon receipt in each case of written certification, in
the form and to the effect described under "Description of Debt
Securities-Denomination, Registration and Transfer."
UNITED STATES TAXATION
A summary of the material U.S. federal income tax consequences to U.S.
persons investing in Securities will be set forth in the applicable Prospectus
Supplement. The summary of U.S. federal income tax consequences contained in the
Prospectus Supplement will be presented for informational purposes only,
however, and will not be intended as legal or tax advice to prospective
purchasers. Prospective purchasers of Securities are urged to consult their own
tax advisors prior to any acquisition of Securities.
CAPITAL REQUIREMENTS
As registered broker-dealers, Lehman Brothers and certain of Holdings'
other subsidiaries (the "Regulated Subsidiaries") are subject to the SEC's net
capital rule (Rule 15c3-1, the "Net Capital Rule"), promulgated under the
Exchange Act. The Exchange monitors the application of the Net Capital Rule by
Lehman Brothers. The Exchange or the NASD, as the case may be, monitors the
application of the Net Capital Rule by the Regulated Subsidiaries. Lehman
Brothers and such Regulated Subsidiaries compute net capital under the
alternative method of the Net Capital Rule which requires the maintenance of
minimum net capital, as defined. A broker-dealer may be required to reduce its
business if its net capital is less than 4% of aggregate debit balances and may
also be prohibited from expanding its business or paying cash dividends if
resulting net capital would be less than 5% of aggregate debit balances. In
addition, the Net Capital Rule does not allow withdrawal of subordinated capital
if net capital would be less than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule equity capital can not be withdrawn from a broker-dealer without
the prior approval of the SEC when net capital after the withdrawal would be
less than 25% of its securities positions haircuts (which are deductions from
capital of certain specified percentages of the market value of securities to
reflect the possibility of a market decline prior to disposition). In addition,
the Net Capital Rule requires broker-dealers to notify the SEC and the
appropriate self-regulatory organization two business days before a withdrawal
of excess net capital if the withdrawal would exceed the greater of
22
<PAGE> 62
$500,000 or 30% of the broker-dealer's excess net capital, and two business days
after a withdrawal that exceeds the greater of $500,000 or 20% of excess net
capital. Finally, the Net Capital Rule authorizes the SEC to order a freeze on
the transfer of capital if a broker-dealer plans a withdrawal of more than 30%
of its excess net capital and the SEC believes that such a withdrawal would be
detrimental to the financial integrity of the firm or would jeopardize the
broker-dealer's ability to pay its customers.
Compliance with the Net Capital Rule could limit those operations of Lehman
Brothers and the Regulated Subsidiaries that require the intensive use of
capital, such as underwriting and trading activities and the financing of
customer account balances, and also could restrict Holdings' ability to withdraw
capital from Lehman Brothers and the Regulated Subsidiaries which in turn could
limit Holdings' ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding capital stock.
The Company is subject to other domestic and international regulatory
requirements with which it is required to comply.
PLAN OF DISTRIBUTION
Holdings may sell Securities in any one or more of the following ways: (i)
through, or through underwriting syndicates managed by, Lehman Brothers alone or
with one or more other underwriters; (ii) through one or more dealers or agents
(which may include Lehman Brothers); or (iii) directly to one or more
purchasers. The specific managing underwriter or underwriters or agent or agents
with respect to the offer and sale of Securities are set forth on the cover of a
Prospectus Supplement relating to such Securities and the members of the
underwriting syndicate, if any, are named in such Prospectus Supplement. Only
the underwriters or agents so named in a Prospectus Supplement are underwriters
or agents, respectively, in connection with such Securities. The applicable
Prospectus Supplement also describes the discounts and commissions to be allowed
or paid to the underwriters or agents, all other items constituting underwriting
or agency compensation, the discounts and commissions to be allowed or paid to
dealers, if any, and the exchanges, if any, on which such Securities will be
listed.
Securities acquired by any underwriter will be acquired for its own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of the underwriters to purchase
such Securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all such Securities if any of such
Securities are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time. To the extent, if any, that Securities to be purchased by Lehman Brothers,
as underwriter, are not resold by it or are not resold at the public offering
price set forth in an applicable Prospectus Supplement, the funds derived from
such offering by the Company on a consolidated basis may be reduced.
If so indicated in an applicable Prospectus Supplement, Holdings will
authorize the underwriters named therein to solicit offers by certain
institutional investors to purchase Securities providing for payment and
delivery on a future date specified in an applicable Prospectus Supplement.
There may be limitations on the minimum amount which may be purchased by any
such institutional investor or on the portion of the aggregate proceeds to
Holdings of the particular Securities which may be sold pursuant to such
arrangements. Institutional investors to which such offers may be made, when
authorized, include commercial and savings banks, insurance companies, pension
funds, educational charitable institutions and such other institutions as may be
approved by Holdings. The obligations of any such purchasers pursuant to such
delayed delivery and payment arrangements will not be subject to any conditions
except (i) the purchase by an institution of the particular Securities shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (ii) Holdings shall have
sold to such underwriters all of such Securities less the amount of such
securities covered by such arrangements. Underwriters named therein will not
have any responsibility in respect of the validity of such arrangements or the
performance of Holdings or such institutional investors thereunder.
23
<PAGE> 63
Each distributor of Bearer Securities will agree that it will not offer or
sell during the restricted period, directly or indirectly, Bearer Securities in
the United States or to United States persons (other than as discussed under
"Description of Debt Securities -- Limitations on Issuance of Bearer
Securities") and in connection with the sale of Bearer Securities during the
restricted period, will not deliver definitive Bearer Securities within the
United States. See "Description of Debt Securities -- Limitations on Issuance of
Bearer Securities."
Each underwriter or agent will represent and agree that (i) it has not
offered or sold and will not offer or sell in the United Kingdom, by means of
any document, any Securities other than to persons whose ordinary business it is
to buy or sell shares or debentures, whether as principal or agent (except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985); (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the Securities if that person is of a kind
described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988.
The underwriters and agents named in an applicable Prospectus Supplement
may be entitled under agreements entered into with Holdings to indemnification
by Holdings against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the
underwriters and agents may be required to make in respect thereof. The
underwriters and agents may engage in transactions with, or perform services
for, Holdings in the ordinary course of business.
Holdings has been advised by Lehman Brothers that Lehman Brothers may from
time to time purchase and sell Securities in the secondary market. Each offering
of Securities and any market-making activities by Lehman Brothers with respect
to Securities will be conducted in compliance with the requirements of Schedule
E of the By-Laws of the NASD regarding an NASD member firm's participation in
distributing its affiliate's securities. Lehman Brothers may act as principal or
agent in such transactions. This Prospectus may be used by Lehman Brothers in
connection with such transactions. Such sales, if any, will be made at varying
prices related to prevailing market prices at the time of sale. Lehman Brothers
is not obligated to make a market in any Securities and may discontinue any
market-making activities at any time without notice. No assurance can be given
that there will be a secondary market for the Securities.
ERISA MATTERS
Each of Holdings and Lehman Brothers may be considered a "party in
interest" within the meaning of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and a "disqualified person" under corresponding
provisions of the Code, with respect to certain employee benefit plans. Certain
transactions between an employee benefit plan and a party in interest or
disqualified person may result in "prohibited transactions" within the meaning
of ERISA and the Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE
SECURITIES SHOULD CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement relating
to offered Securities, the validity of the Securities offered hereby will be
passed upon for Holdings by David Marcus, Esq., General Counsel of Holdings and
for the underwriters or agents by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), 425 Lexington Avenue, New York, New
York 10017. Simpson Thacher & Bartlett acts as counsel in various matters for
Holdings, Lehman Brothers and certain of their subsidiaries.
24
<PAGE> 64
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedules of the Company for the
years ended December 31, 1993, December 31, 1992 and December 31, 1991,
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 have been audited by Ernst & Young, independent auditors, as
set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedules are, and audited
financial statements included in subsequently filed documents will be,
incorporated herein by reference in reliance upon the reports of Ernst & Young
pertaining to such financial statements (to the extent covered by consents filed
with the Securities and Exchange Commission) given upon the authority of such
firm as experts in accounting and auditing.
25
<PAGE> 65
===============================================================================
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 OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY HOLDINGS OR ANY AGENT OR UNDERWRITER. THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF HOLDINGS SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary............................... S-3
Use of Proceeds....................... S-8
Certain Important Information
Concerning the Warrants............. S-8
Risk Factors Relating to the
Warrants............................ S-12
Description of the Warrants........... S-18
The Index............................. S-29
Certain United States Federal Income
Tax Considerations.................. S-35
Underwriting.......................... S-36
Glossary.............................. S-38
Appendix A............................ A-1
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
Description of Warrants............... 13
Global Securities..................... 20
United States Taxation................ 22
Capital Requirements.................. 22
Plan of Distribution.................. 23
ERISA Matters......................... 24
Legal Opinions........................ 24
Independent Accountants............... 25
</TABLE>
===============================================================================
===============================================================================
1,000,000 WARRANTS
LEHMAN BROTHERS
HOLDINGS INC.
AMEX HONG KONG
30 INDEX
CALL WARRANTS
EXPIRING FEBRUARY 26, 1996
------------------------
PROSPECTUS SUPPLEMENT
AUGUST 23, 1994
------------------------
LEHMAN BROTHERS
===============================================================================
