Rule 424(b)(2)
Registration No. 33-65674
NASD File No.: 930707011
PRICING SUPPLEMENT NO. 72
Dated October 7, 1994 to Prospectus
Supplement Dated August 8, 1994
and Prospectus dated August 8, 1994
LEHMAN BROTHERS HOLDINGS INC.
Medium-Term Notes, Series E
(Fixed Rate)
Due Nine Months or more from Date of Issue
Interest Payable at Maturity
Subject to the Conditions Set Forth in this Pricing
Supplement
Including an Option to Redeem, an Option to Elect Repayment
and Certain Contingencies
Principal Amount: $15,000,000, subject to the
Conditions set forth below
(the "Conditions")
Maturity Date: July 14, 1995, subject to the Conditions
Issue Date: October 14, 1994
Issue Price: 100%
Interest Rate per Annum: 8%, calculated as provided in and
subject to the Conditions
Agent's Commission: 0.0%*
Payment Date: The Maturity Date, subject to the Conditions
Redemption/Repayment Options: Exercisable by the Company or the
Holder, subject to the Conditions,
with redemption or early repayment
on January 4, 1995
Authorized Denomination: U.S.$15,000,000
Form of Note: Certificated
The aggregate principal amount of this offering is
$15,000,000 and relates only to Pricing Supplement No. 72.
Medium-Term Notes, Series E may be issued by the Company in
an aggregate principal amount of up to $3,000,000,000 and,
to date, including this offering, an aggregate of $2,561,100,000
Medium-Term Notes, Series E has been issued and $2,511,100,000
are outstanding.
* The Agent will not receive any commission from the Company
or otherwise for facilitating the placement of the Note. The
Agent is receiving a fee from an affiliated entity which is
entering into a related transaction in connection with the
issuance of the Note.
I. DESCRIPTION OF NOTE AND APPLICABLE CONDITIONS
A. General
The Conditions of the Note to which this Pricing Supplement
relates (the "Note"), and which are set out below,
supplement, and to the extent inconsistent therewith
replace, the general terms and provisions of the Notes as
described in the accompanying Prospectus Supplement under
the heading "Description of Notes" and the general terms and
provisions of the Debt Securities as described in the
accompanying Prospectus under the heading "Description of
Debt Securities." Reference is hereby made to those
descriptions (each a "Basic Prospectus Description"). The
remainder of this Pricing Supplement uses the capitalized
terms defined below in the Conditions with the same meanings
given to those terms in the Conditions.
1. General Conditions
(a) No Periodic Interest Payments; All Obligations Subject to
Conditions.
There will be no periodic payments of interest on the Note.
The Company's obligations under the Note to pay the
Principal Amount and interest on the Principal Amount at the
rate set forth above on the Maturity Date shall be subject
to these Conditions.
(b) Certain Defined Terms.
For purposes of the Note, the capitalized terms set forth
below shall have the meanings specified below, and
capitalized terms that are used and not otherwise defined in
these Conditions shall have the meanings given to them in
the Prospectus or the Prospectus Supplement (as the case may
be)accompanying this Pricing Supplement. If there is any
inconsistency between the meaning given to any capitalized
term defined below for purposes of the Note and the meaning
given to that same term in the accompanying Prospectus or
Prospectus Supplement, for all purposes of the Note dealt
with in these Conditions the meaning set forth below shall
prevail:
"Available Exchange Rate," with respect to any day, means
the commercial market rate of exchange for that day that is
publicly announced by Banco Central do Brasil for spot
conversions of Brazilian currency for purchase of Dollars or,
if that rate is unavailable at the time necessary to implement
the terms of the Note, the commercial market rate at which the
Company or its agent would be able to purchase Dollars with
Brazilian currency in Sao Paulo, Brazil, in accordance with
ordinary banking practices on that day, in either such case,
if conversions at that rate or such purchases are then
permitted in respect of the proceeds of redemption of
Reference Instruments to effect remittances abroad of the
converted proceeds from Brazil and, if such conversions or
purchases at the commercial market rate are not then
permitted in connection with such remittances, the floating
market rate at which the Company or its agent would
be able to effect such a purchase for the purpose of making
such a remittance, in any such case, at the rate quoted as
of the close of business on the relevant day.
"Brazil" means the Federative Republic of Brazil.
"Brazilian Tax" means any new tax, duty, levy or impost of
any nature imposed by or in Brazil after the Issue Date
which (i) applies to Reference Instruments purchased on or
before the Issue Date and (ii)is payable on amounts remitted
from Brazil in respect of Reference Instruments or on the
proceeds of redemption of Reference Instruments or that
otherwise reduces the return received by foreign investors
on Reference Instruments (with the amount in respect of such
Taxes deductible under Condition 4 of the Note to be the
amount that would be payable if the Company owned or
redeemed Reference Instruments with a redemption value equal
to the amount payable by the Company under the Note (before
deduction of Brazilian Taxes)).
"Business Day" means a day other than a Saturday or a Sunday
on which commercial banks in Sao Paulo, Brazil, and New York
City are not authorized or required by law to close for
business.
"Deferred Maturity Date" has the meaning given to that term
in Condition 3(a).
"Divestment Date" means the date on which Reference
Instruments must be disposed of pursuant to a Divestment
Order.
"Divestment Order" means the imposition, after the Issue
Date, of any requirement under Brazilian law or regulation
that foreign investors dispose of Reference Instruments or
that Funds dispose of NTNs, in either case prior to the
Maturity Date (or the Deferred Maturity Date, as
applicable).
"Dollar" or "U.S. $" means the lawful currency of the United
States of America.
"Fund" means a Fundo de Renda Fixa _ Capital Estrangeiro
established pursuant to Resolucao 2034 of Banco Central do
Brasil and related and implementing regulations.
"Initial Brazilian Currency Equivalent" means the Principal
Amount of the Note translated into Brazilian currency at the
Available Exchange Rate on the second Business Day before
the Issue Date.
"NTN" means any Nota do Tesouro Nacional issued by Brazil.
"Qualifying Fund" means a Fund or other vehicle for foreign
investment in Brazilian instruments other than equities
selected by the Company from among such Funds and other
vehicles whose assets include only NTNs, if such a Fund or
vehicle exists at the relevant time or, if no such Fund or
other vehicle at the time exists, whose assets are primarily
NTNs.
"Reference Instrument" means shares or "quotas" in a Fund.
"Reference Instrument Rate" means a rate of interest
determined by the Company, reasonably and in good faith, by
reference to quotations from three financial institutions
selected in good faith by the Company to reflect the yield
on Reference Instruments as a class for the period from, and
including, the Maturity Date to, but excluding, the Deferred
Maturity Date.
"Remittance Restriction" means any change in Brazilian law
or regulations (or in the interpretation or application
thereof) after the Issue Date that results in a prohibition
on, or prevents, the remittance abroad from Brazil of
Dollars obtained from conversion of the proceeds of
redemption of Reference Instruments or the purchase of
Dollars in Brazil for such a remittance to a foreign
investor.
"Scheduled Interest" has the meaning given to that term in
Condition 2.
"Specified Event" means each of the following events: Brazil
fails or is unable to pay its debt generally as it becomes
due, declares a moratorium on payment of any of its
obligations in respect of NTNs or takes any similar action
or any step in pursuit of any of such action.
"U.S. Rate" means the rate for the relevant day set forth in
release H.15(519), published by the Board of Governors of
the Federal Reserve System, opposite the caption "Federal
Funds (Effective)" or if, as of the relevant time of
calculation under the Note, that rate is not yet published
in H.15(519), the rate for the relevant day set forth in the
release Composite 3:30 P.M. Quotations for U.S. Government
Securities, published by the Federal Reserve Bank of New
York, under the caption "Federal Funds/Effective Rate."
1. Interest Calculation
Subject to these Conditions, interest shall accrue on the
Principal Amount of the Note at the rate per annum specified
above as the "Interest Rate per Annum" for the period from
(and including) the Issue Date to (but excluding) the
Maturity Date. Such interest (the "Scheduled Interest")
shall be calculated on the basis of the actual number of
days in that period and a year of 360 days. Any interest on
the Note calculated under these Conditions at the U.S. Rate
pursuant to Condition 3 shall be calculated on the basis of
the actual number of days in the relevant period
contemplated in that Condition and a year of 360 days. Any
interest calculated under Condition 3 at the Reference
Instrument Rate or at the rate applicable to substitute
interests pursuant to Condition 3 shall be calculated on the
same basis as that used to calculate the Reference
Instrument Rate or the substitute interest rate, as the case
may be.
2. Certain Contingencies Affecting or Resulting in Discharge of
Payment Obligations
(a) Remittance Restrictions, Maturity Extension and Payment in
Brazilian Currency.
(i) If a Remittance Restriction has occurred and is
continuing on the Maturity Date, the Company's obligation to
make payments otherwise stated to be due under the Note to
the Holder on the Maturity Date shall be deferred until the
day (the "Deferred Maturity Date") which is the second
Business Day after Remittance Restrictions cease to be in
effect, and on that day, subject to the remainder of this
Condition and in full discharge of the Company's obligations
under the Note, the Principal Amount will be payable by the
Company to the Holder together with the Scheduled Interest
calculated as provided in Condition 2, interest on the
Principal Amount at the Reference Instrument Rate for the
period from, and including, the Maturity Date to, but
excluding, the day on which the Remittance Restriction
ceases to be in effect and interest on the Principal Amount
at the U.S. Rate for the period from, and including, the day
on which the Remittance Restriction ceases to be in effect
to, but excluding, the Deferred Maturity Date, subject to
the remainder of this Condition 3(a).
(ii) If a Remittance Restriction has occurred and is
continuing on the Maturity Date and Brazilian law, Banco
Central do Brasil or any other governmental authority in
Brazil requires that amounts that would be remitted in
respect of the proceeds of redemption of Reference
Instruments but for the Remittance Restriction be placed or
deployed in a manner that would produce a return lower than
interest at the Reference Instrument Rate calculated as
provided in clause (i) of this Condition 3(a) for the period
ending on the day on which Remittance Restrictions cease to
be in effect, the Dollar equivalent of that lower return for
that period (calculated by the Company at the Available
Exchange Rate on the second Business Day before the date on
which such interest would be payable) shall be payable for
that period in lieu of interest at the Reference Instrument
Rate.
(iii) In addition, and notwithstanding the foregoing, if a
Remittance Restriction has occurred and is continuing on the
Maturity Date, the Company may, alternatively, in its sole
discretion, discharge all
obligations to make payments due under the Note to the
Holder as set forth in the remainder of this Condition 3(a)
and, if it does so, the Company will give the Trustee notice
of the discharge.
(A) Substitute Interests. If Brazilian law or regulations
offer foreign investors in Reference Instruments the
opportunity to exchange Reference Instruments for substitute
interests in respect of which remittance in Dollars is
permitted on a date or dates after the Maturity Date, the
Company may pay to the Holder in the same proportion and
over the same periods and on the same dates as remittances
in respect of such substitute interests are permitted, an
amount in Dollars equal to the sum of the Principal Amount
and the Scheduled Interest calculated pursuant to Condition
2, together with an amount in Dollars equal to the interest
that would be payable on the same date on such substitute
investments with a face amount equal to that sum (with such
interest calculated by the Company at the Available Exchange
Rate at approximately 11:00 a.m. Sao Paulo time on the
second Business Day before the date on which such interest
would be payable).
(B) Discharge by Payment in Brazilian Currency. If
Brazilian law or regulations permit a foreign investor in
Reference Instruments to redeem its interests therein for
Brazilian currency notwithstanding the Remittance
Restriction's prohibition against remitting the Dollar
equivalent abroad, the Company may pay the Holder or its
designee, at an account in Brazil designated by the Holder
(which the Holder will be responsible for establishing), the
Brazilian currency equivalent of an amount in Dollars equal
to the sum of the Principal Amount and the Scheduled
Interest calculated pursuant to Condition 2 (or, in the case
of a Divestment Order or a redemption or early payment election
pursuant to Condition 5, that equivalent of the payment called
for in Condition 3(b) or Condition 5, as applicable) in full
discharge of the Company's obligations under the Note.
Notice of the Company's election to make payment in
Brazilian currency shall be given by the Company to the
Trustee and, through the Trustee, to the Holder; the
Holder's designation of the account to which such payment
should be made shall be given to the Trustee and, through
the Trustee, to the Company. The Brazilian currency
equivalent referred to above shall be determined at the
Available Exchange Rate at approximately 11:00 a.m., Sao
Paulo time, on the second Business Day before the Maturity
Date for spot conversions of Brazilian currency to Dollars
(or, in the case of a Divestment Order or a redemption or early
payment election pursuant to Condition 5, the second Business
Day before the date payment is called for in Condition 3(b)
or Condition 5, as applicable). If the Holder has not
established the necessary account to receive payment in
Brazilian currency in Brazil and given the required notice
identifying the account by the time the Company tenders the
payment, the Company may fully discharge its obligations under
the Note by making the payment, less the escrow agent's charges
or fees, into an escrow account in Brazil opened by the Company
for release of the payment to the Holder, subject to such
identification requirements as the Company and the escrow
agent may require and surrender of the Note at the Corporate
Trust Office, as provided in the accompanying Prospectus Supplement.
(b) Divestment Orders and Related Early Payment.
If a Divestment Order is issued and the proceeds of the
disposition required by the order may be converted to
Dollars and remitted from Brazil, the Company shall have the
right to discharge in full its obligations under the Note by
paying the Holder, on the first Business Day after the
Divestment Date, an amount equal to the Principal Amount of
the Note, together with interest accrued thereon at the
Interest Rate per Annum stated above in this Pricing
Supplement from and including the Issue Date to, but
excluding, the Divestment Date (and otherwise calculated as
provided in Condition 2) and at the U.S. Rate from, and
including, the Divestment Date to, but excluding, the first
Business Day after the Divestment Date.
(c) Specified Events and Related Discharge of Company's
Obligations.
Notwithstanding any other provision of the Note, if a
Specified Event has occurred and is continuing on the
Maturity Date, the following conditions shall apply:
(i) The Company shall give notice of the event to the
Trustee and, through the Trustee, to the Holder on the
Maturity Date and, subject to the remaining provisions of
this Condition, the Company's obligation to make any
payments hereunder shall be deferred until discharged as
provided in this Condition.
(ii) Not later than the fifteenth Business Day after that
notice is given to the Holder, the Company shall transfer to
the Holder the Equivalent Reference Investments, if they are
available to the Company or Lehman Brothers Special
Financing Inc. ("LBSF") and can be transferred by it to the
Holder at the time in compliance with applicable law. For
this purpose, "Equivalent Reference Investments" means
(except as otherwise provided below):
(1) the number of quotas in a Qualifying Fund certified by
the Company to be the number of such quotas that could have
been purchased by the Company or LBSF for value on the Issue
Date with the Initial Brazilian Currency Equivalent
calculated without taking into account I0F tax (Imposto
sobre Operacoes Financeiras), or (2) the securities, if any,
that are offered by Brazil to foreign owners of such quotas
in exchange for indirect interests in Dollar-indexed NTNs
that are represented by such quotas,
less, in either such case,
(3) the number of such quotas or securities sufficient so
that their value offsets any Brazilian Taxes.
If both such quotas and such securities are available and
can be transferred to the Holder in compliance with
applicable law, the Equivalent Reference Investments shall
be such quotas and securities in such proportion as the
Holder shall direct by notice to the Company, to the extent
available to the Company or LBSF, less the deduction for
Brazilian Taxes described in clause (3) above in this
provision.
(iii) In connection with a transfer pursuant to the
preceding clause, the Holder shall, at the Company's request
and at the Holder's own expense, make such arrangements as
may be necessary to enable the Holder to receive the
transfer from the Company or LBSF, and the Holder shall
surrender the Note at the Corporate Trust Office of the
Trustee prior to or against tender of the transfer. If the
Holder has not made such arrangements by the time the
Company or LBSF tenders the transfer, the Company may fully
discharge its obligations hereunder by transferring the
Equivalent Reference Investments to an escrow agent
identified by notice to the Trustee and the Holder from the
Company, for release to the Holder subject to such
identification requirements as the Company and the escrow
agent may require and surrender of the Note as provided
herein. However, for this purpose, the amount of the
Equivalent Reference Investments shall be reduced by such
amount as is necessary to offset the fees and charges of the
escrow agent. The Company will give the Trustee notice of
any such discharge.
(iv) If a transfer cannot be effected as provided in the
two preceding clauses because the Equivalent Reference
Investments are not available to the Company and LBSF or
their transfer to the Holder is not permitted by applicable
law at the time, the Company will, or will cause LBSF to,
transfer to the Holder, and the Holder will accept transfer
from the Company or LBSF of, a 100% participation or
subparticipation interest in Equivalent Reference
Investments available to the Company or LBSF, if
such a transfer is permitted by applicable law, pursuant to
a participation certificate to be issued by the Company or
LBSF, as the case may be, or a participation agreement to be
executed and delivered by that entity and the Holder by the
fifteenth Business Day after the Maturity Date. Upon any
such transfer, the Company's obligations under the Note
shall be fully discharged, and notice to that effect will be
given by the Company to the Trustee.
(v) If a transfer is not made pursuant to the preceding
clauses of this Condition on or before the fifteenth
Business Day after the Maturity Date because the transfer
would not be permitted by applicable law or Equivalent
Reference Investments are not available to the Company or
LBSF, or because the Holder has not complied with any of its
obligations under this Condition relating to such a
transfer, the Company shall automatically be fully
discharged of all further obligation to make payments under
the Note subject to the next clause.
(vi) If the Specified Event involves only a partial failure
by Brazil to make payment in respect of its obligations
under NTNs, this Condition shall apply only to the affected
part of the Company's payment obligations under the Note,
which shall be determined by multiplying the sum of the
Principal Amount and the Scheduled Interest of the Note by a
fraction whose numerator is the amount paid by Brazil under
each NTN and whose denominator is the full amount payable
thereunder by Brazil. The Company shall remain responsible
for payment of the unaffected part of its obligations under
the Note on the Maturity Date.
Any transfer pursuant to this Condition shall be made by the
Company without recourse. The failure by the Holder to
surrender the Note in connection with such a transfer as
provided above shall not affect the discharge of the
Company's obligations provided for herein.
4. Brazilian Taxes
The amounts payable by the Company to the Holder under the
Note shall be reduced by an amount equal to all Brazilian
Taxes, if any.
5. Company's Redemption Option and Holder's Option to
Elect Repayment
The Company may elect to redeem the Note and the Holder may
elect early repayment, in either case subject to the other
Conditions and to the following: (a) redemption or early
repayment, if elected as provided herein (and subject to the
other Conditions), will occur on January 4, 1995; (b) the
relevant election will be irrevocable, must apply to the
entire Principal Amount of the Note (notwithstanding
anything to the contrary in the accompanying Prospectus
Supplement) and must be made not later than 5:00 p.m., New
York City time, on the fifth Business Day before January 4,
1995, by notice from the Company to the Holder (with a copy
to the Trustee), in the case of the Company's redemption
option, and by notice from the Holder to the Company and the
Trustee, in the case of the Holder's option to elect early
repayment (any other periods for such advance notice stated
in the accompanying Prospectus or Prospectus Supplement to
be inapplicable); and (c) the amounts payable on January 4,
1995 (subject to the other Conditions) if either such option
is so exercised will be the Principal Amount of the Note and
Scheduled Interest accrued from, and including, the Issue
Date and to, but excluding, January 4, 1995. The references
in the accompanying Prospectus Supplement to a form entitled
"Option to Elect Repayment" and to other methods of
exercising the Holder's option to elect early repayment will
beinapplicable.
6. Acceleration in Connection with Events of Default
If payment of principal of and interest on the Note is
accelerated in accordance with the provisions described
under "Description of Debt Securities _ Events of Default"
in the accompanying Prospectus, the Company shall pay to the
Holder of the Note on the date of acceleration,
(i) in respect of the principal amount of the Note, the
amount that would be payable on that date under these
Conditions if the date of acceleration were the Note's
Maturity Date, in the currency specified in these
Conditions, and
(ii) in respect of the interest payable under the Note, the
portion thereof accrued through, but excluding, the date of
acceleration, in the currency specified in these Conditions,
but, in both cases, subject to these Conditions relating to
modification, deferral or discharge of the Company's
obligations to make payments under the Note in connection
with Brazilian Taxes, Remittance Restrictions, Divestment
Orders or Specified Events, with those Conditions applied as
if the principal and interest amounts were being paid under
the Note on its Maturity Date or, in connection with a
Divestment Order, on the date for payment specified in
Condition 3(b). Therefore, if such an acceleration occurs
and the Company would (under these Conditions as so applied)
be entitled to defer performance of its obligations under
the Note or discharge its obligations under the Note through
tender of performance as described in Condition 3 or
Condition 4, the Company shall be entitled to so defer or
discharge its obligations under the Note in connection with
the acceleration.
II. TREATMENT OF THE NOTE IN CONNECTION WITH CERTAIN
DEMANDS, NOTICES AND WAIVERS
For the purpose of determining whether Holders of the
requisite principal amount of Debt Securities outstanding
under the Indenture have made a demand or given a notice or
waiver or taken any other action, the outstanding Principal
Amount of the Note will be treated as such, regardless of
the existence of any of the events or circumstances
described in Condition 3 or Condition 4.
III. SPECIAL RISK CONSIDERATIONS
A. Payment Currency and Currency-Related Risks
1. General
Although the Note is denominated in U.S. dollars, and not a
Foreign Currency, as described above in the Conditions, in
the circumstances there specified all payments due under the
Note may be payable by the Company in Brazilian Currency. As
a result, although the Note is not denominated in a Foreign
Currency, certain of the Note's features and the risks
involved in owning the Note are like those of a Note
denominated in Brazilian currency as the Specified Foreign
Currency. Therefore, any prospective purchaser of the Note
should carefully consider the portions of the Basic
Prospectus Descriptions that relate to Notes denominated in
Foreign Currency, as well as the information set forth
below. As indicated in the accompanying Prospectus
Supplement, however, any purchaser of the Note should take
the following into account:
THIS PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND
PROSPECTUS SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN
NOTES THE PAYMENT OF WHICH IS TO BE MADE IN OR IS RELATED TO THE VALUE
OF A CURRENCY OTHER THAN U.S. DOLLARS, AND THE COMPANY DISCLAIMS ANY
RESPONSIBILITY TO ADVISE PROSPECTIVE PURCHASERS OF SUCH RISKS AS THEY
EXIST AT THE DATE OF THIS PRICING SUPPLEMENT OR AS SUCH RISKS MAY
CHANGE FROM TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR
OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY ANY
INVESTMENT IN THE NOTE, WHICH IS NOT AN APPROPRIATE INVESTMENT
FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
2. Certain Considerations Relating To Brazilian Exchange
Controls and U.S.$/Brazilian Currency Exchange Rates
The information set forth in this part III(A)(2) relating to
the Brazilian currency and Brazilian Exchange Controls is
based on material obtained from various sources believed by
the Company to be accurate but has not been independently
verified by the Company and should be independently verified
by any prospective purchaser of the Note, without relying on
the information set forth herein.
Brazilian Currency. Brazil's currency has experienced
repeated substantial devaluations relative to the U.S.
dollar, the most recent of which occurred at the end of
September 1991 and involved a 13.6% devaluation of the
currency (then Cruzeiros) relative to the U.S. dollar. In
recent times there has been a succession of Brazilian
currencies, which have been introduced from time to time in
connection with significant devaluations and unsuccessful
attempts to stabilize the Brazilian currency. The Real
("R$") became the lawful currency of Brazil on July 1, 1994,
at which point it replaced the Cruzeiro Real, at an exchange
rate of 2,750 Cruzeiro Reais per Real. Since then Brazil's
Federal Government has pursued a policy of issuing Reais
only if it holds in reserve a corresponding amount of U.S.
dollars. The introduction of the Real was part of a plan of
the Brazilian Government announced in December 1993 to bring
Brazilian inflation under control and to stabilize the
Brazilian currency. There can be no assurance that the
Brazilian Government will continue to pursue this plan or
that the plan will be effective.
Under the Conditions, in certain circumstances relating to
Remittance Restrictions (as further described below), the
Company may be entitled to tender Brazilian currency to the
Holder of the Note in full discharge of the Company's
obligations under the Note. The Holder will, if this occurs,
be exposed to the risks involved in holding a currency that
historically has experienced significant devaluations
relative to the U.S. dollar, that is likely at the time to
be experiencing further devaluations and that the Holder is
unlikely at the time to be able to convert in Brazil to U.S.
dollars for remittance abroad.
Brazilian Foreign Exchange Markets and Exchange Rates. The
two principal legal, or official, foreign exchange markets
in Brazil are the commercial rate exchange market (the
"Commercial Market") and the floating rate exchange market
(the "Floating Market"). The exchange rates available in the
two markets have differed substantially in the past and may
do so in the future. Rates are freely negotiated in both
these markets but are strongly influenced by Banco Central
do Brasil, Brazil's Central Bank (the "Central Bank"), which
is not required to intervene in these markets but
historically has intervened to control exchange-rate
fluctuations and sometimes to regulate disparities between
the Commercial Market rate and the Floating Market rate.
The Commercial Market is reserved primarily for foreign
trade transactions and financial or other transactions that,
as a general matter, require exchange control approval from
Brazil's monetary authorities. These transactions include
investments by foreign persons in Funds of the kind referred
to in the Note Conditions set forth in this Pricing
Supplement and remittances abroad from Brazil in respect of
such investments or their redemption. If the Commercial
Market rate does not apply to a transaction, the Floating
Market rate applies.
The Available Exchange Rate stated in the Conditions to be
applicable for certain purposes in connection with the Note
is, in the first instance, the Commercial Market rate, so
long as that rate would be available in connection with a
conversion of Brazilian currency to U.S. dollars for a
remittance to the Company relating to an investment in such
a Fund. The Commercial Market rate would be available for such
conversions under current Brazilian regulations. There can
be no assurance, however, that these regulations will not
change. The Available Exchange Rate stated in the Conditions
to be applicable for certain purposes in connection with the
Note will be the Floating Market rate, if the Commercial
Market rate is not available for such conversions at the
relevant time and the Floating Market rate is available.
The Commercial Market rate for the purchase of U.S. dollars
with Brazilian Currency at the close of business in Brazil
on the date of this Pricing Supplement was reported by the
Central Bank to be R$0.844 per U.S.$1.00. The Brazilian
Government has set a ceiling on that exchange rate at R$1.00
= U.S.$1.00 and since July 1, 1994, the Commercial Market
Rate has not risen above that ceiling. No assurance can,
however, be given that the ceiling will not be breached.
Brazilian Exchange Controls. In addition, there can be no
assurance that the Real will be convertible to U.S. dollars
in Brazil for purposes of remittances to foreign investors
in connection with investments in Funds of the kinds
described in the Note's Conditions as Reference Instruments.
Under current Brazilian legislation, if a serious imbalance
in Brazil's balance of payments exists or appears to be
imminent, temporary restrictions on remittances abroad of
foreign currency from Brazil may be imposed. Under the
Conditions, the existence of restrictions on such
conversions or remittances can result in a deferral of the
Company's obligations to make payments under the Note or in
discharge of those obligations through the tender to the
Holder of the Note of Brazilian Currency or substitute
performance, instead of U.S. dollars, as described in the
Conditions set forth above in this Pricing Supplement.
3. Payment Currency; No Exchange Rate Agent
The Description of Notes in the accompanying Prospectus
Supplement states, under the heading "Payment Currency,"
that, "[i]f a Note is denominated in a Foreign Currency, the
Company will (unless otherwise specified in the applicable
Pricing Supplement) appoint an agent (the "Exchange Rate
Agent") to determine the exchange rate for converting all
payments in respect of such Note into U.S. dollars" as
further described there under that heading. That Basic
Prospectus Description also indicates that the Holder of a
Note denominated in a Foreign Currency may, as there
described, make an election to receive payment in the
Specified Foreign Currency and that, absent such an election
or the existence of certain other circumstances there
described, the Company will make payment under the relevant
Note in U.S. dollars. Those and other aspects of the Basic
Prospectus Description relating to the role of an Exchange
Rate Agent and elections to receive or make payments in a
Specified Foreign Currency or U.S. dollars are inapplicable
to the Note; the Conditions set forth above in this Pricing
Supplement will govern all matters relating to payments in
Brazilian Currency by the Company in discharge of its
obligations to make payments in U.S. dollars in respect of
the Note.
B. U.S. Dollar Payment Obligations Under the Note Deferred,
Accelerated or Otherwise Altered or Discharged in Connection
with Certain Contingencies
The Note is a fixed income instrument providing for the
payment of principal and interest in U.S. dollars subject to
the occurrence of certain events (each a "Contingency")
relating to (a) the financial condition of Brazil and timely
performance by it of its obligations under certain of its
Treasury obligations referred to as "NTNs" ("NTNs") in the
Conditions and (b) certain Reference Instruments and other
instruments referred to in the Conditions and changes in
Brazilian law and regulation (including tax laws) that may
affect these kinds of instruments. In deciding whether to
purchase the Note, a prospective investor should carefully
investigate and consider all factors the investor deems
relevant relating to the Reference Instruments and the
possible occurrence of a Contingency, since the occurrence
of a Contingency may substantially alter or result in the
deferral, acceleration or other modification or discharge of
the Company's obligations under the Note otherwise to make
payment of the Principal Amount and Scheduled Interest (as
defined in the Conditions) in U.S. dollars. Any such
deferral or other modification or discharge will not
constitute an Event of Default under the Indenture.
The Contingencies include certain payment defaults by and
indications of financial difficulties affecting Brazil,
including the declaration of a moratorium on Brazil's
obligations under NTNs, certain changes of law or regulation
in Brazil _including tax laws, laws regulating whether and
how a non-Brazilian investor may hold Reference Instruments
or other instruments referred to in the Conditions and laws
restricting the remittance abroad from Brazil of U.S.
dollars in certain circumstances_ as well as limitations on
the ability of a non-Brazilian investor to obtain U.S.
dollars in Brazil for such a remittance and certain events
that can adversely affect the ability of a non-Brazilian
investor to redeem or receive the proceeds of redemption of
quotas in a Fund referred to in the Note or that require
Funds to dispose of investments in NTNs.
As a result of the Contingencies, ownership of the Note will
involve significant risks that are different from those
involved in ownership of conventional fixed income
investments. In addition, if certain Contingencies occur,
the Holder may have to be able to receive, and at the
Holder's own expense establish a means to receive, tender of
Brazilian currency or certain instruments in Brazil, should
the Company exercise its rights under the Note, as embodied
in the Conditions set forth above, to discharge its
obligations thereunder through such tender.
BECAUSE OF THE CONTINGENCIES, THE NOTE IS NOT AN APPROPRIATE INVESTMENT
FOR ANY PERSON WHO IS NOT SOPHISTICATED WITH RESPECT TO BRAZILIAN
INVESTMENTS OR WHO IS UNPREPARED TO LOSE ITS INVESTMENT, TO HAVE THE
MATURITY OF THE INVESTMENT CHANGED OR TO RECEIVE BRAZILIAN CURRENCY OR
OTHER SUBSTITUTE PERFORMANCE UNDER THE NOTE.
The Company disclaims any responsibility to advise
prospective purchasers of risks relating to or otherwise
provide information to prospective purchasers about Brazil,
Brazilian Taxes, Funds or investment vehicles of the kinds
referred to in the Conditions or the laws or regulations
applicable to them as they exist at the date of this Pricing
Supplement or as they may change from time to time.
Prospective purchasers should consult their own financial
and legal advisors about these matters and should conduct
such other, independent investigations about these matters as
the prospective purchaser deems appropriate, in light of the
fact that these matters relate to Contingencies whose occurrence
may have an adverse impact on the investor's investment in the Note.
There is currently no established secondary market for the
Note and there can be no assurance that any such market will
develop, or that, if a secondary market does develop, it
will provide a Holder of the Note with sufficient liquidity
to dispose of the Note should it wish to do so.
Before deciding to purchase the Note, a prospective investor
should consider the specific return and risk profile of the
Note and undertake a thorough review of the legal,
regulatory, credit, tax and accounting, as well as the
economic, consequences of such an investment in reaching
its own determination of whether the investment is suitable.
V. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of certain United States
federal income tax consequences resulting from the ownership
of the Note by original purchasers of the Note based upon
the provisions of the Internal Revenue Code of 1986, as
amended, and regulations, rulings and judicial decisions
thereunder as of the date hereof. Such authorities may be
repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed
below. This summary does not address special rules which may
apply to particular types of investors, including secondary
market purchasers of the Note.
A. Taxation of United States Holders
The Company believes that the Note is debt of the Company
for federal income tax purposes. As such, the Note will
constitute a "short-term obligation" because the term of the
Note is less than one year. Accordingly, a Holder who is a
United States taxpayer (a "United States Holder") and who is
an accrual basis taxpayer or holds the Note as part of
certain hedging transactions, or who is a regulated
investment company, bank, securities dealer or common trust
fund, must accrue stated interest ratably over the term of
the Note (unless the Holder makes an election to accrue the
interest on a constant yield method based on daily
compounding). Individuals and other cash method United
States Holders are not required to accrue interest currently
unless they elect to do so.
Upon the sale, exchange, retirement, or other disposition of
the Note, a United States Holder (both cash and accrual
basis taxpayers) generally will recognize short-term capital
gain or loss equal to the difference between the amount
realized on the sale or other disposition and the United
States Holder's purchase price for the Note plus interest
accrued through the date of sale, or other disposition.
Although repayment of principal and interest under the Note
are subject to certaincontingencies relating to subsequent
changes in Brazilian law relating to taxes, repatriation
risk, and prepayment, the Company believes that the Note
should not be treated as providing for "contingent payments"
within the meaning of certain proposed Treasury regulations
because the contingencies in the Note are remote and
incidental, and should be disregarded for federal income tax
purposes.
The Internal Revenue Service (the "IRS") may, however,
contend that the Note constitutes a "contingent payment"
debt instrument for federal income tax purposes under
certain proposed Treasury regulations. Under such
regulations, the amount payable at maturity of the Note
(whether characterized as interest or principal) would be
treated first as a non-taxable return of the United States
Holder's investment in the Note to the extent of the United
States Holder's unrecovered investment and thereafter would
be taxable as interest income to the United States Holder.
If a United States Holder receives total payments in respect
of the Note in an amount less than the amount of its
investment in the Note, the United States Holder generally
would recognize a short term capital loss. These proposed
regulations are not presently effective, but are proposed to
be retroactively effective once adopted in final form. In
addition, these regulations have been widely criticized and
it is impossible to predict the form in which final
regulations will be issued.
B. Taxation of Non-United States Holders
Payments made with respect to the Note (other than payments
of interest to certain parties related to the Company),
including payments on any sale or disposition of the Note,
will not be subject to United States withholding tax,
provided that the non-United States Holder complies with
applicable certification requirements.
C. Backup Withholding and Information Reporting
Distribution made on the Note and proceeds from the sale of
the Note to or through certain brokers may be subject to a
"backup" withholding tax of 31% of "reportable payments"
(including interest accruals, original issue discount, and,
under certain circumstances, distributions in reduction of
principal amount) unless, in general, the Holder complies
with certain procedures or is an exempt recipient. Any
amounts so withheld from distributions on the Note would be
refunded by the IRS or allowed as a credit against the
Holder's Federal income tax.
Reports will be made to the IRS and to the Holder if it is
not excepted from the reporting requirements.
* * *
THE NOTE MAY NOT BE TRANSFERRED WITHOUT ATTACHMENT OF THIS
PRICING SUPPLEMENT TO THE REPLACEMENT NOTE ISSUED IN THE
NAME OF THE TRANSFEREE. ANY PURCHASER OF THE NOTE AFTER ITS
INITIAL HOLDER SHOULD INDEPENDENTLY INVESTIGATE AT THE TIME
OF ITS PROSPECTIVE PURCHASE OF THE NOTE WHETHER ANY OF THE
CONTINGENCIES DESCRIBED IN THIS PRICING SUPPLEMENT HAS
OCCURRED AT OR BEFORE THE TIME OF ITS PURCHASE SO AS TO
EVALUATE THE ATTENDANT RISK TO THE INVESTOR SHOULD THE
CONTINGENCY BE CONTINUING ON THE NOTE'S MATURITY DATE OR, IN
THE CASE OF A DIVESTMENT ORDER OR AN ELECTION TO REDEEM OR
FOR EARLY REPAYMENT, AT THE TIME OF THE PURCHASE.
