<PAGE> 1
Pursuant to Rule 424(b)(2)
Registration No. 33-58548
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED FEBRUARY 28, 1994
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 15, 1993)
2,000,000 WARRANTS
LEHMAN BROTHERS HOLDINGS INC.
JAPANESE YEN BEAR WARRANTS
EXPIRING MARCH , 1996
------------------------
Each 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 calculated by reference to decreases in the value of the
Japanese Yen relative to the U.S. Dollar. Such amount (the "Cash Settlement
Value") will equal the greater of (i) zero and (ii) the amount (rounded down to
the nearest cent) computed by subtracting from U.S. $100 an amount equal to the
product of U.S. $100 times a fraction, the numerator of which is Yen per U.S.
Dollar (the "Strike Rate") and the denominator of which is the spot exchange
rate of the Japanese Yen for the U.S. Dollar (expressed as a number of Japanese
Yen per U.S. Dollar and determined by the Calculation Agent) at 10:00 A.M., New
York City time, on the applicable valuation date (the "Spot Rate"). If the
Strike Rate is equal to or exceeds the Spot Rate for such valuation date, the
Cash Settlement Value will be zero. The Strike Rate is equal to the spot
exchange rate of the Japanese Yen for the U.S. Dollar quoted by the Calculation
Agent at New York City time, on the date hereof and as of such time the Cash
Settlement Value of the Warrants was zero.
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 FOREIGN EXCHANGE RISKS
AND THE RISK OF EXPIRING WORTHLESS IF THE U.S. DOLLAR DOES NOT APPRECIATE, OR IF
IT DEPRECIATES, AGAINST THE JAPANESE YEN. 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 "RISK FACTORS," "DESCRIPTION OF THE
WARRANTS" AND "EXCHANGE RATES."
The Warrants will be exercisable immediately upon issuance and may be
exercised until 3:00 P.M., New York City time, on the New York Business Day
immediately preceding the earlier of the expiration date for the Warrants, which
will be March , 1996 (the "Expiration Date"), or the effective date of their
delisting from, or permanent suspension from trading on, the American Stock
Exchange and failure to list on another self-regulatory organization (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 on the
Expiration Date or the Delisting Date, as applicable. A Warrantholder may
exercise no fewer than 500 Warrants at any one time, except in the case of
automatic exercise. See "Certain Important Information Concerning the Warrants"
and "Description of the Warrants" herein and "Description of Warrants" in the
Prospectus.
The Warrants will be originally issued as certificates in registered form
(each, a "Warrant Certificate"). Forty-five calendar days after the closing of
the offering, each registered warrantholder will have the option to convert the
form of such warrantholder's Warrants from certificated to book-entry form
within a forty-five calendar day period as described herein. Ownership of
converted Warrants will be maintained in book-entry form by or through the
Depository. Beneficial owners of Warrants in book-entry form will not have the
right to receive physical certificates evidencing their ownership except under
the limited circumstances described herein.
Application has been made to list the Warrants on the American Stock
Exchange under the symbol " ."
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 purposes 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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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- ---------------------------------------------------------------------------------------------------------------------
Underwriting
Price to Discounts Proceeds to
Public and Commissions(1) Holdings(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Warrant............................................ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3)............................................... $ $ $
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Holdings has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by Holdings, estimated at $100,000.
(3) Holdings has granted the Underwriter a 30-day option to purchase up to
300,000 additional Warrants solely to cover over-allotments. If such option
is exercised in full, the Total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Holdings, before deducting expenses, will be
$ , $ and $ respectively. See "Underwriting."
------------------------
The Warrants offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. The Underwriters reserve the right to reject
orders in whole or in part. It is expected that delivery of the Warrant
Certificates will be made at the offices of Lehman Brothers Inc., New York, New
York, on or about March , 1994.
------------------------
LEHMAN BROTHERS
KIDDER, PEABODY & CO.
INCORPORATED
OPPENHEIMER & CO., INC.
March , 1994
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WARRANTS
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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SUMMARY
The following summary 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 and herein by reference.
References herein to "U.S. Dollars" or "$" are to the currency of the
United States of America and references to "Japanese Yen" or "Yen" are to the
currency of Japan.
<TABLE>
<S> <C>
ISSUER................. Lehman Brothers Holdings Inc. ("Holdings").
SECURITIES OFFERED..... 2,000,000 Japanese Yen Bear Warrants Expiring March , 1996. Each
Warrant will entitle the holder thereof to receive from Holdings,
upon exercise (including automatic exercise), an amount in U.S.
Dollars calculated by reference to decreases in the value of the
Japanese Yen relative to the U.S. Dollar. Such amount, which is the
Cash Settlement Value of the Warrant, will equal the greater of (i)
zero and (ii) the amount (rounded down to the nearest cent) computed
by subtracting from U.S. $100 an amount equal to the product of U.S.
$100 times a fraction, the numerator of which is Yen per U.S.
Dollar (the "Strike Rate") and the denominator of which is the spot
exchange rate of the Japanese Yen for the U.S. Dollar (expressed as
a number of Japanese Yen per U.S. Dollar and determined by the
Calculation Agent) at 10:00 A.M., New York City time, on the
applicable valuation date (the "Spot Rate"). If the Strike Rate is
equal to or exceeds the Spot Rate for such valuation date, the Cash
Settlement Value will be zero. The Strike Rate is equal to the spot
exchange rate of the Japanese Yen for the U.S. Dollar quoted by the
Calculation Agent at New York City time, on the date hereof and
as of such time the Cash Settlement Value of the Warrants was zero.
See "Description of the Warrants -- Cash Settlement Value" for the
method by which the Spot Rate and the Cash Settlement Value will be
calculated.
PRICE.................. $ per Warrant.
EXERCISE OF WARRANTS... The Warrants will be exercisable immediately upon issuance and may
be exercised until 3:00 P.M., New York City time, on the New York
Business Day immediately preceding the earlier of (i) the expiration
date for the Warrants, which will be March , 1996 (the "Expiration
Date") or (ii) the effective date of their delisting from, or
permanent suspension from trading on, the American Stock Exchange
(the "AMEX") and failure to list on another Self-Regulatory
Organization. All Warrants which have not been exercised by 3:00
P.M., New York City time, on such New York Business Day will be
automatically exercised on the Expiration Date or the date of such
delisting or suspension. See "Description of the Warrants --
Exercise of Warrants" and "-- Automatic Exercise". In the case of
automatic exercise upon such delisting or suspension, each Warrant
will entitle the holder thereof to receive from Holdings the
Alternative Settlement Amount, if any, in lieu of the Cash
Settlement Value thereof. See "Description of the
Warrants -- Alternative Settlement Amount" for a description of the
method of calculation of the Alternative Settlement Amount.
EXERCISE AMOUNT........ A Warrantholder may exercise no fewer than 500 Warrants at any one
time, except in the case of automatic exercise. See "Description of
the Warrants -- Minimum Exercise Amount."
CERTAIN RISK FACTORS... The Warrants involve a high degree of risk, including foreign
exchange risks and the risk of expiring worthless if the U.S. Dollar
does not appreciate, or if it depreciates, against the Japanese Yen.
If a Warrant is not exercised and if at expiration one U.S. Dollar
is worth Yen or less, the Warrant will expire
</TABLE>
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<TABLE>
<S> <C>
worthless. Investors therefore should be prepared to sustain a total
loss of the purchase price of their Warrants. Warrantholders will
bear the foreign exchange risks of the U.S. Dollar as compared to
the Japanese Yen.
Investors are advised to consider carefully the risk factors and the
other matters discussed under "Risk Factors," "Certain Important
Information Concerning the Warrants," "Description of the Warrants,"
"Exchange Rates" and "Certain United States Federal Income Tax
Considerations," prior to purchasing the Warrants.
WHO SHOULD INVEST...... It is suggested that investors who consider purchasing Warrants
should be experienced with respect to options and option
transactions and understand the risks of foreign exchange
transactions and should reach an investment decision only after
careful consideration with their advisers of the suitability of the
Warrants in the light of their particular financial circumstances.
The AMEX recommends that the Warrants be sold only to investors
whose accounts have been approved for options trading, and requires
that its members, member organizations and the registered employees
thereof make certain suitability determinations before recommending
transactions in Warrants. As indicated above, investors should be
prepared to sustain a total loss of the purchase price of the
Warrants.
DEFINED TERMS.......... Refer to "Glossary" herein for a list of defined terms used herein.
</TABLE>
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USE OF PROCEEDS
A substantial part of the proceeds to be received by Holdings from the sale
of the Warrants will be used by Holdings or one or more of its subsidiaries in
connection with hedging Holdings' obligations under the Warrants. Depending on
market conditions (including the prevailing Japanese Yen/U.S. Dollar exchange
rate from time to time), in connection with such hedging, Holdings expects that
it or its subsidiaries may (i) take positions in listed and over-the-counter
Japanese Yen or U.S. Dollar currency option contracts, (ii) take positions in
Japanese Yen or U.S. Dollar currency forward contracts, (iii) take positions in
Japanese Yen or U.S. Dollar currency spot contracts and (iv) enter into currency
swap arrangements, in each case, other than exchange traded options, in
privately negotiated transactions with institutional counterparties. The
remainder of the proceeds, if any, will be used for general corporate purposes.
RISK FACTORS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE
RISKS AND THE RISK OF EXPIRING WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED
TO SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS. THE WARRANTS
WILL BE "IN THE MONEY" ONLY WHEN THE SPOT RATE EXCEEDS THE STRIKE RATE. AS FOR
WHO SHOULD INVEST IN THE WARRANTS, IT IS SUGGESTED THAT INVESTORS CONSIDERING
PURCHASING WARRANTS BE EXPERIENCED WITH RESPECT TO OPTIONS AND OPTION
TRANSACTIONS AND UNDERSTAND THE RISKS OF FOREIGN EXCHANGE TRANSACTIONS AND REACH
AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING, WITH THEIR ADVISERS,
THE SUITABILITY OF THE WARRANTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND
THE INFORMATION SET FORTH BELOW AND UNDER "CERTAIN IMPORTANT INFORMATION
CONCERNING THE WARRANTS," "DESCRIPTION OF THE WARRANTS," "EXCHANGE RATES" AND
"CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS." THE AMEX RECOMMENDS
THAT THE WARRANTS BE SOLD ONLY TO INVESTORS WHOSE ACCOUNTS HAVE BEEN APPROVED
FOR OPTIONS TRADING AND REQUIRES THAT ITS MEMBERS, MEMBER ORGANIZATIONS AND THE
REGISTERED EMPLOYEES THEREOF MAKE CERTAIN SUITABILITY DETERMINATIONS BEFORE
RECOMMENDING TRANSACTIONS IN WARRANTS.
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 in the case of automatic exercise of the
Warrants, a Warrantholder must tender at least 500 Warrants at any one time in
order to exercise. Thus, Warrantholders with fewer than 500 Warrants will need
either to sell their Warrants or to purchase additional Warrants, incurring
transaction costs in each case, in order to realize upon their investment.
Furthermore, such Warrantholders incur the risk that there may be differences
between the trading value of the Warrants and the Cash Settlement Value of such
Warrants. All Warrantholders, including those owning fewer than 500 Warrants,
will receive the Cash Settlement Value or the Alternative Settlement Amount of
their Warrants, as applicable, upon automatic exercise. See "Description of the
Warrants--Minimum Exercise Amount," "--Cash Settlement Value" and "--Alternative
Exercise Amount."
Time Lag After Exercise Instructions Given. There will be a time lag
between the time a Warrantholder gives instructions to exercise its Warrants and
the time the Spot Rate relating to such exercise is determined. The delay will,
at a minimum, amount to an entire day and could be much longer (e.g., an
Exercise Notice received by the Warrant Agent after 3:00 P.M. on a Friday would
result in a Valuation Date in respect of the exercise not occurring until the
following Tuesday at the earliest). The spot exchange rate may change
significantly during any such period, and such movement could adversely affect
the Cash Settlement Value of the Warrants being exercised. See "Description of
the Warrants--Exercise of Warrants."
Time Difference. The interbank market in foreign currencies is a global,
around-the-clock market. Therefore, the hours of trading for the Warrants will
not conform to the hours during which the Japanese Yen and U.S. Dollar are
traded. To the extent that the AMEX is closed while the markets for the Japanese
Yen and U.S. Dollar remain open, significant price and rate movements may take
place in the underlying foreign exchange markets which will not be reflected
immediately in the price of a Warrant on the AMEX. The possibility of such
movement should be taken into account when relating closing prices on the AMEX
for the Warrants to those in the underlying foreign exchange markets.
S-5
<PAGE> 6
Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading (within the
meaning of the Exchange Act and the rules and regulations thereunder) on the
AMEX, and not accepted at the same time for trading pursuant to the rules of
another self-regulatory organization that are filed with the Securities and
Exchange Commission under the Exchange Act (a "Self-Regulatory Organization"),
Warrants not previously exercised will be deemed automatically exercised on the
effective date of such delisting or suspension, and the Alternative Settlement
Amount, if any, shall be calculated as provided under "Description of the
Warrants--Alternative Settlement Amount." The Alternative Settlement Amount so
calculated could be less than the trading value the Warrants would have had if
such delisting or suspension had not occurred. See "Description of the
Warrants--Delisting of Warrants."
Certain Factors Affecting the Value of the Warrants. Each Warrant is
expected to have a Cash Settlement Value of zero at issuance. The Cash
Settlement Value at any time prior to expiration is expected typically to be
less than the Warrants trading value at that time. The difference between the
trading value and the Cash Settlement Value will reflect a number of factors,
including the "time value" for the Warrants, which reflects expectations
concerning the value of the Japanese Yen as compared to the U.S. Dollar during
the period remaining prior to expiration of the Warrants, and the supply and
demand for the Warrants. The "time value" of the Warrants will depend upon the
length of the period remaining to expiration of the Warrants. The date on which
the Warrants expire may be accelerated should the Warrants be delisted or should
their trading on the AMEX or other Self-Regulatory Organization be permanently
suspended. Any such acceleration could result in the total loss of any otherwise
remaining "time value", and could occur when the Warrants are "out-of-the-money"
(i.e., when the Spot Rate is less than or equal to Strike Rate), thus resulting
in total loss of the purchase price of the Warrants.
The trading price of the Warrants may be adversely affected to the extent
similar public offerings of Warrants related to Japanese Yen are made in the
United States.
The initial public offering price per Warrant is in excess of the price a
commercial user of currencies might pay in the interbank market for a comparable
option in a private, less liquid transaction.
Before exercising or selling a Warrant, investors should carefully consider
the trading value of the Warrants, the spot exchange rate, the probable range of
Cash Settlement Values and any related transaction costs. The trading value of a
Warrant is expected to be dependent on the Strike Price and also on a number of
interrelated factors, including those listed below. The relationship among these
factors is complex. However, the expected effect on the trading value 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 Spot Rate. If the value of the U.S. Dollar falls in relation to
the Japanese Yen, the trading value of a Warrant is expected to
decrease.
(2) The volatility of the Yen/$ exchange rate. If the volatility of the
Yen/$ exchange rate decreases, then the trading value of a Warrant is
expected to decrease.
(3) The time remaining to the expiration of the Warrants. As the time
remaining to the expiration date decreases, the trading value of a
Warrant is expected to decrease.
(4) Interest rates on Japanese Yen and U.S. Dollar fixed income
instruments. If (a) Japanese Yen interest rates decrease, (b) U.S.
Dollar interest rates increase or (c) both, then the trading value
of a Warrant is expected to decrease.
It is possible that the trading value of a Warrant may decline even if
there is an increase in the value of the U.S. Dollar as compared to the Japanese
Yen.
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, since changes in one factor usually cause,
or result from, changes in others. In addition, some of the factors referred to
above are in turn influenced by the political and economic factors discussed
below under "Exchange Rates."
Warrants Not a Perfect Hedge. Because of the factors noted above, the
Warrants should not be considered to be a perfect hedge against increases in the
value of Japanese Yen in relation to the U.S. Dollar.
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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 foreign currency options of the type issued by the Options Clearing
Corporation (the "OCC"). 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
Holdings' obligations to pay the Cash Settlement Value or Alternative Settlement
Amount, as the case may be, upon the exercise of Warrants. In addition, OCC
standardized options provide for physical delivery of the underlying foreign
currency (rather than cash settlement in U.S. Dollars), and permit immediate
determination of value on exercise. Further, the market for the Warrants is not
expected to be generally as liquid as the market for some OCC standardized
options.
Potential Governmental Intervention. Foreign exchange rates can either be
fixed by sovereign governments or float. Exchange rates of most economically
developed nations, including Japan and the United States, are permitted to
fluctuate in value relative to the Japanese Yen and U.S. Dollar. National
governments, however, rarely voluntarily allow their currencies to float freely
in response to economic forces. Sovereign governments in fact use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their currencies.
Governments may also issue a new currency to replace an existing currency or
alter the exchange rate or relative exchange characteristics by devaluation or
revaluation of their currency. Thus, a special risk in purchasing Warrants is
that their liquidity, trading value and Cash Settlement Values could be affected
by governmental actions which could change or interfere with theretofore freely
determined currency valuation, fluctuations in response to other market forces
and the movement of currencies across borders. There will be no adjustment or
change in the terms of the Warrants in the event that exchange rates should
become fixed, or in the event of any devaluation or revaluation or imposition of
exchange or other regulatory controls or taxes, or in the event of other
developments affecting the Japanese Yen, the U.S. Dollar or any other currency.
In contrast, the OCC has reserved the authority to adjust the terms of its
standardized options for certain governmental action and to impose special
exercise settlement procedures.
General Risk Considerations. Options and warrants provide opportunities
for investment and pose risks to investors as a result of fluctuations in the
value of the underlying investment interests. In general, certain of the risks
associated with the Warrants are similar to those generally applicable to other
options or warrants of corporate issuers. However, unlike options or warrants on
equities or debt securities, which are priced primarily on the basis of the
value of a single underlying security, the trading value of a Warrant is likely
to reflect primarily present and expected exchange rates.
The purchaser of a Warrant may lose his entire investment. The 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 U.S. Dollar as
compared to the Japanese Yen, become worthless by the Warrant's expiration date.
Assuming all other factors are held constant, the more a Warrant is "out of the
money" (i.e., the greater the positive difference between the Strike Rate and
the Spot Rate) and the shorter its remaining term to expiration, the greater the
risk that a purchaser of the Warrant will lose all or part 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 in the Warrant if it expires when the Spot Rate is less than or equal
to the Strike Rate.
The fact that Warrants may become valueless upon expiration means that in
order to make a profit a purchaser of a Warrant must generally be correct about
both the direction and magnitude of an anticipated exchange rate change
affecting the Japanese Yen in relation to the U.S. Dollar and be correct about
when that exchange rate change will occur. If the value of the U.S. Dollar as
compared to the Japanese Yen does not increase before the Warrant is
automatically exercised to an extent sufficient to cover an investor's cost of
the Warrant (i.e., the purchase price plus transaction costs, if any), all or
part of such investor's investment in the Warrant would be lost upon such
automatic exercise. Warrantholders will thus bear the foreign exchange risks of
the U.S. Dollar as compared to the Japanese Yen.
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<PAGE> 8
Investors should also consider factors affecting the Japanese economy and
the U.S. economy. In addition, the value of any currency, including the Japanese
Yen and the U.S. Dollar, may be affected by complex political and economic
factors. See "Exchange Rates."
There is no systematic reporting of last-sale information for foreign
currencies. Reasonably current, representative bid and offer information is
available on the floor of any exchange where foreign currency is traded, in
certain broker's offices, in bank foreign currency trading offices, and to
others who wish to subscribe for this information. There is, however, no
regulatory requirement that those quotations be firm or revised on a timely
basis. The absence of last-sale information and the limited availability of
quotations to individual investors may make it difficult for investors to obtain
timely, accurate data about the state of the underlying foreign exchange market.
In addition, the quotation information that is available is representative of
very large round lot or "wholesale" transactions in the interbank market and
does not reflect exchange rates for smaller odd lot or "retail" transactions.
Because more favorable rates are generally obtained in large transactions, the
rate that will be obtained at any given time in connection with the exercise of
a small aggregate number of Warrants is likely to be less favorable than the
rates reported in quotation information generally available to investors at such
time.
In general, a wholesale, round lot quote would be obtained in a transaction
valued at approximately $5 million or more and a retail, odd lot quote would be
obtained in a transaction valued at less than approximately $5 million.
Accordingly, because the Spot Rate on any date will be obtained for transaction
amounts approximately equivalent to U.S. $100 times the aggregate number of
Warrants being exercised on such date, a wholesale, round lot quote generally
would be obtained in a transaction involving the aggregate exercise of
approximately 50,000 Warrants or more on any particular date, and a retail, odd
lot quote generally would be obtained in a transaction involving the aggregate
exercise of fewer than approximately 50,000 Warrants on any particular date.
Furthermore, the difference between a wholesale, round lot quote and a retail,
odd lot quote generally would not be expected to exceed approximately one
percent. However, on any given day and in the context of any particular
transaction, the distinction between, and the size of, a wholesale, round lot
transaction and a retail, odd lot transaction and the variation of the
difference between the related quotes can vary, in some cases materially,
because of the many factors that influence the foreign exchange market, as more
fully discussed above and under "Exchange Rates" below. Accordingly, no
assurance can be given as to whether the aggregate number of Warrants exercised
on any day will constitute a wholesale, round lot transaction or a retail, odd
lot transaction or as to the quotes to be obtained in connection therewith.
At the time a Warrantholder delivers its notice of exercise, such holder
will not know the aggregate number of Warrants to be exercised on the applicable
Exercise Date, see "Description of the Warrants-- Exercise of Warrants" below,
and accordingly will not know whether the rate to be obtained on such Exercise
Date will be based on a wholesale or retail transaction. In addition, the rate
to be obtained on any Exercise Date may differ, in some cases significantly,
from the quotes generally available to a Warrantholder on the date it delivers
its notice of exercise due to changes in market conditions.
CERTAIN IMPORTANT INFORMATION
CONCERNING THE WARRANTS
The beneficial owner of a Warrant (a "Warrantholder") will receive a cash
payment upon exercise (including automatic exercise) only if such Warrant has a
Cash Settlement Value or, if applicable, an Alternative Settlement Amount
greater than zero at such time. The Cash Settlement Value of a Warrant will be
an amount in U.S. Dollars equal to the greater of (i) zero and (ii) the amount
(rounded down to the nearest cent) computed by subtracting from U.S. $100 an
amount equal to the product of U.S. $100 times a fraction the numerator of which
is Yen per U.S. Dollar (the "Strike Rate") and the denominator of which is
the spot exchange rate of the Japanese Yen for the U.S. Dollar (expressed as a
number of Japanese Yen per U.S. Dollar and determined by the Calculation Agent)
at 10:00 A.M., New York City time, on the applicable valuation date (the "Spot
Rate"). The Strike Rate is equal to the spot exchange rate of the Japanese Yen
for the U.S. Dollar quoted by the Calculation Agent at New York City time,
on the date hereof. See "Description of the Warrants--Cash Settlement Value" and
"--Alternative Settlement Amount." The
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<PAGE> 9
Calculation Agent will not be responsible for good faith errors or omissions in
calculating or disseminating information regarding the Spot Rate, the Cash
Settlement Value or the Alternative Settlement Amount.
Warrantholders will be subject to foreign exchange risk which may have
important economic and tax consequences to them. See "Exchange Rates" and
"Certain United States Federal Income Tax Considerations."
Except under the circumstances described in the next paragraph, the
valuation date for an exercised Warrant will be the first New York Business Day
after the related Exercise Date. The Exercise Date for an exercised Warrant,
subject to certain exceptions described under "Description of the
Warrants -- Automatic Exercise" 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 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 of Warrants."
The valuation date for an exercised Warrant will occur after the Exercise
Date (see "Description of the Warrants--Exercise of Warrants"). Therefore, a
Warrantholder will not be able to determine, at the time of exercise of a
Warrant, the Spot Rate that will be used in calculating the Cash Settlement
Value of such Warrant (and will thus be unable to determine such Cash Settlement
Value). Any downward movement in the value of the U.S. Dollar relative to the
Japanese Yen between the time a Warrantholder submits an Exercise Notice and the
time the Spot Rate for such exercise is determined (which period will, at a
minimum, represent an entire New York Business Day) will result in such
Warrantholder being entitled to a Cash Settlement Value or Alternative
Settlement Amount (which may be zero) that is less than the Cash Settlement
Value anticipated by such Warrantholder.
The Warrants will initially be evidenced by certificates in registered form
(each a "Warrant Certificate"). To exercise a Warrant in certificated form the
registered holder of such Warrant must deliver to the Warrant Agent the Warrant
Certificate representing such Warrant, with the Exercise Notice on the reverse
thereof (or an Exercise Notice in substantially identical form delivered
therewith) duly completed and executed. Accordingly, a beneficial owner of
Warrants holding such Warrants indirectly (for instance, through a broker that
holds such Warrants in "street name") may exercise such Warrants only through
such owner's registered holder. In the case of a beneficial owner holding
Warrants through his broker in "street name," such beneficial owner must direct
his broker, who may in turn need to direct another intermediary, to deliver an
Exercise Notice and the related Warrant Certificates to the Warrant Agent. In
order to ensure that an Exercise Notice and the related Warrant Certificates
will be delivered to the Warrant Agent before 3:00 P.M., New York City time, on
a given New York Business Day, a beneficial owner of Warrants may have 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 firms may have
different cut-off times for accepting and implementing exercise instructions
from their customers. Therefore, Warrantholders should consult their brokers or
other intermediaries, if applicable, as to applicable cut-off times and other
exercise mechanics. See "Description of the Warrants--Exercise of Warrants"
herein.
Forty-five calendar days after the closing of the offering, each registered
warrantholder will have the option to convert the form of such warrantholder's
Warrant from certificated to book-entry form within a forty-five calendar day
period as described herein. See "Description of the Warrants--Form of Warrants"
herein. To exercise a Warrant in book-entry form, (i) the participant through
which the Warrant is held must transfer such Warrant free on the records of the
Depository to the account of the Warrant Agent and (ii) a duly completed and
executed Exercise Notice on behalf of the Warrantholder must be delivered to the
Warrant Agent by the participant. A Warrantholder that is not a participant must
therefore instruct the broker or other intermediary that maintains the
Warrantholder's account to take such action, and if that firm is not a
participant, that firm must forward such instructions to the participant which
ultimately holds the relevant Warrants for the Depository. In order to ensure
that such Warrants and Exercise Notice will be received by the Warrant Agent on
a particular day, such Warrantholder must give exercise instructions to the
broker or other intermediary through which it holds the Warrant (which may, in
turn, need to direct a participant) before that firm's (and, if that firm is not
a participant, the applicable participant's) cut-off time for accepting exercise
instructions for that day. Different firms may have different cut-off times for
accepting exercise instructions
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<PAGE> 10
from their customers. Therefore, Warrantholders should consult their brokers or
other intermediaries, if applicable, as to applicable cut-off times and other
exercise mechanics. See "Description of the Warrants--Exercise of Warrants"
herein.
FORMS OF EXERCISE NOTICE APPEAR ON THE REVERSE OF THE WARRANT CERTIFICATES
OR MAY BE OBTAINED AT THE WARRANT AGENT'S OFFICE, DURING THE WARRANT AGENT'S
NORMAL BUSINESS HOURS. SEE "DESCRIPTION OF THE WARRANTS--GENERAL."
The Warrants will be "at-the-money" (i.e., their Cash Settlement Value will
be zero) when initially offered and will be "in-the-money" (i.e., their Cash
Settlement Value will be greater than zero) on any given day only if the Spot
Rate exceeds the Strike Rate. An increase in the positive difference, if any,
between the Spot Rate and the Strike Rate will result in a greater Cash
Settlement Value, and a decrease in such difference 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 its expiration and if at expiration
the Strike Rate equals or exceeds the Spot Rate, such Warrant will expire
worthless and the Warrantholder will have sustained a total loss of the purchase
price of such Warrant. See "Risk Factors."
Investors considering purchasing Warrants should be experienced with
respect to options and option transactions and understand the risks of foreign
exchange transactions and 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 recommends that the
Warrants be sold only to investors whose accounts have been approved for options
trading, and requires that its members and member organizations and the
registered employees thereof make certain suitability determinations before
recommending transactions in Warrants.
A Warrantholder may exercise no fewer than 500 Warrants at any time, except
in the case of automatic exercise. Accordingly, except in the case of automatic
exercise 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.
DESCRIPTION OF THE WARRANTS
GENERAL
The Warrants will be issued pursuant to the Warrant Agreement (the "Warrant
Agreement"), to be dated as of March , 1994, between Holdings and Citibank,
N.A., as Warrant Agent (the "Warrant Agent"). The following summaries of certain
provisions of the Warrants and the Warrant Agreement 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 form of Warrant
Certificate and Global Warrant Certificate 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 111 Wall Street, 5th Floor, New York, New York 10043, Attention:
Corporate Trust Department, during the Warrant Agent's normal business hours.
The aggregate number of Warrants to be issued will be 2,000,000, subject to
the over-allotment option granted by Holdings to the Underwriters (see
"Underwriting") and to the right of Holdings to "reopen" the issue of Warrants
and issue additional Warrants at a later time.
A Warrant will not require or entitle a Warrantholder to purchase U.S.
Dollars from, or sell Japanese Yen to, Holdings. Upon exercise of a Warrant,
Holdings will make only a U.S. Dollar cash payment in the amount of the Cash
Settlement Value or Alternative Settlement Amount, if any and as applicable, of
such Warrant. Holdings is under no obligation to, nor will it, sell U.S. Dollars
to, or purchase Japanese Yen from, Warrantholders in connection with the
exercise of any Warrants. Warrantholders will not receive any interest on any
Cash Settlement Value or Alternative Settlement Amount.
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<PAGE> 11
CASH SETTLEMENT VALUE
Except as described under "Alternative Settlement Amount," each Warrant
will entitle the Warrantholder to receive upon exercise (including automatic
exercise), the Cash Settlement Value of such Warrant. The "Cash Settlement
Value" of a Warrant will equal an amount in U.S. Dollars which is the greater of
(i) zero and (ii) the amount (rounded down to the nearest cent) computed by
subtracting from U.S. $100 an amount equal to the product of U.S. $100 times a
fraction, the numerator of which is Yen per U.S. Dollar and the denominator
of which is the spot exchange rate of the Japanese Yen for the U.S. Dollar
(expressed as a number of Japanese Yen per U.S. Dollar and determined by the
Calculation Agent) at 10:00 A.M., New York City time on the applicable Valuation
Date, as set forth under "Description of the Warrants--Exercise of Warrants."
This amount is described by the following formula:
<TABLE>
<S> <C>
( ( Strike Rate ))
Cash Settlement Value = the greater of (i) $0 and (ii) $100 - ($100 x (------------ ))
( ( Spot Rate ))
</TABLE>
The Calculation Agent will determine the Spot Rate as follows: with respect
to exercises other than automatic exercises, the Calculation Agent will obtain a
quote for the relevant bid spot rate for the U.S. Dollar from one Reference Bank
and select the higher (i.e., the rate expressed as the greater number of
Japanese Yen per U.S. Dollar) of the relevant bid spot rate for the U.S. Dollar
quoted by the Calculation Agent and the quote obtained from the Reference Bank;
and with respect to automatic exercises, the Calculation Agent will obtain
quotes for the relevant bid spot rate for the U.S. Dollar from two Reference
Banks and select the highest of the relevant bid spot rate for the U.S. Dollar
quoted by the Calculation Agent and the quotes obtained from the Reference
Banks. Each "Reference Bank" will be a bank that is a leading market maker in
the foreign exchange market for the relevant currencies. Market makers in the
foreign exchange market for foreign currencies, such as the Japanese Yen, base
their spot rate quotes on the bid and asked quotes obtained in connection with
their market making activities in the relevant foreign currencies. Such quotes
with respect to the exercise of Warrants are likely to vary with reference to
the aggregate number of Warrants being exercised as of a given date: in general,
the quotes with respect to the exercise of a small aggregate number of Warrants
on any date are likely to be retail, odd lot quotes, while the quotes with
respect to the exercise of a large aggregate number of Warrants are likely to be
wholesale, round lot quotes. In connection with an automatic exercise of the
Warrants, the quote obtained will depend on the number of Warrants that remain
outstanding at the time of automatic exercise. With respect to any Exercise
Date, the spot exchange rates to be quoted by the Calculation Agent and the
Reference Bank or Banks, as applicable, will be based on the aggregate number of
Warrants being exercised on such date, determined as provided above. The Spot
Rate will be rounded by the Calculation Agent to the second decimal place,
rounding up if the third decimal place, without regard to rounding, is five or
higher and otherwise truncating after the second decimal place.
ALTERNATIVE SETTLEMENT AMOUNT
If the Warrants are automatically exercised on the Delisting Date as
described under "Delisting of Warrants" below, each Warrant will entitle the
Warrantholder to receive, in lieu of the Cash Settlement Value, the Alternative
Settlement Amount of such Warrant. The "Alternative Settlement Amount" of a
Warrant will be calculated by the Calculation Agent as of 10:00 A.M., New York
City time, on the Valuation Date and will equal an amount in U.S. Dollars
(rounded down to the nearest cent) which is equal to the amount "X" calculated
using the formula set forth below:
X = I + ((A/B) X (T-Z))
where
I = the Cash Settlement Value of the Warrants determined as described
above;
A = the total number of days from but excluding the Valuation Date for such
Warrants to and including the Expiration Date;
B = the total number of days from but excluding the date the Warrants were
initially sold to and including the Expiration Date;
T = $ , the initial offering price per Warrant; and
Z = the lesser of T or I.
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<PAGE> 12
WARRANT VALUES ON EXERCISE
Set forth below are a series of illustrative examples demonstrating the
Cash Settlement Value of a Warrant at exercise, based on various hypothetical
Spot Rates and a Strike Rate of Yen 105.14 per U.S. Dollar. The illustrative
Cash Settlement Values in the table do not reflect any "time value" for a
Warrant, which may be reflected in the trading value, and are not necessarily
indicative of potential profit or loss, which are affected in addition by
purchase price and transaction costs. See "Cash Settlement Value" above for a
description of the method of calculation of the Cash Settlement Value.
<TABLE>
<CAPTION>
CASH
HYPOTHETICAL SETTLEMENT
SPOT RATE VALUE OF A
Yen/$ WARRANT
- ------------- ----------
<S> <C>
105.14 $ 0.00
109.00 $ 3.54
112.00 $ 6.13
115.00 $ 8.57
118.00 $10.90
121.00 $13.11
124.00 $15.21
127.00 $17.21
130.00 $19.12
133.00 $20.95
</TABLE>
FORM OF WARRANTS
The Warrants will initially be evidenced by Warrant Certificates in
registered form. Forty-five calendar days after the closing of the offering,
each registered warrantholder will have the option to convert the form of such
Warrantholder's Warrant from certificated to book-entry form within a forty-five
calendar day period (the "Conversion Option Period"). In order to be exchanged
for Warrants in book-entry form (represented by a beneficial interest in the
Global Warrant described below), a Warrant Certificate must be delivered to the
Depository in the manner referred to below. The Conversion Option Period is
expected to run from , 1994 through , 1994. Warrant
Certificates received by the Depository 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 so received by the Depository (if received
by the Depository at its then applicable cut-off time for same day credit) or on
the following New York Business Day (if received by the Depository at its then
applicable cut-off time for next day credit). After the last day of the
Conversion Option Period, the Depository will not be required to accept delivery
of Warrant Certificates for exchange for book-entry Warrants, but may permit
Warrant Certificates to be so exchanged on a case-by-case basis. It is
anticipated that after the Conversion Option Period, Warrant Certificates
delivered to the Depository in proper form for deposit will be accepted by the
Depository for exchange for book-entry Warrants, generally within three to four
New York Business Days after delivery to the Depository. However, there can be
no assurance that such Warrant Certificates will be accepted for exchange.
Further, there can be no assurance, with respect to Warrant Certificates
accepted for exchange, that exchange will occur within that time period.
Warrants surrendered at any time for exchange for book-entry Warrants may not be
exercised or delivered for settlement of transfer until such exchange has been
effected. Accordingly, if an increase in the value of the U.S. Dollar as
compared to the Japanese Yen were to occur after a Warrant Certificate had been
surrendered for exchange into book-entry form, the Warrantholder would not be
able to take advantage of the increase by exercising its 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 the
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<PAGE> 13
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.
In order to be exchanged for a Warrant in book-entry form, a Warrant
Certificate must be delivered to the Depository, in proper form for deposit, by
a participant of the Depository. Accordingly, a Warrantholder which is not a
participant must deliver its Warrant Certificate, in proper form for deposit, to
such a participant, either directly or through an indirect participant or
brokerage firm which maintains an account with the participant, in order to have
its 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 the Depository, including the proper form for submission and
(during the Conversion Option Period) the cut-off times for same day and next
day exchange. 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 (i.e.,such beneficial owner need not deliver a Warrant Certificate).
Warrant Certificates which have been exchanged into book-entry form may not
be re-exchanged for Warrant Certificates, except under the limited circumstances
described in the accompanying Prospectus under "Global Securities."
WARRANT CERTIFICATES
The Warrant Agent will maintain a register (the "Warrant Register") for
registering the ownership of and transfers of Warrants represented by Warrant
Certificates. Prior to due presentment for registration of transfer, Holdings,
the Warrant Agent, and any agent of either of them may deem and treat the person
in whose name a Warrant Certificate is registered (the "registered holder") as
the absolute owner of the Warrants evidenced by such Warrant Certificate for any
purpose whatsoever, and as the person entitled to exercise the rights
represented by the Warrants evidenced thereby, and neither Holdings, the Warrant
Agent, nor any agent of either of them shall be affected by any notice to the
contrary. Accordingly, if a beneficial owner of a Warrant evidenced by a Warrant
Certificate is not the registered holder thereof (for example, if it holds the
Warrant Certificate through a broker holding such Warrant Certificate in nominee
or "street" name), it may exercise its rights as a Warrantholder (including its
right to exercise Warrants) only through the registered holder.
The Warrant Agent shall from time to time register the transfer of any
outstanding Warrant Certificates upon surrender thereof at the Warrant Agent's
Office, duly endorsed, or accompanied by a written instrument or instruments of
transfer in form satisfactory to the Warrant Agent, duly executed by the
registered holder thereof, by the duly appointed legal representative thereof or
by its duly authorized attorney, such signature to be guaranteed by a bank or
trust company located, or with a correspondent office, in The City of New York
or by a broker or dealer which is a member of a national securities exchange. A
new Warrant Certificate shall 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 of Warrants, upon
surrender to the Warrant Agent at the Warrant Agent's Office of the Warrant
Certificates to be exchanged. Holdings shall thereupon execute, and the Warrant
Agent shall countersign and deliver, one or more new Warrant Certificates
representing a like number of Warrants.
In the event that upon any exercise of Warrants evidenced by a Warrant
Certificate the number of Warrants exercised is less than the total number of
Warrants evidenced by such Certificate, there shall be issued to the holder
thereof or such holder's assignee a new Warrant Certificate evidencing the
number of Warrants not exercised.
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 and upon cancellation of the
mutilated Warrant Certificate, or in lieu of the lost, stolen or destroyed
Warrant Certificate, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only (in the case of loss, theft or
destruction) upon receipt of evidence satisfactory to Holdings and the Warrant
Agent of such
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<PAGE> 14
loss, theft or destruction of such Warrant Certificate and security or
indemnity, if requested, also satisfactory to them. Applicants for substitute
Warrant Certificates must also comply with such other reasonable regulations and
pay such other reasonable charges as Holdings or the Warrant Agent may
prescribe. In case any such mutilated, lost, stolen or destroyed Warrant
Certificate has been or is about to be exercised, or deemed to be exercised,
Holdings in its absolute discretion may, instead of issuing a new Warrant
Certificate, direct the Warrant Agent to treat the same as if it had received
irrevocable notice of exercise in proper form in respect thereof, as provided
below.
BOOK-ENTRY FORM
Warrants held in book-entry form will be held in the form of one or more
global certificates (the "Global Warrant") registered in the name of the nominee
of the depository, The Depository Trust Company ("DTC", and together with any
successor depository, the "Depository"). Holdings anticipates that the
Depository's initial nominee will be CEDE & Co. ("CEDE"). Accordingly, CEDE is
expected to be the registered holder of the Warrants in book-entry form.
DTC is a limited-purpose trust company which was created to hold securities
for its participating organizations ("participants") and to facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants. Participants
include securities brokers and dealers (including the Underwriters), banks and
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants"). Persons
who are not participants may beneficially own securities held by DTC only
through participants or indirect participants.
Under the Warrant Agreement, DTC's nominee for all purposes will be
considered the sole owner or holder of the Warrants which are held in book-entry
form. Warrantholders which own Warrants in book-entry form will not be entitled
to have Warrants registered in their names, will not be considered the holders
thereof under the Warrant Agreement, and will not be entitled to exchange their
book-entry Warrants for definitive form Warrant Certificates, except under the
limited circumstances described below.
A Warrantholder that is not a participant will have its ownership of a
Warrant in book-entry form recorded on or through the records of the brokerage
firm or other entity that maintains such Warrantholder's account. In turn, the
total number of Warrants in book-entry form held by an individual brokerage firm
for its clients will be maintained on the records of the Depository in the name
of such brokerage firm (or in the name of a participant that acts as agent for
the Warrantholder's brokerage firm if such firm is not a participant).
Therefore, a Warrantholder must rely upon the foregoing procedures to evidence
such Warrantholder's ownership of a Warrant in book-entry form. Transfer of
ownership of a Warrant in book-entry form may be effected only through the
Depository, and, if applicable, the brokerage firm or other entity that
maintains the selling Warrantholder's book-entry account. The laws of some
states of the United States may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits on
transfer and such laws may impair the ability to own, transfer or pledge
Warrants in book-entry form.
Neither Holdings nor the Warrant Agent will have any responsibility or
liability for any aspect of the records relating to or payments made to
beneficial owners of book-entry Warrants or for maintaining, supervising or
reviewing any records relating to such beneficial owners.
Holdings understands that under existing industry practices, in the event
that Holdings requests any action of Warrantholders or that Warrantholders which
own Warrants in book-entry form desire to give or take any action which
Warrantholders are entitled to give or take under the Warrant Agreement, the
Depository would authorize the participants to give or take such action, and
such participants would authorize Warrantholders owning through such
participants to give or take such action or would otherwise act upon the
instructions of Warrantholders owning through them. Accordingly, each
Warrantholder which owns a Warrant in book-entry form must rely on the
procedures of the Depository and, if such Warrantholder is not a participant, on
the procedures of the participant through which such Warrantholder owns its
Warrant, to exercise any rights of a Warrantholder under the Warrant Agreement.
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<PAGE> 15
EXERCISE OF WARRANTS
The Warrants will be immediately exercisable upon issuance and will expire
on March , 1996. Warrants not exercised at or before 3:00 P.M., New York City
time, on the New York Business Day immediately preceding the earlier of the
Expiration Date and the Delisting Date will be automatically exercised as
described under "Automatic Exercise" below.
Except in the case of automatic exercise, to exercise a Warrant not in
book-entry form a Warrantholder must deliver to the Warrant Agent at the Warrant
Agent's Office the Warrant Certificate representing such Warrant, with a duly
completed notice (executed by the registered holder) on the reverse thereof (or
a notice in substantially identical form delivered therewith) indicating an
irrevocable election to exercise such Warrants (such notice, an "Exercise
Notice"). Except for Warrants subject to automatic exercise, the "Exercise Date"
for a Warrant will be (i) the New York Business Day on which the Warrant Agent
receives the Warrant Certificate and Exercise Notice in proper form with respect
to such Warrant, if received at or prior to 3:00 P.M., New York City time, on
such day, or (ii) if the Warrant Agent receives such Warrant Certificate and
Exercise Notice after 3:00 P.M., New York City time, on a New York Business Day,
then the New York Business Day next succeeding such New York Business Day. In
order to ensure that an Exercise Notice and the related Warrant Certificates
will be delivered to the Warrant Agent before 3:00 P.M., New York City time, on
a given New York Business Day, a beneficial owner of Warrants may have 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 firms may have
different cut-off times for accepting and implementing exercise instructions
from their customers. Therefore, Warrantholders should consult their brokers or
other intermediaries, if applicable, as to applicable cut-off times and other
exercise mechanics.
To exercise a Warrant in book-entry form, (i) the participant through which
the Warrant is held must transfer such Warrant free on the records of the
Depository to the account of the Warrant Agent and (ii) a duly completed and
executed Exercise Notice on behalf of the Warrantholder must be delivered to the
Warrant Agent by the participant. The Warrant Agent's current facsimile number
for these purposes is (201) 262-7521. A Warrantholder that is not a participant
must therefore instruct the broker or other intermediary that maintains the
Warrantholder's account to take such action, and if that firm is not a
participant, that firm must forward such instructions to the participant which
ultimately holds the relevant Warrants for the Depository. In order to ensure
that such Warrants and Exercise Notice will be received by the Warrant Agent on
a particular day, such Warrantholder must give exercise instructions to the
broker or other intermediary through which it holds the Warrants (which may, in
turn, need to direct a participant) before that firm's (and, if that firm is not
a participant, the applicable participant's) cut-off time for accepting exercise
instructions for that day. Different firms may have different cut-off times for
accepting exercise instructions from their customers. Therefore, Warrantholders
should consult their brokers or other intermediaries, if applicable, as to
applicable cut-off times and other exercise mechanics.
FORMS OF EXERCISE NOTICE APPEAR ON THE REVERSE OF THE WARRANT CERTIFICATES
OR MAY BE OBTAINED AT THE WARRANT AGENT'S OFFICE, DURING THE WARRANT AGENT'S
NORMAL BUSINESS HOURS. SEE "DESCRIPTION OF THE WARRANTS -- GENERAL."
The "Valuation Date" for a Warrant will be the first New York Business Date
following the Exercise Date. The following is an illustration of the timing of
an Exercise Date and the ensuing Valuation Date, assuming that all relevant
dates are New York Business Days. 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 Thursday, April 21, 1994, the Exercise Date for
such Warrants will be April 21 and the Valuation Date for such Warrants will be
Friday, April 22, 1994. The Spot Rate used to determine the Cash Settlement
Value of such Warrants will be the Spot Rate on April 22 (i.e., the spot
exchange rate at 10:00 A.M., New York City time, on April 22). If the Warrant
Agent were to receive such Warrantholder's Warrants and Exercise Notice after
3:00 P.M., New York City time, on Thursday, April 21, 1994, then the Exercise
Date for such Warrants would instead be Friday, April 22 and, the Valuation Date
would be Monday, April 25.
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 (i) obtain from the Calculation Agent the Spot
Rate (ii) obtain from the Calculation Agent the Cash Settlement Value of such
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<PAGE> 16
Warrants and (iii) advise Holdings of the aggregate Cash Settlement Value of the
exercised Warrants. Holdings will be required to make available to the Warrant
Agent, no later than 3:00 P.M., New York City time, on the fifth New York
Business Day following the Valuation 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 be responsible for making payment available
either (i) in respect of Warrant Certificates, 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 $100,000 or more) 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 such date or
(ii) in respect of 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 $100,000 or more) 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 such date. Each participant will be
responsible for disbursing such payments to the Warrantholders that 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
that it represents.
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. Accordingly, except in the case
of automatic exercise 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.
AUTOMATIC EXERCISE
All Warrants for which a valid Exercise Notice and, if applicable, the
related Warrant Certificate have not been received by the Warrant Agent at or
prior to 3:00 P.M., New York City time, on the New York Business Day immediately
preceding the Expiration Date or the Delisting Date, as the case may be, will be
automatically exercised on such date. 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 from the Calculation Agent the Spot Rate, and will
determine the Cash Settlement Value or Alternative Settlement Amount, if any, of
such Warrants.
LISTING
Application has been made to list the Warrants on the American Stock
Exchange under the symbol " ."
DELISTING OF WARRANTS
In the event that the Warrants are delisted from, or permanently suspended
from trading (within the meaning of the Exchange Act and the rules and
regulations thereunder) on, the AMEX and not accepted at the same time for
listing on another Self-Regulatory Organization, Warrants not previously
exercised will be deemed automatically exercised on the effective date of such
delisting or trading suspension (the "Delisting Date"), and the Alternative
Settlement Amount, if any, with respect to such Warrants shall be calculated as
provided above under "Cash Settlement Value" and "Alterative Settlement Amount."
Holdings will notify Warrantholders as soon as practicable of such delisting or
trading suspension. 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.
S-16
<PAGE> 17
EXCHANGE RATES
EXCHANGE RATES
The following table sets forth the average for the months indicated, as
calculated by the Calculation Agent, of the daily noon buying rates in New York
City as such daily rates were reported in Statistical Release H.10 of the Board
of Governors of the Federal Reserve System.
<TABLE>
<CAPTION>
Yen/$
-------
<S> <C> <C>
1989: January............................................... 127.36
February.............................................. 127.74
March................................................. 130.55
April................................................. 132.04
May................................................... 137.86
June.................................................. 143.98
July.................................................. 140.42
August................................................ 141.31
September............................................. 145.07
October............................................... 142.21
November.............................................. 143.53
December.............................................. 143.69
1990: January............................................... 144.98
February.............................................. 145.70
March................................................. 153.31
April................................................. 158.46
May................................................... 154.04
June.................................................. 153.74
July.................................................. 149.04
August................................................ 147.68
September............................................. 138.45
October............................................... 129.59
November.............................................. 129.22
December.............................................. 133.89
1991: January............................................... 133.70
February.............................................. 130.54
March................................................. 137.39
April................................................. 137.12
May................................................... 138.22
June.................................................. 139.75
July.................................................. 137.83
August................................................ 136.82
September............................................. 134.30
October............................................... 130.77
November.............................................. 129.63
December.............................................. 128.04
</TABLE>
S-17
<PAGE> 18
<TABLE>
<CAPTION>
Yen/$
-------
<S> <C> <C>
1992: January............................................... 125.46
February.............................................. 127.70
March................................................. 132.86
April................................................. 133.54
May................................................... 130.77
June.................................................. 126.84
July.................................................. 125.88
August................................................ 126.23
September............................................. 122.60
October............................................... 121.17
November.............................................. 123.88
December.............................................. 124.04
1993: January............................................... 124.99
February.............................................. 120.76
March................................................. 116.96
April................................................. 112.41
May................................................... 110.34
June.................................................. 107.41
July.................................................. 107.69
August................................................ 103.77
September............................................. 105.55
October............................................... 106.95
November.............................................. 107.86
December.............................................. 109.90
1994: January............................................... 111.43
February (through February 23)........................ 106.43
</TABLE>
The actual exchange rates for Japanese Yen per U.S. Dollar, and the spot
exchange rates determined pursuant to the Warrant Agreement upon exercise of
Warrants, could materially differ from the noon buying rates as reported by the
Board of Governors of the Federal Reserve System.
The information presented in this Prospectus Supplement relating to the
exchange rate of the U.S. Dollar as compared to the Japanese Yen is furnished as
a matter of information only. The fluctuations in the Yen/$ exchange rate that
have occurred in the past are not necessarily indicative of fluctuations in that
rate that may occur over the term of the Warrants.
The spot exchange rates between the Japanese Yen and U.S. Dollars are at
any moment a result of the supply of and demand for the currencies being
compared, and changes in the rates result over time from the interaction of many
factors directly or indirectly affecting economic and political conditions in
Japan and the United States, including economic and political developments in
other countries. Of particular importance are rates of inflation, interest rate
levels, the balance of payments and the extent of governmental surpluses or
deficits in Japan and the United States, all of which are in turn sensitive to
the monetary, fiscal and trade policies pursued by the governments of Japan, the
United States and other countries important to international trade and finance.
See "Risk Factors."
As discussed under "Description of the Warrants," the spot exchange rate of
the U.S. Dollar as compared to the Japanese Yen will determine the Cash
Settlement Value of a Warrant upon exercise. Appreciation of the U.S. Dollar as
compared to the Japanese Yen (i.e., depreciation of the Japanese Yen as compared
to the U.S. Dollar) will result in a greater Cash Settlement Value. Conversely,
depreciation of the U.S. Dollar as compared to the Japanese Yen (i.e.,
appreciation of the Japanese Yen as compared to the U.S. Dollar) will result in
a lesser or zero Cash Settlement Value. Warrantholders will thus bear the
foreign exchange risks of the U.S. Dollar as compared to the Japanese Yen.
S-18
<PAGE> 19
EXCHANGE CONTROLS
The amended Foreign Exchange and Foreign Trade Control Law of Japan, which
came into effect in 1980, has deregulated external transactions in principle.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
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." 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 WITH THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein, a "United States Holder" of a 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 "section 1256 contract" which must be
"marked-to-market" (i.e., treated as sold at fair market value) on the last
business day of each taxable year. Under these mark-to-market rules, a United
States Holder of a Warrant will recognize 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. A United States Holder's tax basis in
a Warrant will 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. As a result of these 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 the receipt of cash attributable
thereto.
SALE, EXCHANGE AND EXERCISE OF WARRANTS
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.
CHARACTER OF GAIN OR LOSS
In the absence of a section 988 election as described below, any gain or
loss (described above) will be capital gain or loss and will be 60% long-term
capital gain or loss and 40% short-term capital gain or loss. With respect to a
corporate United States Holder, capital losses for a taxable year are allowed
only to the extent of the holder's capital gains for such year, but may be
carried back for three taxable years and carried forward for five taxable years.
With respect to individual United States Holders, in general, capital losses for
the taxable year are allowed only to the extent of the holder's capital gains
for the taxable year plus $3,000, but may be carried forward against net capital
gains. An individual may elect, however, to carry net capital losses from
section 1256 contracts for the taxable year back against net capital gains from
section 1256 contracts for the three preceding taxable years. Net capital gains
of individuals are, under certain circumstances, taxed at lower rates than items
of ordinary income.
A United States Holder may elect under section 988 of the Code (a "section
988 election") to treat any gain or loss described above as ordinary income or
loss. If made, this election will apply to certain other section 1256 contracts,
such as regulated futures contracts and other nonequity options, held by such
United States
S-19
<PAGE> 20
Holder during the taxable year for which the election is made and any succeeding
taxable year and may not be revoked without the consent of the Internal Revenue
Service. United States Holders should consult with their own tax advisors
concerning the procedures for, and consequences of, making this election.
BACKUP WITHHOLDING
The proceeds received from a sale, exchange or exercise (including
automatic exercise) of a Warrant will 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 March , 1994 (the "Underwriting Agreement"), Holdings has agreed to
sell to each of the underwriters named below (the "Underwriters") for whom
Lehman Brothers Inc., Kidder, Peabody & Co. Incorporated and Oppenheimer & Co.,
Inc. are acting as representatives (the "Representatives"), and each of the
Underwriters has severally agreed to purchase, the number of Warrants set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER WARRANTS
-------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc.......................................................
Kidder, Peabody & Co.
Incorporated......................................................
Oppenheimer & Co., Inc. ..................................................
----------
Total........................................................... 2,000,000
----------
----------
</TABLE>
Holdings has been advised by the Representatives that the Underwriters
propose 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 $ per Warrant. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per Warrant. After the initial public offering, the public offering
price, the concession to selected dealers and the reallowance may be changed.
The Representatives have advised Holdings that they intend to make a market
in the Warrants but the Representatives are 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.
Holdings has granted an option to the Underwriters, exercisable within 30
days of the date of this Prospectus Supplement, to purchase up to an additional
300,000 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. To the extent that the Underwriters exercise such option,
the Underwriters will be committed, subject to certain conditions, to purchase
the number of additional Warrants proportionate to each Underwriter's initial
commitment.
Lehman Brothers Inc. is a wholly owned subsidiary of Holdings. The
participation of Lehman Brothers Inc. 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.
Lehman Brothers Inc. may, but is not obligated to, purchase and sell
Warrants for its own account for the purpose of making a market in the Warrants.
Holdings has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act.
S-20
<PAGE> 21
GLOSSARY
Set forth below are definitions of some of the terms in this Prospectus
Supplement that are not defined in the accompanying Prospectus.
"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.
"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.
In addition, 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-11
AMEX........................................................................... S-3
Cash Settlement Value.......................................................... S-11
CEDE........................................................................... S-14
Code........................................................................... S-19
Conversion Option Period....................................................... S-12
Delisting Date................................................................. S-16
Depository..................................................................... S-14
DTC............................................................................ S-14
Exercise Date.................................................................. S-15
Exercise Notice................................................................ S-15
Expiration Date................................................................ S-3
Global Warrant................................................................. S-14
Holdings....................................................................... S-3
indirect participants.......................................................... S-14
OCC............................................................................ S-7
participants................................................................... S-14
registered holder.............................................................. S-13
Representatives................................................................ S-20
Self-Regulatory Organization................................................... S-6
Spot Rate...................................................................... S-3
Strike Rate.................................................................... S-3
Underwriters................................................................... S-20
Underwriting Agreement......................................................... S-20
United States Holder........................................................... S-19
Valuation Date................................................................. S-15
Warrant Agent.................................................................. S-10
Warrant Agent's Office......................................................... S-10
Warrant Agreement.............................................................. S-10
Warrant Certificate............................................................ S-9
Warrant Register............................................................... S-13
Warrantholder.................................................................. S-8
</TABLE>
S-21
<PAGE> 22
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.$281,968,000, 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 "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) 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.
------------------------
September 15, 1993
<PAGE> 23
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 and FT-SE Eurotrack 200 Index Call Warrants
expiring June 4, 1996 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, 1992.
(2) Holdings' Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1993 and June 30, 1993.
(3) Holdings' Current Reports on Form 8-K dated February 10, 1993, May
7, 1993 and June 7, 1993.
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., 388 Greenwich Street,
33rd Floor, New York, New York 10013 (telephone (212) 464-7622).
2
<PAGE> 24
THE COMPANY
Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries
hereinafter referred to as the "Company" unless the context otherwise requires)
is a holding company which, through its wholly owned subsidiary Lehman Brothers
Inc. (together with its consolidated subsidiaries, hereinafter referred to as
"Lehman Brothers" unless the context otherwise requires), and other
subsidiaries, is one of the leading global investment banks which serves
institutional, corporate, government and high-net-worth individual clients in
major financial centers worldwide. The Company's businesses include capital
raising such as securities underwriting and direct placements; corporate finance
advisory services; merchant banking; securities sales and trading; institutional
asset management; research services; and the trading of foreign exchange,
certain commodities, as well as derivative products. The Company acts as a
market maker in all major fixed income and equity products in both the domestic
and foreign markets. The Company, which 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"), also holds memberships or
associate memberships on several principal foreign securities and commodities
exchanges, including The International Stock Exchange of the United Kingdom and
the Republic of Ireland and the Tokyo Stock Exchange. The Company acts as agent
on all such exchanges and in the over-the-counter markets.
Holdings was incorporated in Delaware on December 29, 1983. American
Express Company owns all of Holdings' issued and outstanding Common Stock and
Nippon Life Insurance Company owns all of Holdings' issued and outstanding
Cumulative Convertible Voting Preferred Stock, Series A. Holdings' principal
executive offices are located at Three World Financial Center, New York, New
York 10285 (telephone (212) 298-2000).
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, 1992 and
the six months ended June 30, 1993:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------
1988 1989 1990 1991 1992 1993
----- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
* 1.01 * 1.03 * *
</TABLE>
- ---------------
* Earnings were inadequate to cover fixed charges and would have had to increase
approximately $8 million, $766 million, $247 million and $310 million in order
to cover the deficiencies for the periods ended December 31, 1988, December
31, 1990, December 31, 1992 and June 30, 1993, 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> 25
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 and as of September 13, 1991 (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. The following summary of certain
provisions of the Indentures does not purport to be complete and is qualified in
its entirety by reference to the applicable Indenture and the Standard
Multiple-Series Indenture Provisions, copies of which 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.
The Prospectus Supplement will describe the terms of any Debt Securities
offered thereby, including the following: (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 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 "Denominations, Registration and
Transfer,"
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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; (16) if applicable, a discussion of
certain United States federal income tax, accounting or other special
considerations applicable thereto; and (17) 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 are
described under "United States Taxation" and may be further described in an
applicable Prospectus Supplement.
SENIOR DEBT
The Debt Securities constituting part of the senior debt of Holdings (the
"Senior Debt") will rank equally with all other unsecured debt of Holdings
except Subordinated Debt.
SUBORDINATED DEBT
The Debt Securities constituting part of the subordinated debt of Holdings
(the "Subordinated Debt") will be subordinate and junior in the right of
payment, to the extent and in the manner set forth in the Subordinated
Indenture, to all present or future Senior Debt. "Senior Debt" is defined to
mean (a) any indebtedness for money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness under capitalized leases,
(c) any indebtedness representing the deferred and unpaid 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
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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
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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
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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 July 31, 1993, Holdings'
Designated Subsidiaries were Lehman Brothers, 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 Commercial Corporation, Lehman
Special Securities Inc. ("LSSI"), Lehman Brothers Special Financing Inc., Lehman
Capital Corporation and The E.F. Hutton 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,
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continued for 30 days, in respect of any Debt Security of that series; (d)
failure to perform any other covenant of Holdings in the Indenture (other than a
covenant included in the applicable Indenture solely for the benefit of a series
of Debt Securities other than that series), continued for 90 days after written
notice as provided in the Indenture; (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 any 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
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longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Debt Securities of such
series and replacement of lost, stolen or mutilated Debt Securities, and shall
look only to such deposited funds or obligations for payment. (Sections 401 and
403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, Holdings may
omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms") and Section 1005 ("Limitations on
Liens on Common Stock of Designated Subsidiaries") 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
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waive any past default under the applicable Indenture with respect to that
series, except a default in the payment of the principal of or premium, if any,
or interest, if any, on any Debt Security of that series or in the payment of
any sinking fund 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).
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TITLE
Title to any temporary global Debt Security, any permanent global Debt
Security, any Bearer Securities and any coupons appertaining thereto will pass
by delivery. Holdings, each Trustee and any agent of Holdings or the applicable
Trustee may treat the bearer of any Bearer Security and the bearer of any coupon
and the registered owner of any Registered Security as the absolute owner
thereof (whether or not such Debt Security or coupon shall be overdue and
notwithstanding any notice to the contrary) for the purpose of making payment
and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Debt Security or a Debt Security with a mutilated coupon
appertaining thereto will be replaced by Holdings at the expense of the Holder
upon surrender of such Debt Security to the applicable Trustee. Debt Securities
or coupons that become destroyed, stolen or lost will be replaced by Holdings at
the expense of the Holder upon delivery to the applicable Trustee of the Debt
Security and coupons or evidence of the destruction, loss or theft thereof
satisfactory to Holdings and the applicable Trustee; in the case of any coupon
which becomes destroyed, stolen or lost, such coupon will be replaced by
issuance of a new Debt Security in exchange for the Debt Security to which such
coupon appertains. In the case of a destroyed, lost or stolen Debt Security or
coupon an indemnity satisfactory to the applicable Trustee and Holdings may be
required at the expense of the Holder of such Debt Security or coupon before a
replacement Debt Security will be issued. (Section 306).
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between, on
the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the 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."
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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.
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<PAGE> 35
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).
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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 "-- Federal Income Tax Considerations".
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" and "-- Enforceability of Rights by
Beneficial Owner; Governing Law" 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" and "-- Unsecured Obligations of a Holding Company".
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<PAGE> 37
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, which determination will be made
by an independent expert; (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.
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<PAGE> 38
Other important information concerning Index Warrants is set forth below
under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger,
Consolidation, Sale or Other Dispositions" and "-- Enforceability of Rights by
Beneficial Owner; Governing Law" 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" and "-- Unsecured Obligations of a Holding Company".
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
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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" and "-- Enforceability of
Rights by Beneficial Owner; Governing Law" 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" and "-- Unsecured Obligations of a Holding Company".
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
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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 effect 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.
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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
securities exchange rules approved by the SEC) 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
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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
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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
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two business days before a withdrawal of excess net capital if the withdrawal
would exceed the greater of $500,000 or 30% of the broker-dealer's excess net
capital, and two business days after a withdrawal that exceeds the greater of
$500,000 or 20% of excess net capital. Finally, the Net Capital Rule authorizes
the SEC to order a freeze on the transfer of capital if a broker-dealer plans a
withdrawal of more than 30% of its excess net capital and the SEC believes that
such a withdrawal would be detrimental to the financial integrity of the firm or
would jeopardize the broker-dealer's ability to pay its customers.
Compliance with the Net Capital Rule could limit those operations of Lehman
Brothers 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 LSSI); 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.
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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 and LSSI that Lehman Brothers
and LSSI may from time to time purchase and sell Securities in the secondary
market, but that neither of them is obligated to do so. No assurance can be
given that there will be a secondary market for the Securities.
The underwriting and agency arrangements for this offering will comply 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.
ERISA MATTERS
Holdings, Lehman Brothers and LSSI 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.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedules of the Company for the
years ended December 31, 1992, December 31, 1991 and December 31, 1990,
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1992 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
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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.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY HOLDINGS OR ANY AGENT OR UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS 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 IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS 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
Prospectus Supplement
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... S-3
Use of Proceeds....................... S-5
Risk Factors.......................... S-5
Certain Important Information
Concerning the Warrants............. S-8
Description of the Warrants........... S-10
Exchange Rates........................ S-17
Certain United States Federal Income
Tax Considerations.................. S-19
Underwriting.......................... S-20
Glossary.............................. S-21
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............... 24
</TABLE>
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2,000,000 WARRANTS
LEHMAN BROTHERS
HOLDINGS INC.
JAPANESE YEN BEAR WARRANTS
EXPIRING MARCH , 1996
------------------------
PROSPECTUS SUPPLEMENT
March , 1994
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LEHMAN BROTHERS
KIDDER, PEABODY & CO.
INCORPORATED
OPPENHEIMER & CO., INC.
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