SUBJECT TO COMPLETION, DATED MAY 6, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 6, 1996)
2,000,000 WARRANTS
LEHMAN BROTHERS HOLDINGS INC.
SELECT TECHNOLOGY STOCK INDEX CALL WARRANTS
EXPIRING MAY , 1998
Each Select Technology Stock Index Call Warrant ("Warrant") will entitle the
holder thereof to receive from Lehman Brothers Holdings Inc. ("Holdings"), upon
exercise (including automatic exercise), an amount in U.S. dollars computed by
reference to increases in the Select Technology Stock Index (the "Index"). Such
amount (the "Cash Settlement Value") will equal the quotient (rounded down to
the nearest cent) of (A) the amount, if any, by which the Spot Index (as defined
herein) for the applicable Valuation Date (as defined herein) exceeds the Strike
Index (as defined herein) divided by (B) 4.00. If the Strike Index is equal to
or exceeds the Spot Index, the Cash Settlement Value will be zero; in which
case, the Warrantholder (as defined herein) will be permitted, subject to
certain exceptions, to re-exercise such Warrant prior to the Expiration Date (as
defined herein) or prior to the Delisting Date (as defined herein).
The Strike Index is 100.00, which is equal to the level of the Index on May
, 1996. If such date were the applicable Valuation Date, the Cash Settlement
Value of the Warrants would be 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 the risk of expiring
worthless if the level of the Index does not increase. 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" on pages S-8
through S-15 herein, as well as other information herein and in the accompanying
Prospectus.
An application for the listing of the Warrants on the American Stock
Exchange, Inc. (the "AMEX") under the symbol "LET.WS" has been filed by
Holdings.
Lehman Brothers Inc., a wholly owned subsidiary of Holdings, may, but is not
obligated to, purchase and sell Warrants for its own account for the purpose of
making a market in the Warrants.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(1)(2) HOLDINGS(2)(3)
<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, as
amended. See "Underwriting" herein.
(2) Before deducting expenses estimated at approximately $ , which are
payable by Holdings.
(3) Holdings has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 300,000 additional Warrants, on
the same terms, solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Holdings will be $ , $ ,
$ and $ , respectively. See "Underwriting" herein.
-------------------
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 May , 1996.
This Prospectus Supplement together with the accompanying Prospectus may
also be used by Lehman Brothers Inc. in connection with offers and sales of
Warrants related to market making transactions, by and through Lehman Brothers
Inc., at negotiated prices related to prevailing market prices at the time of
sale or otherwise. Lehman Brothers Inc. may act as principal or agent in such
transactions.
LEHMAN BROTHERS
May , 1996
<PAGE>
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 AND HAS BECOME EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING 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.
<PAGE>
The valuation of and payment for any exercised Warrant may be postponed as a
result of an Exercise Limitation Event (as defined herein) or an Extraordinary
Event (as defined herein) or as a result of the exercise of a number of Warrants
exceeding the limits on exercise described herein under "Description of
Warrants--Maximum Exercise Amount," in which case the Warrantholder (as defined
herein) will receive a Cash Settlement Value or, under certain circumstances,
the Alternative Settlement Amount (as defined herein) for such Warrant, in
either case determined as of a later date. See "Description of the
Warrants--Extraordinary Events and Exercise Limitation Events" and "--Maximum
Exercise Amount" herein.
The Warrants will be exercisable immediately upon issuance and may be
exercised until 3:00 P.M., New York City time, on the "Final Exercise Date",
which shall be the earlier of: (i) the third Business Day (as defined herein)
immediately preceding the Expiration Date of May , 1998 (the "Expiration
Date"), or (ii) the last Business Day prior to the effective date of their
delisting from, or permanent suspension from trading on, the AMEX and failure to
be accepted at the same time for trading pursuant to the rules of another
self-regulatory organization (a "Self-Regulatory Organization") that are filed
with the Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act", and such date the
"Delisting Date"). Any Warrant not exercised at or before 3:00 P.M., New York
City time, on such Business Day will be automatically exercised. A Warrantholder
may exercise no fewer than 500 Warrants at any one time, except in the case of
automatic exercise or cancellation. A Warrantholder tendering Warrants for
exercise will have the option of specifying that, unless an Alternative
Settlement Amount is payable in respect of such Warrants, such Warrants are not
to be exercised if the Spot Index as of the applicable Valuation Date is 5% or
more lower than the most recent closing level of the Index prior to exercise.
See "Risk Factors" and "Description of the Warrants" herein.
The Warrants will be originally issued as certificates in registered form.
Forty-five calendar days after the closing of the offering, each Warrantholder
will have the option to convert the form in which such Warrantholder holds his
Warrants from certificated to book-entry, as described herein. Ownership of
converted warrants will be maintained in book-entry form by or through DTC (as
defined herein). Beneficial owners of Warrants in book-entry form will not have
the right to receive physical certificates evidencing their ownership except
under limited circumstances described herein.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WARRANTS
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus and this Prospectus Supplement
and in the documents incorporated therein by reference.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Issuer............................ Lehman Brothers Holdings Inc. ("Holdings").
Securities Offered................ Select Technology Stock Index Call Warrants (the
"Warrants") expiring May , 1998. Each Warrant will
entitle the beneficial owner thereof to receive from
Holdings, upon exercise (including automatic exercise),
an amount in U.S. dollars computed by reference to
increases in the Index. Such amount (the "Cash
Settlement Value") will equal the quotient (rounded down
to the nearest cent) of (A) the amount, if any, by which
the Spot Index (as defined herein) for the applicable
Valuation Date (as defined herein) exceeds the Strike
Index (as defined herein) divided by (B) 4.00. If the
Strike Index is equal to or exceeds the Spot Index, the
corresponding Cash Settlement Value will be zero; in
which case, the Warrantholder (as defined herein) will
be permitted, subject to certain exceptions, to
re-exercise such Warrant prior to the Expiration Date
(as defined herein) or the Delisting Date (as defined
herein).
The Strike Index is 100.00, which is equal to the level
of the Index on May , 1996. If such date were the
applicable Valuation Date, the Cash Settlement Value of
the Warrants would be zero.
Price............................. The initial public offering price for the Warrants will
be $ per Warrant. See "Underwriting" herein.
The Select Technology Stock The Index measures the composite price performance of an
Index............................. equal-dollar-weighted portfolio of 22 U.S. based
technology companies serving the following sectors:
computer software, semiconductor, computer, electronics
equipment, telecom equipment and office equipment. The
Index was established on May , 1996, at which time its
value was .
Exercise of Warrants.............. The Warrants will be immediately exercisable upon
issuance (subject to postponement as described herein
under "Description of the Warrants--Extraordinary Events
and Exercise Limitation Events" and "--Maximum Exercise
Amount") and may be exercised until 3:00 P.M., New York
City time, on the Final Exercise Date. See "Description
of the Warrants--Exercise and Settlement of Warrants"
herein.
Exercise Amount................... A Warrantholder may exercise no fewer than 500 Warrants
at any one time, except as provided herein. See
"Description of the Warrants--Minimum Exercise Amount"
herein. All exercises of Warrants (other than on the
Expiration Date or
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
the Delisting Date) are subject, at the Calculation
Agent's option, to the limitation that not more than
750,000 Warrants in total may be exercised on any
Exercise Date and not more than 250,000 Warrants may be
exercised by or on behalf of any person or entity,
either individually or in concert with any other person
or entity, on any Exercise Date. See "Description of the
Warrants--Maximum Exercise Amount."
Extraordinary Events and Exercise See "Description of the Warrants--Extraordinary Events
Limitation Events................. and Exercise Limitation Events" herein for a description
of such events and the consequences of the declaration
of such an event by Holdings.
Certain Risk Factors.............. The Warrants involve a high degree of risk, including
risks arising from fluctuations in the prices of the
Underlying Stocks (as defined herein) and risks relating
to the Index. Prospective purchasers should recognize
that their Warrants may expire worthless and should be
prepared to sustain a total loss of the purchase price
of their Warrants. The Warrants are appropriate
investments only for investors with options approved
accounts who are able to understand and bear the risk of
a speculative investment in the Warrants.
It is not possible to predict how the Warrants will
trade in the secondary market or whether such market
will be liquid or illiquid.
If the Warrants are delisted from, or permanently
suspended from trading on, the AMEX and are not accepted
for listing on another Self-Regulatory Organization,
Warrants not previously exercised will be deemed
automatically exercised on the Delisting Date, and the
Cash Settlement Value, if any, shall be calculated and
settled as provided below under "Description of the
Warrants--Automatic Exercise". See "Description of the
Warrants--Delisting of Warrants" herein. In connection
with a delisting or permanent suspension of trading on
the AMEX, Holdings will use its reasonable best efforts
to list the Warrants on another Self-Regulatory
Organization. To the extent Warrants are exercised, the
number of Warrants outstanding will decrease, resulting
in a decrease in the liquidity of the Warrants.
If the AMEX discontinues publication of the Index and/or
any Successor Index, the Calculation Agent will
determine the Cash Settlement Value based on the formula
used in calculating the Index or such Successor Index as
in effect on the date the Index or such Successor Index
was last published. If the Calculation Agent determines
that either an Extraordinary Event or an Exercise
Limitation Event has occurred and is continuing on the
Business Day (as defined herein) on which the Cash
Settlement Value is to be determined, then the Cash
Settlement Value in respect of the exercise shall be
calculated on the basis that the Valuation Date shall be
the next Index Calculation Day following such Business
Day on which there is no Extraordinary Event or
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Exercise Limitation Event; provided, that if the
Valuation Date has not occurred on or prior to the
Expiration Date or the Delisting Date, the Calculation
Agent will determine, compose or calculate the amount
(the "Alternative Settlement Amount") that each
Warrantholder is to receive in lieu of the Cash
Settlement Value. In addition, Holdings may cancel the
Warrants if the Calculation Agent shall have determined
that an Extraordinary Event has occurred and is
continuing and if the Calculation Agent expects such
Extraordinary Event to continue. In such circumstances,
the Warrantholders shall be entitled to the Alternative
Settlement Amount in lieu of the Cash Settlement Value.
Potential investors should be aware that Lehman Brothers
Inc., in its capacity as Calculation Agent, is under no
obligation to take the interests of Holdings or the
Warrantholders into consideration in the event that it
is called on to determine, compose or calculate the Cash
Settlement Value or Alternative Settlement Amount.
Because Lehman Brothers Inc. is a subsidiary of
Holdings, conflicts of interest may arise in connection
with Lehman Brothers Inc. performing its role as
Calculation Agent. Lehman Brothers Inc., as a registered
broker-dealer, is required to maintain policies and
procedures regarding the handling and use of
confidential proprietary information, and such policies
and procedures will be in effect throughout the term of
the Warrants to restrict the use of information relating
to the calculation of the Cash Settlement Value or
Alterative Settlement Amount prior to its dissemination.
Moreover, Lehman Brothers Inc. is obligated to carry out
its duties and functions as Calculation Agent in good
faith and using its reasonable judgment.
Except for cases of automatic exercise or cancellation,
a Warrantholder must tender at least 500 Warrants at any
one time in order to exercise its Warrants. Thus, except
in such cases, Warrantholders with fewer than 500
Warrants must, as a practical matter, either sell their
Warrants or purchase additional Warrants, incurring
transaction costs in each case, in order to realize upon
their investment.
A Warrantholder will not be able to determine, at the
time of exercise of a Warrant, the Spot Index that will
be used in calculating the Cash Settlement Value of such
Warrant (and will thus be unable to determine the Cash
Settlement Value) since the Valuation Date will occur
subsequent to the Exercise Date. In addition, the
Valuation Date for exercised Warrants may be postponed
upon the occurrence and continuation of an Extraordinary
Event or an Exercise Limitation Event, or as the result
of the exercise of a number of Warrants exceeding the
Maximum Exercise Amount. (See "Description of the
Warrants--Extraordinary Events and Exercise Limitation
Events" and "--Maximum Exercise Amount"). See
"Description of the Warrants--Extraordinary Events and
Exercise Limitation Events" herein. Any change in the
level of
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
the Index between the time a Warrantholder submits an
Exercise Notice (as defined herein) and the time the
Spot Index for such exercise is determined (which period
will generally not exceed one Business Day but which
may, in the case of a Valuation Date that is postponed
following an Extraordinary Event or an Exercise
Limitation Event, be substantially longer) will result
in such Warrantholder receiving a Cash Settlement Value
or Alternative Settlement Amount (including a zero Cash
Settlement Value or Alternative Settlement Amount) that
may be different from the Cash Settlement Value
anticipated by such Warrantholder based on the level of
the Index most recently reported prior to such exercise.
The AMEX will generally calculate and disseminate the
value of the Index based on the most recently reported
prices of the Underlying Stocks (as reported by the
exchange or trading system on which the Underlying
Stocks are listed or traded (collectively, the
"Exchanges")), at approximately 15-second intervals
during the AMEX's business hours and the Spot Index at
the end of each Index Calculation Day via the
Consolidated Tape Association's (the "CTS") Network B.
The Warrants share many of the risks of standardized
options but, unlike standardized options, they are
backed only by the credit of Holdings (not The Options
Clearing Corporation). The Warrants contain their own
terms and conditions, which may differ from those of
other warrants, even other warrants that may be issued
on the Index or other warrants issued by Holdings.
Holdings or one or more of its affiliates may engage
from time to time in hedging activities which may affect
the prices of the Underlying Stocks or the value of the
Index.
The performance of technology stocks can be, and
historically has been, subject to significant volatility
due to rapid technological changes resulting in dynamic
customer demands and frequent new product and service
introductions. Past performance of technology stocks,
including the Underlying Stocks, is not necessarily
indicative of their individual or collective future
performance.
Investors are advised to consider carefully the
foregoing risk factors and the risks and other matters
discussed under "Risk Factors", "Description of the
Warrants" and "Certain United States Federal Income Tax
Considerations" prior to purchasing Warrants.
Who Should Invest................. The AMEX requires that the Warrants be sold only to
investors whose accounts have been approved for options
trading. In addition, the AMEX requires that its members
and member organizations and registered employees
thereof make certain suitability determinations before
recommending transactions in Warrants.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Investment decisions relating to the Warrants require an
investor to predict the direction of movements in the
Index as well as the amount and timing of those
movements. The Warrants may change substantially in
value, or lose all of their value, with relatively small
movements in the Index. Moreover, in the absence of
countervailing factors, such as an offsetting movement
in the level of the Index, the market value of a Warrant
will tend to decrease over time and the Warrant will
have no market value after the time for exercise has
expired. Accordingly, the Warrants involve a high degree
of risk and are not appropriate for every investor. As
such, investors who are considering purchasing the
Warrants must have an options approved account and
should be able to understand and bear the risk of a
speculative investment in the Warrants, be experienced
with respect to options and option transactions and
understand the risks of stock index transactions. Such
investors should reach an investment decision only after
careful consideration with their advisers of the
suitability of the Warrants in light of their particular
financial circumstances and the information set forth in
this Prospectus Supplement and the accompanying
Prospectus. See "Risk Factors" herein. As indicated
above, investors should be prepared to sustain a total
loss of the purchase price of the Warrants.
Defined Terms..................... Refer to the "Glossary" herein for a listing of certain
defined terms used herein.
References........................ As used herein, "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. As used herein, "Index Calculation Day"
means any day on which the Index or any Successor Index
is calculated and published.
</TABLE>
S-7
<PAGE>
RISK FACTORS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING RISKS ARISING FROM
FLUCTUATIONS IN THE PRICES OF THE UNDERLYING STOCKS, RISKS RELATING TO THE
INDEX, GENERAL RISKS APPLICABLE TO THE STOCK MARKET (OR MARKETS) ON WHICH THE
UNDERLYING STOCKS ARE TRADED AND THE POTENTIAL ILLIQUIDITY OF THE SECONDARY
MARKET FOR THE WARRANTS. PROSPECTIVE PURCHASERS OF THE WARRANTS SHOULD RECOGNIZE
THAT THEIR WARRANTS MAY EXPIRE WORTHLESS AND SHOULD BE PREPARED TO SUSTAIN A
TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS. INVESTORS CONSIDERING
PURCHASING THE WARRANTS SHOULD BE EXPERIENCED WITH RESPECT TO OPTIONS AND OPTION
TRANSACTIONS AND UNDERSTAND THE RISKS OF STOCK INDEX TRANSACTIONS AND SHOULD
REACH AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING ALL THE RISK
FACTORS SET FORTH IN THIS SECTION OF THIS PROSPECTUS SUPPLEMENT, THE SUITABILITY
OF THE WARRANTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND ALL THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS.
General Risk Considerations. A holder of Warrants (each, a "Warrantholder"
and collectively, the "Warrantholders") will receive a cash payment upon
exercise (including automatic exercise) only if such Warrant has a Cash
Settlement Value (or, if applicable, upon the occurrence of an Extraordinary
Event or an Exercise Limitation Event or upon cancellation of the Warrants, as
described under "Description of the Warrants--Extraordinary Events and Exercise
Limitation Events" herein, an Alternative Settlement Amount) greater than zero
at such time. Prospective purchasers of the Warrants should recognize that their
Warrants may expire worthless and they should be prepared to sustain a total
loss of the purchase price of their Warrants. Before making any investment in
the Warrants, it is important that a prospective investor become informed about
and understand the nature of the Warrants in general, the specific terms of the
Warrants and the nature of the Index. An investor should understand the
consequences of liquidating his investment in a Warrant by exercising it as
opposed to selling it. It is especially important for an investor to be familiar
with the procedures governing the exercise of the Warrants, since the Cash
Settlement Value of the Warrants will fluctuate over the life of the Warrants
and a failure to properly exercise a Warrant prior to its expiration could
result in the loss of the opportunity to realize a Cash Settlement Value that is
higher than the Cash Settlement Value that might otherwise be realized on the
expiration date. To properly exercise the Warrants, an investor must know when
the Warrants are exercisable and how to exercise them.
The Cash Settlement Value of a Warrant will be an amount in U.S. dollars
equal to the quotient (rounded down to the nearest cent) of (A) the amount, if
any, by which the Spot Index for the applicable Valuation Date exceeds the
Strike Index divided by (B) 4.00. The "Strike Index" is 100.00, which is equal
to the level of the Index on May , 1996. The "Spot Index" for any date other
than the Expiration Date means the closing level on such date of the Index as
compiled and published by the AMEX; the "Spot Index" for the Expiration Date
means the level of the Index as compiled and published by the AMEX on such date
based upon the Exchanges' regular way opening sale prices for the Underlying
Stocks on such date. See "The Index" herein. In the event that the Index is not
published by the AMEX but is published by another person not affiliated with
Holdings and acceptable to the Calculation Agent (a "Third Party"), then the
Spot Index will be determined based on the closing level of the Index as
published by such Third Party. If the AMEX or any Third Party, as the case may
be, discontinues publication of the Index and publishes a successor or
substitute index that the Calculation Agent determines to be comparable to the
Index (a "Successor Index"), then the Spot Index for any date thereafter will be
determined by the Calculation Agent based on the closing level of the Successor
Index on such date. If the AMEX or any Third Party makes a material change in
the formula for, or the method of calculating, the Index or any Successor Index,
the Calculation Agent shall make such calculations as may be required to
determine the Cash Settlement Value using the formula and method of calculating
the Index or any Successor Index as in effect prior to such change or
modification. If the AMEX and/or any Third Party discontinues publication of the
Index and/or any Successor Index and no further Successor Index is published,
the Calculation Agent will thereafter determine the Cash Settlement Value based
on the formula and method used in calculating the Index or
S-8
<PAGE>
any Successor Index as in effect on the date the Index or such Successor Index
was last published without change or modification. Accordingly, although the
method used will generally be intended to enable the Cash Settlement Values to
be determined on as consistent a basis as practicable, discontinuities may arise
in such circumstances. Moreover, information regarding the current level of
certain substitute indices may not be readily available to Warrantholders, which
may adversely affect the trading market for their Warrants.
Except as otherwise described herein, the Valuation Date for an exercised
Warrant will be the first Index Calculation Day (as defined herein) after the
related Exercise Date. The Exercise Date for an exercised Warrant, subject to
certain exceptions described under "--Exercise and Settlement of Warrants",
"--Limit Option" and "--Automatic Exercise" under "Description of the Warrants"
herein, will be the Business Day on which such Warrant and an Exercise Notice in
proper form are received by the Warrant Agent (as defined herein) if received at
or prior to 3:00 P.M., New York City time, on such day; if such Warrant and
Exercise Notice are received after such time, the Exercise Date will be the next
succeeding Business Day. See "Description of the Warrants--Exercise and
Settlement of Warrants" herein.
The Warrants will originally be issued as certificates in registered form.
Accordingly, a beneficial owner of Warrants holding such Warrants indirectly may
exercise such Warrants only through such owner's registered holder. For
instance, in the case of a beneficial owner holding Warrants through his broker
in "street name" who wishes to exercise his Warrants, such beneficial owner must
direct his broker, who may in turn need to direct another intermediary, to
deliver an Exercise Notice and the related Warrants to the Warrant Agent. To
ensure that an Exercise Notice and the related Warrants will be delivered to the
Warrant Agent before 3:00 P.M., New York City time, on a particular Business
Day, a beneficial holder of Warrants may need to give exercise instructions to
his broker or other intermediary substantially earlier than 3:00 P.M., New York
City time, on such day. Different brokerage firms or intermediaries may have
different cut-off times and other exercise mechanics. Therefore, Warrantholders
should consult with their brokers or other intermediaries as to applicable
cut-off times and other exercise mechanics. See "--Exercise and Settlement of
Warrants" and "--Limit Option" under "Description of the Warrants" herein.
Forty-five calendar days after the closing of the offering, each
Warrantholder will have the option to convert the form in which such
Warrantholder holds his Warrants from certificated to book-entry form (the
"Conversion Option"). Such conversion will occur through the facilities of The
Depository Trust Company, New York, New York ("DTC", which term, as used herein,
includes any successor depository selected by Holdings). In order to be
exchanged for a Warrant in book-entry form during the period of forty-five
calendar days after the forty-fifth calendar day since the closing, a Warrant
Certificate (as defined herein) must be delivered to DTC, in proper form for
deposit, by an entity entitled to execute, clear and settle transactions through
DTC (a "Participant"). After the expiration of such forty-five day period, a
Warrantholder may still exchange for a Warrant in book-entry form only by
delivering the Warrant Certificate to the Warrant Agent. 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 Index were to occur after a Warrant
Certificate had been surrendered for exchange into book-entry form, a
Warrantholder would not be able to take advantage of the increase by exercising
his Warrant until such exchange had been effected. In addition, to exercise
Warrants, a Warrantholder who has utilized the Conversion Option may need to
direct a broker, who may in turn need to direct a Participant to transfer
Warrants held by DTC on behalf of such Warrantholder and to submit an Exercise
Notice, to the Warrant Agent. A Warrantholder may desire that the Business Day
on which his Warrants and an Exercise Notice are delivered on his behalf to the
Warrant Agent will constitute the Exercise Date for the Warrants being exercised
(for example, to utilize the Limit Option most effectively). To achieve such
objective, the Warrantholder must cause such Warrants to be transferred free on
the records of DTC to, and such Exercise Notice to be received by, the Warrant
Agent at or prior to 3:00 P.M., New York City time, on
S-9
<PAGE>
such Business Day. To ensure that such Warrants and Exercise Notice will be
received by the Warrant Agent at or prior to such time, such Warrantholder may
need to give the appropriate directions to his broker before such broker's (and,
if such broker is not a Participant, the applicable Participant's) cut-off time
for accepting exercise instructions from customers for that day. Different
brokerage firms and Participants may have different cut-off times for accepting
and implementing exercise instructions from their customers. Therefore,
Warrantholders holding their Warrants in book-entry form should consult with
their brokers or other intermediaries, if applicable, as to applicable cut-off
times and other exercise mechanics. See "--Exercise and Settlement of Warrants"
and "--Limit Option" under "Description of the Warrants" herein. FORMS OF
EXERCISE NOTICE FOR WARRANTS HELD IN BOOK-ENTRY FORM MAY BE OBTAINED AT THE
WARRANT AGENT'S OFFICE (AS DEFINED HEREIN) DURING THE WARRANT AGENT'S NORMAL
BUSINESS HOURS. SEE "DESCRIPTION OF THE WARRANTS--GENERAL" HEREIN. Neither
Holdings, the Warrant Agent nor the Calculation Agent will have any
responsibility for the performance by DTC (or its Participants or indirect
participants) of its obligations under the rules and procedures governing its
operations.
The level of the Index will determine whether the Warrants have a Cash
Settlement Value greater than zero on any given day. The Cash Settlement Value
of the Warrants will be zero when initially offered. The Cash Settlement Value
of the Warrants will be greater than zero on any given day only if the level of
the Index increases so that the Spot Index is above the Strike Index (i.e., if
the level of the Index is above 100.00). An increase in the level of the Index
will result in a greater Cash Settlement Value, and a decrease in the level of
the Index will result in a lesser or zero Cash Settlement Value. Potential
profit or loss upon exercise (including automatic exercise) of a Warrant will be
a function of the Cash Settlement Value (or, if applicable, the Alternative
Settlement Amount) of such Warrant upon exercise, the purchase price of such
Warrant and any related transaction costs.
If a Warrant is not exercised prior to 3:00 P.M., New York City time, on the
Final Exercise Date and if the Strike Index on the applicable Valuation Date
equals or exceeds the Spot Index, such Warrant will expire worthless and the
Warrantholder will have sustained a total loss of the purchase price of such
Warrant.
Except in the case of automatic exercise or cancellation, a Warrantholder
may be able to limit to some extent the risk associated with any change in the
Index between an Exercise Date and the applicable Valuation Date if such
Warrantholder, in connection with an exercise of Warrants, elects the Limit
Option. Pursuant to the Limit Option, Warrants tendered for exercise will not be
exercised if the Spot Index as of the applicable Valuation Date is 5% or more
lower than the closing level of the Index on the applicable Exercise Date or, if
such Exercise Date is not an Index Calculation Day, on the immediately preceding
Index Calculation Day. See "Description of the Warrants--Limit Option" herein.
In the event of automatic exercise or cancellation resulting in the payment to
Warrantholders of an Alternative Settlement Amount in lieu of the Cash
Settlement Value, the Limit Option will not preclude the exercise of Warrants as
described herein under "Description of the Warrants--Extraordinary Events and
Exercise Limitation Events".
If the Calculation Agent determines that either an Extraordinary Event or an
Exercise Limitation Event has occurred and is continuing (i) on the Business Day
on which the Cash Settlement Value is to be determined and Holdings determines
to cancel the Warrants or (ii) on the Expiration Date or the Delisting Date,
then the Calculation Agent will determine, compose or calculate the Alternative
Settlement Amount that each Warrantholder is to receive in lieu of the Cash
Settlement Value. Potential investors should be aware that Lehman Brothers Inc.,
in its capacity as Calculation Agent, is under no obligation to take the
interests of Holdings or the Warrantholders into consideration in the event it
determines, composes or calculates the Cash Settlement Value or Alternative
Settlement Amount. Because Lehman Brothers Inc. is a subsidiary of Holdings,
conflicts of interest may arise in connection with Lehman Brothers Inc.'s
performing its role as Calculation Agent. Lehman Brothers Inc., as a registered
broker-dealer, is required to maintain policies and procedures regarding the
handling and use of confidential proprietary information, and such policies and
procedures will be in
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<PAGE>
effect throughout the term of the Warrants to restrict the use of information
relating to the calculation of the Cash Settlement Value or Alternative
Settlement Amount prior to its dissemination. Moreover, Lehman Brothers Inc. is
obligated to carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment. Also, Lehman Brothers Inc. and its
affiliates may from time to time engage in transactions involving the Underlying
Stocks for their proprietary accounts and for other accounts in their custody
and under their control, which may influence the value of such Underlying Stocks
and the value of the Index. Affiliates of Lehman Brothers Inc. also are the
writers of the hedge of Holdings' obligations under the Warrants and will be
obligated to pay to Holdings, upon exercise of the Warrants, an amount equal to
the value of the exercised Warrants. See "Use of Proceeds." Accordingly, under
certain circumstances, conflicts of interest may arise between Lehman Brothers
Inc.'s responsibility as Calculation Agent with respect to the Warrants and its
affiliates' obligations under their hedges.
The purchaser of a Warrant may lose his entire investment. This risk
reflects the nature of a Warrant as an asset which tends to decline in value
over time and which may, depending on the relative value of the Index, become
worthless when it expires. Assuming all other factors are held constant, the
more a Warrant is out-of-the-money and the shorter its remaining term to
expiration, the greater the risk that a purchaser of the Warrant will lose all
of his investment. This means that the purchaser of a Warrant who does not sell
it in the secondary market or exercise it prior to expiration will necessarily
lose his entire investment if it expires when the Strike Index is equal to or
exceeds the Spot Index.
The fact that Warrants may become valueless upon expiration means that, in
order to recover and realize a return upon his investment, a purchaser of a
Warrant must generally be correct about the direction, timing and magnitude of
anticipated changes in the value of the Index. If the value of the Index does
not increase to an extent sufficient to cover an investor's cost of the Warrant
(i.e., the purchase price plus transaction costs, if any) before the Warrant
expires, the investor will lose all or a part of his investment in the Warrant
upon expiration. A number of economic factors could affect the value of the
Underlying Stocks and, therefore, the value of the Index.
Investors considering purchasing Warrants should be experienced with respect
to options and option transactions and understand the risks of stock index
transactions and reach an investment decision only after carefully considering,
with their advisers, the suitability of the Warrants in light of their
particular circumstances. INVESTORS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS
OF THE PURCHASE PRICE OF THEIR WARRANTS.
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. To the extent the Warrants are
exercised, the number of Warrants outstanding will decrease, resulting in a
decrease in the liquidity of the Warrants. In addition, during the life of the
Warrants, Holdings or its affiliates may from time to time purchase and exercise
the Warrants, resulting in a decrease in the liquidity of the Warrants.
Minimum Exercise Amount. Except for cases of automatic exercise or
cancellation, a Warrantholder must tender at least 500 Warrants at any one time
in order to exercise its Warrants. Thus, except in cases of automatic exercise
or exercise upon cancellation of the Warrant, Warrantholders with fewer than 500
Warrants will need either to sell their Warrants or to purchase additional
Warrants, incurring transaction costs in either case, in order to realize upon
their investment. Furthermore, such Warrantholders incur the risk that there may
be differences between the trading price of the Warrants and the Cash Settlement
Value or the Alternative Settlement Amount of such Warrants.
Maximum Exercise Amount. All exercises of Warrants (other than on the
Expiration Date, the Delisting Date or the Cancellation Date) are subject, at
the Calculation Agent's option, to the limitation that not more than 750,000
Warrants in total may be exercised on any Exercise Date and not more than
250,000 Warrants may be exercised by or on behalf of any person or entity,
either individually or in concert with any other person or entity, on any
Exercise Date. If any Business Day would otherwise,
S-11
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under the terms of the Warrant Agreement, be the Exercise Date in respect of
more than 750,000 Warrants, then at the Calculation Agent's election, 750,000 of
such Warrants shall be deemed exercised on such Exercise Date (selected by the
Warrant Agent on a pro rata basis, but if, as a result of such pro rata
selection, any Warrantholders would be deemed to have exercised less than 500
Warrants, then the Warrant Agent, to the extent possible, shall first select
additional of such holders' Warrants so that no holder shall be deemed to have
exercised less than 500 Warrants), and the remainder of such Warrants (the
"Remaining Warrants") shall be deemed exercised on the following Business Day
(subject to successive applications of this provision); provided that any
Remaining Warrant for which a notice of exercise was delivered on a given
Exercise Date shall be deemed exercised before any other Warrants for which a
notice of exercise was delivered on a later Exercise Date. As a result of any
postponed exercise, Warrantholders will receive a Cash Settlement Value
determined as of a date later than the otherwise applicable Valuation Date. In
any such case, as a result of any such postponement, the Cash Settlement Value
actually received by Warrantholders may be lower than the otherwise applicable
Cash Settlement Value if the Valuation Date of the Warrants had not been
postponed.
Offering Price of Warrants. The initial public offering price of the
Warrants may be in excess of the price that a commercial user of or dealer in
options on the Index might pay for a comparable option in a private transaction.
Time Lag After Exercise Instructions Given. In the case of any exercise of
Warrants, there will be a time lag between the time a Warrantholder gives
instructions to exercise and the time the Spot Index relating to such exercise
is determined. Therefore, a Warrantholder will not be able to determine, at the
time of exercise of a Warrant, the Spot Index that will be used in calculating
the Cash Settlement Value of such Warrant (and will thus be unable to determine
the related Cash Settlement Value). The delay will generally not exceed one
Business Day but may be much longer (as described in the following paragraph).
Any downward movement in the level of the Index between the time a Warrantholder
exercises a Warrant and the time the Spot Index for such exercise is determined
will result in such holder receiving a Cash Settlement Value that is less than
the Cash Settlement Value anticipated by such holder based on the closing level
of the Index most recently reported prior to exercise. A Warrantholder that has
not exercised a Warrant prior to 3:00 P.M., New York City time, on the Final
Exercise Date will, pursuant to the provision for automatic exercise, have the
Spot Index with respect to such Warrant determined on the Index Calculation Day
following the deemed exercise day. The value of the Index may change
significantly during any such period, and such movements could adversely affect
the Cash Settlement Value of the Warrants being exercised.
Further delay may occur if an Exercise Limitation Event or Extraordinary
Event has occurred. If the Calculation Agent determines that on a Valuation Date
an Exercise Limitation Event or Extraordinary Event has occurred and is
continuing, the Valuation Date shall be postponed to the first succeeding Index
Calculation Day on which there is no Exercise Limitation Event or Extraordinary
Event; provided that, if the Valuation Date has not occurred on or prior to the
Expiration Date or Delisting Date, the Warrantholders will receive the
Alternative Settlement Amount in lieu of the Cash Settlement Value, which
Alternative Settlement Amount shall be calculated as if the Warrants had been
canceled on the Expiration Date or the Delisting Date, as the case may be.
Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading on, the AMEX,
and the Warrants are not simultaneously accepted for trading pursuant to the
rules of another Self-Regulatory Organization, Warrants not previously exercised
will be deemed automatically exercised on the Delisting Date and the Cash
Settlement Value, if any, shall be calculated and settled as provided under
"Description of the Warrants--Automatic Exercise." Holdings will notify
Warrantholders as soon as practicable of such delisting or trading suspension.
However, if Holdings first receives notice of the delisting or suspension on the
same day on which the Warrants are delisted or suspended, such day will
nevertheless be deemed to be the Delisting Date. At the applicable Valuation
Date with respect to such automatic exercise, the Warrants may be
out-of-the-money so that the Cash Settlement Value would equal zero.
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<PAGE>
Cancellation of the Warrants upon Occurrence of an Extraordinary Event.
Holdings shall have the right to cancel the Warrants if the Calculation Agent
shall have determined that an Extraordinary Event has occurred and is continuing
and if the Calculation Agent expects such Extraordinary Event to continue, by
notifying the Warrant Agent of such cancellation (the date of such notice being
the "Cancellation Date"). In such circumstances, the Valuation Date shall be
postponed to the Cancellation Date, and Holdings will, however, pay to each
Warrantholder in respect of each Warrant held by it the Alternative Settlement
Amount which shall equal the sum of (a) an amount calculated with reference to
the Cash Settlement Value of the Warrants on or about the Cancellation Date,
subject to certain exceptions and adjustments, and (b) an amount calculated with
reference to the remaining time value of the Warrants. See "Description of the
Warrants--Extraordinary Events and Exercise Limitation Events."
Certain Factors Affecting the Value of the Warrants. Investment decisions
relating to the Warrants require the investor to predict the direction of
movements in the Index as well as the amount and timing of those movements. The
Warrants may change substantially in value, or lose all of their value, with
relatively small movements in the Index. Moreover, in the absence of
countervailing factors, such as an offsetting movement in the level of the
index, the market value of an index warrant will tend to decrease over time and
the warrant will have no market value after the time for exercise has expired.
Accordingly, the Warrants involve a high degree of risk and are not appropriate
for every investor. As such, investors who are considering purchasing the
Warrants must be able to understand and bear the risk of a speculative
investment in the Warrants, be experienced with respect to options and option
transactions and understand the risks of stock index transactions. Such
investors should reach an investment decision only after careful consideration,
with their advisers, of the suitability of the Warrants in light of their
particular financial circumstances and the information set forth in this
Prospectus Supplement and in the Prospectus. The AMEX requires that the Warrants
be sold only to investors whose accounts have been approved for options trading.
In addition, the AMEX requires that its members and member organizations and
registered employees thereof make certain suitability determinations before
recommending transactions in Warrants.
The Cash Settlement Value of the Warrants at any time prior to expiration is
expected typically to be less than the trading price of the Warrants at that
time. The difference between the trading price and the Cash Settlement Value
will reflect, among other things, a "time value" for the Warrants and the supply
and demand of the Warrants. The "time value" of the Warrants will depend partly
upon the length of the period remaining to expiration and expectations
concerning the level of the Index during the period as compared to the Strike
Index. The expiration of the Warrants will be accelerated should the Warrants be
delisted from, or permanently suspended from trading on, the AMEX and not
accepted at the same time for trading pursuant to the rules of another
Self-Regulatory Organization which are filed with the SEC under the Exchange
Act. Any such acceleration could result in the total loss of any remaining "time
value" and could occur when the Warrants are "out-of-the-money" (i.e., when the
Spot Index is less than or equal to the Strike Index), thus resulting in the
total loss of the purchase price of the Warrants. Before exercising or selling
Warrants, Warrantholders should carefully consider, among other things, (i) the
trading price of the Warrants, (ii) the level of the Index at such time, (iii)
the time remaining to expiration, (iv) the probable range of Cash Settlement
Values and (v) any related transaction costs.
The trading price of a Warrant at any time is expected to be dependent on
(1) the relationship between the Strike Index and the level of the Index at such
time and (ii) a number of other interrelated factors, including those listed
below. The relationship among these factors is complex. However, the expected
effect on the trading price of a Warrant of each of the factors listed below,
assuming in each case that all other factors are held constant, is as follows:
(1) The prevailing level of the Index. If the level of the Index rises
in relation to the Strike Index, the trading price of a Warrant is expected
to increase; if the level of the Index falls in
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<PAGE>
relation to the Strike Index, the trading price of a Warrant is expected to
decrease. However, as a result of other factors, the trading price of a
Warrant may decline significantly even if there is an increase in the level
of the Index as compared to the Strike Index.
(2) The volatility of the Index. If volatility increases, the trading
price of Warrants is expected to increase; if volatility decreases, the
trading price of Warrants is expected to decrease.
(3) The time remaining to the expiration date of the Warrants. As the
time remaining to the expiration date of the Warrants decreases, the trading
price of Warrants is expected to decrease.
(4) The prevailing interest rates. If the prevailing interest rates
decrease, then, assuming no change in the value of the Index, the trading
value of a Warrant is expected to increase. If such interest rates increase,
then, assuming no change in the value of the Index, the trading value of a
Warrant is expected to decrease.
(5) Dividend rates. If dividend rates on the Underlying Stocks increase,
then, assuming no change in the value of the Index, the trading value of a
Warrant is expected to decrease. However, increased dividend rates may
positively affect the value of the Index, which will tend to positively
affect the trading value of a Warrant. If such dividend rates decrease,
then, assuming no change in the value of the Index, the trading value of a
Warrant is expected to increase. However, decreased dividend rates may
negatively affect the value of the Index, which will tend to negatively
affect the trading value of a Warrant.
As noted above, these hypothetical scenarios are based on the assumption
that all other factors are held constant. In reality, it is unlikely that only
one factor would change in isolation, because changes in one factor usually
cause, or result from, changes in others. Some of the factors referred to above
are, in turn, influenced by the political and economic factors discussed herein.
Warrants Not Standardized Options Issued by the Options Clearing
Corporation. The Warrants are unsecured contractual obligations of Holdings and
will rank on a parity with Holdings' other unsecured contractual obligations and
with Holdings' unsecured and unsubordinated debt. The Warrants are not
standardized stock index options of the type issued by the Options Clearing
Corporation (the "OCC"), a clearing agency regulated by the SEC. For example,
unlike purchasers of OCC standardized options who have the credit benefits of
guarantees and margin and collateral deposits by OCC clearing members to protect
the OCC from a clearing member's failure, purchasers of Warrants must look
solely to Holdings for performance of its obligations to pay the Cash Settlement
Value or Alternative Settlement Value on the exercise of Warrants. Further, the
market for the Warrants is not expected to be generally as liquid as the market
for OCC standardized options.
Effect of Holdings Hedging Activities on the Price of the Underlying
Stocks. Holdings or one or more of its affiliates may engage from time to time
in hedging activities which may affect the prices of the Underlying Stocks or
the value of the Index. See "--Use of Proceeds" below.
The Index. The stocks underlying the Index have been issued by major
technology companies. The prices of such Underlying Stocks will be affected by
economic and other developments. Based on historical data for the Underlying
Stocks, the Index, had it existed prior to May , 1996, would have experienced
significant movements in the past, and it is impossible to predict its future
direction. See "The Index--Historical Data on the Index."
Underlying Stocks; Risks Relating to Technology Companies. The issuers of
the Underlying Stocks are companies whose industry is characterized by rapid
technological change resulting in dynamic customer demands and frequent new
product and service introductions. The respective market prices of the
Underlying Stocks can decrease rapidly as a result of innovation in computer
hardware, software and communication technology and other changes which
historically have impacted the performance of technology stocks. The Index's
future results will depend in part on the ability of the
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issuers of the Underlying Stocks to make timely and cost-effective enhancements
and additions to their respective products and services and introduce new
products and services that meet customer demands. Maintaining flexibility to
respond to technological and market dynamics may require substantial
expenditures. The market prices of technology stocks, including the Underlying
Stocks, have been subject to extreme volatility in the past. The past
performance of the Underlying Stocks is not necessarily indicative of their
individual or collective future performance.
Certain Considerations Regarding Hedging
Prospective purchasers intending to purchase Warrants to hedge against the
market risk associated with investing in one or more individual Underlying
Stocks and/or other stocks should recognize the complexities of utilizing
Warrants in this manner. Prospective purchasers intending to use Warrants in
this manner should also understand that they remain subject to issuer risk--that
is, the risk that factors affecting a particular issuer, such as its market
position or the quality of its management, may cause its stock to perform
differently than the market as a whole. In addition, prospective purchasers
intending to utilize Warrants to hedge a stock portfolio against market risk
should understand that unless the stocks in the portfolio exactly mirror the
Underlying Stocks, the portfolio and the Index may respond differently to a
given market influence (including in different directions and to different
extents). For this reason, the use of Warrants for hedging purposes involves
special risks that are not present with "true" hedges--i.e., hedges composed of
options on the specific stocks in the hedged position.
USE OF PROCEEDS
Substantially all of the net proceeds from the sale of the Warrants will be
used by Holdings or one or more of its subsidiaries in connection with hedging
the obligations represented by the Warrants. In connection with such hedging
transactions, Holdings or one or more of its subsidiaries will purchase or
maintain positions in a variety of financial instruments relating to the Index
and the Underlying Stocks (as defined herein). Depending on future market
conditions and the actual amount of Warrants outstanding from time to time,
among other things, the aggregate amount and the composition of such positions
are likely to vary over time. Holdings expects that it or its subsidiaries may
take positions in (i) listed or over-the-counter options contracts on some or
all of the Underlying Stocks, (ii) other derivative or synthetic instruments
relating to some or all of the Underlying Stocks and (iii) some or all of the
Underlying Stocks. There can be no assurance that Holdings or one or more of its
subsidiaries did not or will not affect the prices of the Underlying Stocks or
the Index as a result of its hedging activities. Any remaining net proceeds are
intended to be used for the general business of Holdings.
DESCRIPTION OF THE WARRANTS
The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement"), to be dated as of May , 1996, between Holdings, Citibank, N.A.,
as Warrant Agent (the "Warrant Agent"), and Lehman Brothers Inc., as Calculation
Agent.
The following summaries of certain provisions of the Warrant Agreement and
the Warrants do not purport to be complete and are subject to, and qualified in
their entirety by reference to, all of the provisions of the Warrant Agreement
(including the forms of Warrant certificates and forms of global Warrant
certificates attached as exhibits thereto). The Warrant Agreement will be
available for inspection by any Warrantholder at the office of the Warrant Agent
(the "Warrant Agent's Office"), which is currently located at 120 Wall St., 13th
floor, New York, New York 10043, during the Warrant Agent's normal business
hours.
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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 and to the
right of Holdings to "reopen" the issue of Warrants and issue additional
Warrants with substantially identical terms at a later time.
A Warrant will not require or entitle a Warrantholder to purchase or take
delivery of any shares of any component stock underlying the Index or any
Successor Index (an "Underlying Stock") or any other securities. Holdings is
under no obligation to, nor will it, deliver or sell any shares of any
Underlying Stock or any other securities to Warrantholders in connection with
the exercise of any Warrants. Upon exercise of a Warrant, Holdings will make
only a U.S. dollar cash payment in the amount of the applicable Cash Settlement
Value or Alternative Settlement Amount, if any and as applicable, of such
Warrant. Warrantholders will not receive any interest on any applicable Cash
Settlement Value or Alternative Settlement Amount, and the Warrants will not
entitle the Warrantholders to any of the rights of holders of any Underlying
Stock or any other securities.
The Warrants are unsecured contractual obligations of Holdings and will rank
on a parity with Holdings' other unsecured contractual obligations and with
Holdings' unsecured and unsubordinated debt.
CASH SETTLEMENT VALUE
Each Warrant will entitle the Warrantholder to receive, upon exercise
(including automatic exercise), the applicable Cash Settlement Value of such
Warrant, except that, under certain circumstances described under
"--Extraordinary Events and Exercise Limitation Events", such Warrantholder may
instead receive the Alternative Settlement Amount for such Warrant.
The Cash Settlement Value of a Warrant will be an amount in U.S. dollars
equal to the quotient (rounded down to the nearest cent) of (A) the amount, if
any, by which the Spot Index for the Valuation Date for such Warrant exceeds the
Strike Index of 100.00 divided by (B) 4.00 as indicated in the following
formula:
Cash Settlement Value of a Warrant = Spot Index - Strike Index
( ------------------------- )
4.00
HYPOTHETICAL WARRANT VALUES ON EXERCISE
Set forth below is an example of the Cash Settlement Values of a
hypothetical Warrant with a Strike Index of 100.00 (based on a divisor of 4.00)
and at various hypothetical levels of the Spot Index. The hypothetical Cash
Settlement Values in the table do not reflect any "time value" for a Warrant,
which may be reflected in trading value, and are not necessarily indicative of
potential profit or loss, which are also affected by purchase price and
transaction costs. The numbers in the table have been rounded down to the
nearest cent.
<TABLE>
<CAPTION>
APPROXIMATE CASH
SETTLEMENT VALUE
(ALSO KNOWN AS
"INTRINSIC
HYPOTHETICAL SPOT VALUE")
INDEX OF WARRANT
---------------------- ----------------
<S> <C> <C>
Equal to or lower than............... 100.00 (Strike Price) $ 0
120 5
140 10
160 15
180 20
200 25
220 30
</TABLE>
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WARRANT CERTIFICATES
The Warrants will be originally issued as certificates in registered form
(each, a "Warrant Certificate"). The Warrant Agent will from time to time
register the transfer of any outstanding Warrant Certificate upon surrender
thereof at the Warrant Agent's Office duly endorsed by, or accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Warrant Agent duly executed by, the registered holder thereof, a duly appointed
legal representative or a duly authorized attorney. Such signature must be
guaranteed by a bank or trust company having a correspondent office in New York
City or a member of a national securities exchange. A new Warrant Certificate
will be issued to the transferee upon any such registration of transfer.
At the option of a Warrantholder, Warrant Certificates may be exchanged for
other Warrant Certificates representing a like number and kind of Warrants upon
surrender to the Warrant Agent at the Warrant Agent's Office of the Warrant
Certificates to be exchanged. Holdings will thereupon execute, and the Warrant
Agent will countersign and deliver, one or more new Warrant Certificates
representing such like number and kind of Warrants.
In the event that, after any exercise of Warrants evidenced by a Warrant
Certificate, the number of Warrants exercised is fewer than the total number of
Warrants evidenced by such certificate, a new Warrant Certificate evidencing the
number of Warrants not exercised will be issued to the registered holder or his
assignee. See "--Minimum Exercise Amount".
If any Warrant Certificate is mutilated, lost, stolen or destroyed, Holdings
may in its discretion execute, and the Warrant Agent may countersign and
deliver, in exchange and substitution for such mutilated Warrant Certificate, or
in replacement for such lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate representing a like number and kind of Warrants, but only
(in the case of loss, theft or destruction) upon receipt of evidence
satisfactory to Holdings and the Warrant Agent of loss, theft or destruction of
such Warrant Certificate and security or indemnity, if requested, satisfactory
to them. Warrantholders requesting replacement Warrant Certificates must also
comply with such other reasonable regulations and pay such reasonable charges as
Holdings or the Warrant Agent may prescribe. In case all of the Warrants
represented by any such mutilated, lost, stolen or destroyed Warrant Certificate
have been or are about to be exercised (including automatic exercise), Holdings
in its discretion may, instead of issuing a new Warrant Certificate, direct the
Warrant Agent to treat such Warrant Certificate the same as if the Warrant Agent
had received an Exercise Notice in proper form in respect thereof or as being
subject to automatic exercise, as the case may be.
No service charge will be made for any registration of transfer or exchange
of Warrant Certificates, but Holdings may require the payment of a sum
sufficient to cover any tax or government charge that may be imposed in
connection therewith, other than exchanges not involving any transfer. In the
case of the replacement of mutilated, lost, stolen or destroyed Warrant
Certificates, Holdings may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Warrant Agent) related
thereto.
BOOK ENTRY CONVERSION
Forty-five calendar days after the closing of the offering, each
Warrantholder will have the option to convert the form in which such
Warrantholder holds his Warrants from certificated to book-entry form by
utilizing the Conversion Option.
In order to be exchanged for a Warrant in book-entry form during the period
of forty-five calendar days after the forty-fifth calendar day since the closing
of the offering, a Warrant Certificate must be delivered to DTC, in proper form
for deposit, by a Participant. Accordingly, a Warrantholder who is not a
Participant must deliver his Warrant Certificate, in proper form for deposit, to
a Participant, either
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directly or through an indirect participant (such as a bank, brokerage firm,
dealer or trust company that clears through, or maintains a custodial
relationship with, a Participant) or brokerage firm which maintains an account
with a Participant, in order to have his Warrant Certificate exchanged for a
Warrant in book-entry form. Such Warrantholders who desire to exchange their
Warrant Certificates for Warrants in book-entry form should contact their
brokers or other Participants or indirect participants to obtain information on
procedures for submitting their Warrant Certificates to DTC, including the
proper form for submission and the cut-off times for same day and next day
exchange. Warrant Certificates which are held by the Warrantholder in nominee or
"street" name may be automatically exchanged into book-entry form by the broker
or other entity in whose name such Warrant Certificates are registered without
action of, or consent by, the beneficial owner of the related Warrant.
Warrant Certificates received by DTC for exchange during the period of
forty-five calendar days after the forty-fifth calendar day since the closing of
the offering will be exchanged for Warrants in book-entry form by the close of
business on the Business Day that such Warrant Certificates are received by DTC
(if received by DTC at its then applicable cut-off time for same day credit) or
on the following Business Day (if received by DTC at its then applicable cut-off
time for next day credit). After the last day of such period, a Warrantholder
may still exchange for a Warrant in book-entry form only by delivering the
Warrant Certificate to the Warrant Agent. 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 Index were to occur after a Warrant Certificate had
been surrendered for exchange into book-entry form, a Warrantholder would not be
able to take advantage of the increase by exercising his Warrant until such
exchange had been effected. Since Warrant Certificates are not required to be
exchanged for Warrants in book-entry form, it is likely that not all Warrant
Certificates will be so exchanged. Accordingly, Warrantholders purchasing
Warrants in secondary market trading after commencement of the period when the
Conversion Option is available may wish to make specific arrangements with
brokers or other Participants or indirect participants if they wish to purchase
only Warrants in book-entry form and not Warrant Certificates.
Once a Warrantholder has elected the Conversion Option, such Warrantholder
may hold his Warrants only in book-entry form and will not be able to change his
election or withdraw from the book-entry system after the exercise of the
Conversion Option. Accordingly, except in certain limited circumstances as set
forth in "Global Securities" in the Prospectus, ownership of the Warrants in
certificated form will no longer be available to investors who have elected the
Conversion Option.
S-18
<PAGE>
BOOK-ENTRY PROCEDURES AND SETTLEMENT
DTC has advised Holdings as follows: DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities of Participants and
to facilitate the clearance and settlement of securities transactions among its
Participants through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of
certificates. Such Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to DTC's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
Ownership of beneficial interests in a global certificate to be deposited
with, or on behalf of, DTC, and registered in the name of a nominee of DTC will
be limited to Participants or persons that may hold beneficial interests through
Participants. Ownership of beneficial interests in a global certificate will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC for such global certificate or by Participants or
persons that hold through Participants. Unless and until it is exchanged in
whole or in part for the individual Warrants represented thereby, a global
certificate may not be transferred except as a whole by DTC to a nominee of DTC
or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such
nominee to a successor of DTC or a nominee of such successor. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities. Such limits and such laws may limit the market for beneficial
interests in a global certificate.
So long as DTC or its nominee is the owner of such global certificate, DTC
or such nominee, as the case may be, will be considered the sole holder of the
individual Warrants represented by such global certificate for all purposes
under the Warrant Agreement governing such Warrants. Except as set forth below,
owners of beneficial interests in a global certificate will not be entitled to
have any of the individual Warrants represented by such global certificate
registered in their names, will not receive or be entitled to receive physical
delivery of any such Warrants and will not be considered the holders thereof
under the Warrant Agreement governing such Warrants.
The applicable Cash Settlement Value and, if applicable, the Alternative
Settlement Amount payable in respect of the Warrants will be paid by the Warrant
Agent to DTC or to the Participants, as may be applicable. Neither Holdings, the
Calculation Agent nor the Warrant Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial interests in such global certificate or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
Holdings expects that DTC, upon receipt of any payment in respect of any
applicable Cash Settlement Value and, if applicable, any Alternative Settlement
Amount with respect to any Warrants, will credit immediately Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the applicable global certificate as shown on the records of DTC.
Holdings also expects that payments by Participants to owners of beneficial in
such global certificates held through such Participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such Participants.
Neither Holdings, the Warrant Agent nor the Calculation Agent will have any
responsibility for the performance by DTC (or its Participants or indirect
participants) of its obligations under the rules and procedures governing its
operations.
S-19
<PAGE>
EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants will be immediately exercisable upon issuance, subject to
postponement (i) upon the occurrence of an Extraordinary Event or an Exercise
Limitation Event as described under "--Extraordinary Events and Exercise
Limitation Events" or (ii) as described under "--Maximum Exercise Amount", and
will expire on the Expiration Date. Warrants not exercised (including by reason
of any such postponed exercise) at or before 3:00 P.M., New York City time, on
the earlier of (i) the Business Day immediately preceding the Expiration Date
and (ii) the last Business Day prior to the Delisting Date, will be
automatically exercised as described under "--Automatic Exercise". See
"--Minimum Exercise Amount" below.
A Warrantholder may exercise certificated Warrants on any Business Day
during the period from the date of issuance of such Warrants until 3:00 P.M.,
New York City time, on the Final Exercise Date by delivering or causing to be
delivered to the Warrant Agent the Warrant Certificate representing such
Warrants with the irrevocable notice of exercise on the reverse thereof (or a
notice of exercise in substantially identical form delivered therewith) (such
notice, an "Exercise Notice") duly completed and executed. The Warrant Agent's
telephone number and facsimile transmission number for this purpose are (212)
657-7269 and (212) 825-3483, respectively.
In the case of book-entry Warrants held through the facilities of DTC, a
Warrantholder may exercise such Warrants on any Business Day during the period
from the date of issuance of such Warrants until 3:00 P.M., New York City time,
on the Final Exercise Date by causing (x) such Warrants to be transferred free
to the Warrant Agent on the records of DTC and (y) a duly completed and executed
Exercise Notice to be delivered by a Participant on behalf of the Warrantholder
to the Warrant Agent. Forms of Exercise Notice for book-entry Warrants held
through the facilities of DTC may be obtained from the Warrant Agent at the
Warrant Agent's Office. The Warrant Agent's telephone number and facsimile
transmission number for this purpose are (201) 262-5444 and (201) 262-7521,
respectively.
Except for Warrants subject to automatic exercise, and subject to the Limit
Option, the "Exercise Date" for a Warrant will be (i) if the Warrant Agent
receives the Warrant and Exercise Notice in proper form with respect to such
Warrant, at or prior to 3:00 P.M., New York City time, on a Business Day, such
Business Day, or (ii) if the Warrant Agent receives such Warrant and Exercise
Notice on a day which is not a Business Day or after 3:00 P.M., New York City
time, on a Business Day, then the Business Day next succeeding such non-Business
Day or Business Day, as the case may be.
To ensure that an Exercise Notice and the related Warrants will be delivered
to the Warrant Agent before 3:00 P.M., New York City time, on a given Business
Day, a Warrantholder may need to give exercise instructions to his broker or
other intermediary substantially earlier than 3:00 P.M., New York City time, on
such day. Different brokerage firms or other intermediaries may have different
cut-off times for accepting and implementing exercise instructions from their
customers. Therefore, Warrantholders should consult with their brokers and other
intermediaries, if applicable, as to applicable cut-off times and other exercise
mechanics. See "Risk Factors".
Except in the case of Warrants subject to automatic exercise and for
Warrants that upon exercise will entitle the holder thereof to receive an
Alternative Settlement Amount in lieu of the Cash Settlement Value, if on any
Valuation Date the Cash Settlement Value for any Warrants would be zero, then
the attempted exercise of any such Warrants will be void and of no effect and,
in the case of certificated Warrants, the Warrant Certificate evidencing such
Warrants will be returned to the registered holder by first class mail at the
Calculation Agent's expense or, in the case of book-entry Warrants held through
the facilities of DTC, such Warrants will be transferred back to the Participant
that submitted them free on the records of DTC, and, in any such case, such
Warrantholder will be permitted to re-exercise such Warrants prior to the
Expiration Date or prior to the Delisting Date, as the case may be.
S-20
<PAGE>
The "Valuation Date" for a Warrant will be the first Index Calculation Day
following the applicable Exercise Date, subject to postponement (i) upon the
occurrence of an Extraordinary Event or an Exercise Limitation Event as
described under "--Extraordinary Events and Exercise Limitation Events" or (ii)
as described under "--Maximum Exercise Amount". The AMEX will generally
calculate and disseminate the value of the Index based on the most recently
reported prices of the Underlying Stocks (as reported by the Exchanges), at
approximately 15-second intervals during the AMEX's business hours and the Spot
Index at the end of each Index Calculation Day via CTS.
The following is an illustration of the timing of an Exercise Date, the
ensuing Valuation Date and the Limit Option Reference Index (as defined herein),
assuming that all relevant dates are Business Days and Index Calculation Days
and assuming the absence of any intervening Extraordinary Event or Exercise
Limitation Event.
If the Warrant Agent receives a Warrantholder's Warrants and Exercise Notice
in proper form at or prior to 3:00 P.M., New York City time, on Monday, July 1,
1996, the Exercise Date for such Warrants will be July 1, 1996 and the Valuation
Date for such Warrants will be Tuesday, July 2, 1996. The Spot Index used to
determine the applicable Cash Settlement Value of such Warrants will be the
closing level of the Index on July 2, 1996 (i.e., the level of the Index
calculated using values for the Underlying Stocks as of the close of the
Exchanges on July 2, 1996 (assuming such day is a Business Day). If the
Warrantholder elected the Limit Option in connection with the exercise of such
Warrants, the Limit Option Reference Index would be the closing level of the
Index on July 1, 1996. If the Warrant Agent were to receive such Warrantholders'
Warrants and Exercise Notice after 3:00 P.M., New York City time, on July 1,
1996 then the Exercise Date for such Warrants would instead be July 2, 1996, the
Valuation Date would be July 3, 1996 and the applicable Limit Option Reference
Index would be the closing level of the Index on July 2, 1996 (which will not
have been calculated at the time such Warrantholder tendered his Exercise Notice
on July 1, 1996).
Following receipt of Warrants and the related Exercise Notice in proper
form, the Warrant Agent will, not later than 10:00A.M., New York City time, on
the Business Day next succeeding the applicable Valuation Date (or, if such
Valuation Date is not a Business Day, on the next succeeding Business Day) (i)
obtain from the Calculation Agent the Spot Index (which will be the level of the
Index on such Valuation Date), (ii) determine the Cash Settlement Value of such
Warrants and (iii) advise Holdings of the aggregate Cash Settlement Value of the
exercised Warrants. Provided that Holdings has made adequate funds available to
the Warrant Agent in a timely manner, which shall (A) in the case of Warrants
not held through the facilities of DTC, in no event be later than 3:00 P.M., New
York City time, on the second Business Day following a Valuation Date (or, if
the Valuation Date is not a Business Day, on the second Business Day following
the Business Day next succeeding the Valuation Date) and (B) in the case of
Warrants held through the facilities of DTC, in no event be later than 3:00
P.M., New York City time, on the second Business Day following a Valuation Date
(or, if the Valuation Date is not a Business Day, on the second Business Day
following the Business Day next succeeding the Valuation Date) (the "Settlement
Date"), the Warrant Agent will be responsible for making its payment available
either (i) for certificated Warrants, to each appropriate registered holder in
the form of a check, or (in the case of payments of at least $100,000) by wire
transfer to a U.S. dollar account maintained by such registered holder in the
United States (at such registered holder's election as specified in the
applicable Exercise Notice), after 3:00 P.M., New York City time, but prior to
the close of business, on the first Business Day immediately succeeding such
Settlement Date or (ii) for book-entry Warrants, to each appropriate Participant
in the form of a check, or (in the case of payments of at least $100,000) by
wire transfer to a U.S. dollar account maintained by such Participant in the
United States (at the Participant's election as specified in the Exercise
Notice), after 3:00 P.M., New York City time, but prior to the close of
business, on the first Business Day immediately succeeding such Settlement Date.
For either clause (i) or (ii) above, such payment shall be in the amount of the
aggregate Cash Settlement Value in respect of the Warrant Certificates or
Warrants that were delivered to the Warrant Agent (together with the related
Exercise Notice). Such Participant will be responsible for disbursing
S-21
<PAGE>
payments to the Warrantholders it represents and to each brokerage firm for
which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the Warrantholders it represents.
"Calculation Agent" means Lehman Brothers Inc. or, in lieu thereof, another
firm selected by Holdings to perform the functions of the Calculation Agent in
connection with the Warrants. Lehman Brothers Inc., in its capacity as
Calculation Agent, will have no obligation to take the interests of Holdings or
the Warrantholders into consideration in the event it determines, composes or
calculates the Cash Settlement Value or Alternative Settlement Amount. Because
Lehman Brothers Inc. is a subsidiary of Holdings, conflicts of interest may
arise in connection with Lehman Brothers Inc.'s performing its role as
Calculation Agent. Lehman Brothers Inc., as a registered broker-dealer, is
required to maintain policies and procedures regarding the handling and use of
confidential proprietary information, and such policies and procedures will be
in effect throughout the term of the Warrants to restrict the use of information
relating to any calculation of the Cash Settlement Value or Alternative
Settlement Amount prior to its dissemination. Moreover, Lehman Brothers Inc. is
obligated to carry out its duties and functions as Calculation Agent in good
faith and using its reasonable judgment. Also, Lehman Brothers and its
affiliates may from time to time engage in transactions involving the Underlying
Stocks, including for their proprietary accounts and for other accounts in their
custody and under their control, which may influence the value of such
Underlying Stocks. Affiliates of Lehman Brothers Inc. also are the writers of
the hedge of Holdings' obligations under the Warrants and will be obligated to
pay to Holdings, upon exercise of the Warrants, an amount equal to the value of
the exercised Warrants. See "Use of Proceeds." Accordingly, under certain
circumstances, conflicts of interest may arise between Lehman Brothers Inc.'s
responsibility as Calculation Agent with respect to the Warrants and its
affiliates' obligations under their hedges.
MINIMUM EXERCISE AMOUNT
No fewer than 500 Warrants may be exercised by a Warrantholder at any one
time, except in the case of automatic exercise or exercise upon cancellation of
the Warrants as described under "--Extraordinary Events and Exercise Limitation
Events" below. Accordingly, except in the case of automatic exercise of the
Warrants or exercise upon cancellation of the Warrants, Warrantholders with
fewer than 500 Warrants will need either to sell their Warrants or to purchase
additional Warrants, thereby incurring transaction costs, in order to realize
upon their investment. Warrantholders must satisfy the minimum exercise amount
requirement separately with respect to both certificated and book-entry Warrants
even if more than one kind of Warrant is to be exercised at the same time. Thus,
a Warrantholder seeking to exercise both certificated and book-entry Warrants at
the same time must exercise a minimum of 500 of each kind of Warrant in order to
satisfy such requirement. In addition, book-entry Warrants held through one
Participant may not be combined with book-entry Warrants held through another
Participant in order to satisfy the minimum exercise requirement.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than on or after the Expiration Date, the
Delisting Date or the Cancellation Date) are subject, at the Calculation Agent's
option, to the limitation that not more than 750,000 Warrants in total may be
exercised on any Exercise Date and not more than 250,000 Warrants may be
exercised by or on behalf of any person or entity, either individually or in
concert with any other person or entity, on any Exercise Date. If any Business
Day would otherwise, under the terms of the Warrant Agreement, be the Exercise
Date in respect of more than 750,000 Warrants, then at the Calculation Agent's
election, 750,000 of such Warrants shall be deemed exercised on such Exercise
Date (selected by the Warrant Agent on a pro rata basis, but if, as a result of
such pro rata selection, any Warrantholders would be deemed to have exercised
less than 500 Warrants, then the Warrant Agent, to the extent possible, shall
first select additional of such holders' Warrants so that no holder shall be
deemed to have exercised less than 500 Warrants), and the Remaining Warrants
shall be
S-22
<PAGE>
deemed exercised on the following Business Day (subject to successive
applications of this provision); provided that, any Remaining Warrant for which
a notice of exercise was delivered on a given Exercise Date shall be deemed
exercised before any other Warrants for which a notice of exercise was delivered
on a later Exercise Date. As a result of any postponed exercise as described
above, Warrantholders will receive a Cash Settlement Value determined as of a
date later than the otherwise applicable Valuation Date. In any such case, as a
result of any such postponement, the Cash Settlement Value actually received by
Warrantholders may be lower than the otherwise applicable Cash Settlement Value
if the Valuation Date of the Warrants had not been postponed.
LIMIT OPTION
Except for Warrants subject to automatic exercise and except as described
below with respect to payments of any Alternative Settlement Amount, each
Warrantholder, in connection with any exercise of Warrants (including a
postponed exercise following an Extraordinary Event or an Exercise Limitation
Event), will have the option (the "Limit Option") to specify that such Warrants
are not to be exercised if the Spot Index that would otherwise be used to
determine the Cash Settlement Value of such Warrants is 5% or more lower than
the closing level of the Index for the day specified below (such closing level
is referred to herein as the "Limit Option Reference Index"). A Warrantholder's
election of the Limit Option must be specified in the applicable Exercise Notice
delivered to the Warrant Agent. The Limit Option Reference Index will be the
closing level of the Index on the relevant Exercise Date (or, if such date is
not an Index Calculation Day, on the immediately preceding Index Calculation
Day). If an Exercise Notice and the related Warrants are received after 3:00
P.M., New York City time, on a given day, the applicable Limit Option Reference
Index will be determined as of the next day that is also a Business Day (or, if
such day is not an Index Calculation Day, as of the immediately preceding Index
Calculation Day).
To ensure that the Limit Option will have its intended effect of limiting
the risk of any downward movement in the level of the Index between the date on
which a Warrantholder submits an Exercise Notice and the related Valuation Date,
such Exercise Notice and the related Warrants generally must be received by the
Warrant Agent not later than 3:00 P.M., New York City time, on the Business Day
on which it is submitted and the Exercise Date must also be an Index Calculation
Date. See the example under "--Exercise and Settlement of Warrants" above and
"Risk Factors".
Following receipt of an Exercise Notice and the related Warrants subject to
the Limit Option, the Warrant Agent will obtain the applicable Limit Option
Reference Index and will determine whether such Warrants will not be exercised
because of the Limit Option. Warrants that are not exercised will be treated as
not having been tendered for exercise, and either the Warrant Certificate
evidencing such Warrants will be returned to the registered holder by
first-class mail at the Calculation Agent's expense or, in the case of
book-entry Warrants held through the facilities of DTC, such Warrants will be
transferred to the account at DTC from which they were transferred to the
Warrant Agent. To exercise such returned or transferred Warrants, a
Warrantholder will be required to cause the Warrants and a related Exercise
Notice to be submitted again to the Warrant Agent.
Even if the Valuation Date for such Warrants is postponed, once elected by a
Warrantholder in connection with an exercise of Warrants, the Limit Option will
continue to apply to the Warrants that are submitted to the Warrant Agent until
the applicable Valuation Date for such Warrants, on the basis of the Limit
Option Reference Index as initially determined for such Warrants, except when
such Valuation Date is postponed until the Expiration Date, the Delisting Date
or the Cancellation Date, as described under "--Extraordinary Events and
Exercise Limitation Events". Pursuant to the Limit Option, Warrants that are
subject to the Limit Option will either (i) be exercised if the applicable Spot
Index on the applicable Valuation Date is not less than the Limit Option
Reference Index by 5% or more or (ii) be excluded from being exercised if, on
any applicable Valuation Date, the applicable Spot Index is less than the Limit
Option Reference Index by 5% or more.
S-23
<PAGE>
In connection with any exercise of 500 or more Warrants, a Warrantholder may
elect to subject the exercise of only a portion of such Warrants to the Limit
Option, provided that the number of Warrants subject to the Limit Option and the
number of Warrants not subject to the Limit Option shall in each case not be
less than 500. A Warrantholder may not combine certificated and book-entry
Warrants in order to meet the 500 Warrant minimum requirement. See "--Minimum
Exercise Amount".
AUTOMATIC EXERCISE
All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 3:00 P.M., New York City time, on the Final Exercise Date
or for which the Warrant Agent has received a valid Exercise Notice but with
respect to which timely delivery of the relevant Warrants has not been made,
together with any Warrants the Valuation Date for which has at such time been
postponed as described under "--Extraordinary Events and Exercise Limitation
Events" and "--Maximum Exercise Amount", will be automatically exercised. The
Exercise Date for such Warrants will be the Expiration Date or the Delisting
Date, as the case may be, or, if such date is not a Business Day, the next
succeeding Business Day. The Warrant Agent will obtain the Spot Index from the
Calculation Agent (determined as of the first Index Calculation Day following
the Exercise Date, which will be the Valuation Date for such Warrants, except in
the case of a postponed exercise following the occurrence of an Extraordinary
Event or an Exercise Limitation Event as described under "--Extraordinary Events
and Exercise Limitation Events"), and will determine the Cash Settlement Value,
if any, of such Warrants.
Except in the case of a postponed exercise following the occurrence of an
Extraordinary Event or an Exercise Limitation Event as described under
"--Extraordinary Events and Exercise Limitation Events" or in the case of
book-entry Warrants held through the facilities of DTC, Holdings will be
required to make adequate funds available to the Warrant Agent, not later than
3:00 P.M., New York City time, on the fourth Business Day following the
Valuation Date for automatically exercised Warrants (or if such Valuation Date
is not a Business Day, on the fourth Business Day following the Business Day
succeeding the Valuation Date) (in any such case, the "Automatic Settlement
Date"), and the Warrant Agent will thereafter be responsible for making a
payment available to each registered holder of a Warrant in the form of a
cashier's check or official bank check or (in the case of payments of at least
$100,000) by wire transfer to a U.S. dollar account maintained by such holder in
the United States (at such holder's election) after 3:00 P.M., New York City
time, but prior to the close of business, on the Automatic Settlement Date,
against receipt by the Warrant Agent at the Warrant Agent's Office of such
holder's Warrant Certificates. Such payment will be in an amount equal to the
aggregate Cash Settlement Value of the Warrants evidenced by such Warrant
Certificates.
In the case of book-entry Warrants held through the facilities of DTC, and,
except in the case of a postponed exercise following the occurrence of an
Extraordinary Event or an Exercise Limitation Event as described under
"--Extraordinary Events and Exercise Limitation Events", Holdings will be
required to make available to the Warrant Agent, no later than 3:00 P.M., New
York City time, on the Automatic Settlement Date, funds in an amount sufficient
to pay such aggregate Cash Settlement Value. If Holdings has made such funds
available by such time, the Warrant Agent will thereafter be responsible for
making funds available to DTC, against receipt of the global Warrant
certificate, after 3:00 P.M., New York City time, but prior to the close of
business, on the Automatic Settlement Date, in an amount sufficient to pay the
aggregate Cash Settlement Value of the Warrants. DTC will be responsible for
disbursing such funds to each appropriate Participant and such Participant will
be responsible for disbursing such payment to the Warrantholders it represents
and to each brokerage firm for which it acts as agent. Each such brokerage firm
will be responsible for disbursing funds to the Warrantholders it represents.
S-24
<PAGE>
EXTRAORDINARY EVENTS AND EXERCISE LIMITATION EVENTS
Extraordinary Events. If the Calculation Agent determines that an
Extraordinary Event has occurred and is continuing on the Business Day with
respect to which the Spot Index on a Valuation Date is to be determined (the
"Applicable Business Day"), then the Cash Settlement Value in respect of the
exercise shall be calculated on the basis that the Valuation Date shall be the
next Index Calculation Day following an Applicable Business Day on which there
is no Extraordinary Event or Exercise Limitation Event; provided, that if the
Valuation Date has not occurred on or prior to the Expiration Date or the
Delisting Date, the Warrantholders will receive the Alternative Settlement
Amount in lieu of the Cash Settlement Value, which Alternative Settlement Value
shall be calculated as if the Warrants had been cancelled on the Expiration Date
or the Delisting Date, as the case may be. Holdings shall promptly give notice
to Warrantholders, by publication in a United States newspaper with a national
circulation (currently expected to be The Wall Street Journal), if an
Extraordinary Event shall have occurred.
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading of 50% or more of the Underlying
Stocks on the Exchanges which then comprise the Index or a Successor Index;
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or any other U.S. or
non-U.S. governmental authority which would make it unlawful for Holdings to
perform any of its obligations under the Warrant Agreement or the Warrants;
or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crisis (including, without limitation, natural
calamities which in the opinion of Holdings may materially and adversely
affect the economy of the United States or the trading of the Underlying
Stocks generally) which has or will have a material adverse effect on the
ability of Holdings to perform its obligations under the Warrants or to
modify the hedge of its position with respect to the Index.
For the purpose of determining whether an Extraordinary Event has occurred:
(1) a limitation on the hours or number of days of trading will not constitute
an Extraordinary Event if it results from an announced change in the regular
business hours of an Exchange, and (2) an "absence of trading" on an Exchange
will not include any time when the Exchanges are closed for trading under
ordinary circumstances.
To Holdings' knowledge, no circumstances have arisen since January 1, 1991
that, had the Index existed since such time, could have constituted an
Extraordinary Event. The absence of the existence of such circumstances in the
past, however, is not necessarily indicative of the likelihood of such
circumstances arising or not arising in the future.
If the Calculation Agent determines that an Extraordinary Event has occurred
and is continuing, and if the Extraordinary Event is expected by the Calculation
Agent to continue, Holdings may immediately cancel the Warrants by notifying the
Warrant Agent of such cancellation (the date such notice is given being the
"Cancellation Date"), and each Warrantholder's rights under the Warrants and the
Warrant Agreement shall thereupon cease; provided that each Warrant shall be
exercised (even if such Warrant would not otherwise be exercisable on such date
because of the Limit Option) on the basis that the Valuation Date for such
Warrant shall be the Cancellation Date and the holder of each such Warrant will
receive, in lieu of the Cash Settlement Value of such Warrant, the Alternative
S-25
<PAGE>
Settlement Amount, determined by the Calculation Agent, equal to "X", calculated
using the formula set forth below:
T (A)
--- ---
X = I + [ 2 x (B) ]
where
<TABLE>
<S> <C>
I = The Cash Settlement Value of the Warrants determined as described under "--Cash
Settlement Value" above, but calculated with a Spot Index determined by the
Calculation Agent which, in the reasonable opinion of the Calculation Agent, fairly
reflects the value of the Underlying Stocks on the Cancellation Date.
T = $ , the initial offering price per Warrant;
A = the total number of days from but excluding the Cancellation Date for such Warrants
to and including the Expiration Date; and
B = the total number of days from but excluding the date the Warrants were initially
sold to and including the Expiration Date.
</TABLE>
Any such calculations will be made available to a Warrantholder for
inspection at the Warrant Agent's Office. Neither Holdings nor the Calculation
Agent shall have any responsibility for good faith errors or omissions in
calculating the Alternative Settlement Amount.
Exercise Limitation Events. If the Calculation Agent determines that on an
applicable Business Day an Exercise Limitation Event has occurred and is
continuing, then the Cash Settlement Value in respect of an exercise shall be
calculated on the basis that the Valuation Date shall be the next Index
Calculation Day following an Applicable Business Day on which there is no
Exercise Limitation Event or Extraordinary Event; provided, that if the
Valuation Date has not occurred on or prior to the Expiration Date or the
Delisting Date. the Warrantholders will receive the Alternative Settlement
Amount in lieu of the Cash Settlement Value, which Alternative Settlement Amount
shall be calculated as if the Warrants had been cancelled on the Expiration Date
or the Delisting Date, as the case may be. Holdings shall promptly give notice
to Warrantholders, by publication in a United States newspaper with a national
circulation (currently expected to be The Wall Street Journal), if an Exercise
Limitation Event shall have occurred.
"Exercise Limitation Event" means either of the following events:
(i) a suspension or absence of trading on the Exchanges of (a) 20% or
more of the Underlying Stocks and/or (b) the stocks of any three of the four
most highly capitalized companies included in the Underlying Stocks which
then comprise the Index or a Successor Index, or
(ii) the suspension or material limitation on the Chicago Mercantile
Exchange of trading in futures or options contracts relating to the NASDAQ
100 Stock Index.
For purposes of determining whether an Exercise Limitation Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Exercise Limitation Event if it results from an announced change
in the regular business hours of the relevant Exchange, (2) a decision
permanently to discontinue trading in the relevant futures or options contract
will not constitute an Exercise Limitation Event, (3) an "absence of trading" on
a major futures or securities market on which futures or options contracts
traded will not include any time when such futures or securities market, as the
case may be, itself is closed for trading under ordinary circumstances and (4)
the occurrence of an Extraordinary Event described in clause (i) of the
definition of Extraordinary Event will not constitute, and will supersede the
occurrence of, an Exercise Limitation Event.
It is Holdings' understanding that since January 1, 1991 there have been no
suspensions of trading on the Exchanges under circumstances that could have
constituted an Exercise Limitation Event, had the Index existed during such time
period. The absence of such suspensions over the period indicated is not
necessarily indicative of the number or frequency of any future suspensions.
S-26
<PAGE>
With respect to all Warrants as to which the Valuation Date has been
postponed or which have been canceled as described above, Holdings shall make
available to the Warrant Agent not later than 3:00 P.M., New York City time, on
the second Business Day following the date on which the Cash Settlement Value or
Alternative Settlement Amount, as the case may be, has been calculated (the
"Alternative Settlement Date"), funds in an amount equal to, and for the payment
of the aggregate Cash Settlement Value or Alternative Settlement Amount, as
applicable, of such Warrants. Subject to such funds having been made available
as provided in the preceding sentence, the Warrant Agent will be responsible for
making a payment (i) with respect to the Warrants as to which the Valuation Date
has been postponed as described above and as to which the Cash Settlement Value
is payable, (A) in the case of certificated Warrants, to each registered holder
that has submitted his Warrant Certificate for exercise or (B) in the case of
book-entry Warrants, to each appropriate Participant, after 3:00 P.M., New York
City time, but prior to the close of business on, the Alternative Settlement
Date, in an amount equal to the aggregate Cash Settlement Value of such
exercised Warrants, or (ii) with respect to the Warrants as to which the
Valuation Date has been postponed and has not occurred on or prior to the
Expiration Date or the Delisting Date or with respect to the Warrants which have
been canceled as described above, (A) in the case of certificated Warrants, to
each registered holder that has submitted his Warrant Certificate for exercise
or (B) in the case of book-entry Warrants, to DTC, after 3:00 P.M., New York
City time, but prior to the close of business on, the Alternative Settlement
Date, in amount equal to the aggregate Alternative Settlement Amount of such
exercised Warrants. DTC will be responsible for disbursing such funds to each
appropriate Participant and such Participant will be responsible for disbursing
such payments to the Warrantholders it represents and to each brokerage firm for
which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the Warrantholders it represents.
As a result of any postponed exercise as described above, Warrantholders
will receive a Cash Settlement Value (or, if applicable, an Alternative
Settlement Amount) determined as of a date later than the otherwise applicable
Valuation Date. In any such case, as a result of any such postponement, the Cash
Settlement Value (or Alternative Settlement Amount) actually received by
Warrantholders may be substantially lower (or may be zero) than the otherwise
applicable Cash Settlement Value if the valuation of the Warrants had not been
postponed.
LISTING
An application for the listing of the Warrants on the AMEX under the symbol
"LET.WS" has been filed by Holdings.
DELISTING OF WARRANTS
In the event that the Warrants are delisted from, or permanently suspended
from trading on, the AMEX, and not accepted at the same time for listing on
another Self-Regulatory Organization, Warrants not previously exercised will be
deemed to be automatically exercised on the Delisting Date and the Cash
Settlement Value, if any, shall be calculated and settled as provided above
under "Automatic Exercise." Holdings will notify Warrantholders as soon as
practicable of such delisting or trading suspension. However, if Holdings first
receives notice of the delisting or suspension on the same day on which the
Warrants are delisted or suspended, such day will nevertheless be deemed to be
the Delisting Date. Holdings will covenant in the Warrant Agreement that it will
not seek delisting of the Warrants from, or suspension of their trading on, the
AMEX unless Holdings has, at the same time, arranged for listing of the Warrants
on another Self-Regulatory Organization.
S-27
<PAGE>
THE INDEX
The Index represents an equal dollar weighted portfolio of 22 U.S. based
technology stocks serving the following sectors: computer software,
semiconductor, computer, electronic equipment, telecom equipment and office
equipment. As is indicated by the table set forth below, the total market
capitalization of the Index was approximately $399.592 billion, on May 1, 1996.
The median capitalization of the companies in the Index on that date was
approximately $9.752 billion and the average market capitalization of these
companies was approximately $18.163 billion. The individual market
capitalization of the companies ranged from approximately $730.34 million to
approximately $67.693 billion. Average monthly trading volume in the Underlying
Stocks ranged from approximately 8.95 million shares to 219.4 million shares
during the six month period from November 1, 1995 through May 1, 1996. The AMEX
will monitor the components in the basket on a monthly basis in order to
determine the percentage of those components which are eligible for standardized
options trading. Currently, 100% of the components are eligible for standardized
options trading.
The AMEX will calculate and disseminate the value of the Index every fifteen
seconds via the CTS, using the most recent sale prices of the Underlying Stocks
reported by the Exchanges. At the beginning of each Index Calculation Day, the
initial value of the Index will be the same as the Spot Index from the previous
Index Calculation Day. As opening trades in the Underlying Stocks are reported
by the Exchanges, such trades will be reflected in the published Index. This
calculation process using the current primary market prices for the Underlying
Stocks will continue throughout each Index Calculation Day.
After the close of trading on each Index Calculation Day the Index will
continue to be updated to reflect the effects of any corrections, cancellations
or late reported sales until the time at which the Exchanges disseminate their
respective closing summary reports showing, among other things, closing prices.
The closing summaries will ordinarily be considered the definitive source of
closing price data.
The Index will be monitored daily for certain types of corporate actions
such as the payment of a dividend other than an ordinary cash dividend, stock
distribution, stock split, reverse stock split, rights offering, distribution,
reorganization, recapitalization, or similar event which may require a divisor
adjustment to maintain continuing of the Index's value. In the event of a
merger, consolidation, dissolution or liquidation of an issuer or in certain
other events such as the distribution of property by an issuer to shareholders,
components in the Index may be deleted or replaced. Shares of an Underlying
Stock may be replaced (or supplemented) with other securities under certain
other circumstances, such as the conversion of an Underlying Stock into another
class of security or the spin-off of a subsidiary. If the Underlying Stock
remains in the Index, the Multiplier for that Underlying Stock may be adjusted
to maintain the continuity of the Index's value. In the event that a security in
the Index is removed due to a corporate consolidation and the holders of such
security receive cash, the cash value of such security will be included in the
index and will accrue interest at LIBOR to term. See "--Adjustments to the
Multiplier and the Index."
THE UNDERLYING STOCKS
The stocks listed below will be used to calculate the value of the Index.
The initial multiplier relating to each Underlying Stock indicates the number of
shares (or fraction of one share) of that Underlying Stock, in light of the
market price of that Underlying Stock on May , 1996, required to be included
in the calculation of the Strike Index so that each Underlying Stock represents
4.5455% of the Strike Index (the "Multiplier"). The price of each Underlying
Stock used to calculate the initial Multiplier relating to that Underlying Stock
was the last reported sale price of that Underlying Stock on the date the
Warrants were priced by Holdings for initial sale to the public. The respective
Multipliers will remain constant for the term of the Warrants, unless adjusted
for certain corporate events as described below.
S-28
<PAGE>
Warrantholders will not have any right to receive the Underlying Stocks. The
following table sets forth each of the Underlying Stocks, its trading symbol,
the primary exchange on which it is traded, its price per share as of May 1,
1996, the total number of shares outstanding as of May 1, 1996, the market
capitalization of its respective issuer as of May 1, 1996, its initial
Multiplier and its average monthly trading volume from November 1, 1995 through
May 1, 1996. Each Underlying Stock will represent approximately 4.5455% of the
Strike Index.
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
SHARES MARKET TRADING
OUTSTANDING CAPITALIZATION VOLUME
(MILLIONS (MILLIONS OF INITIAL (MILLIONS OF
NAME SYMBOL EXCHANGE PRICE OF SHARES) DOLLARS) MULTIPLIER SHARES)
- ----------------------------------- ------ -------- -------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADC Telecommunications, Inc........ ADCT NASDAQ $ 43 62.74 $ 2,697.69 13.6
Adaptec, Inc....................... ADPT NASDAQ 58 1/8 52.56 3,055.05 26.88
America Online, Inc................ AMER NASDAQ 63 1/2 82.28 5,224.78 53.58
Cisco Systems, Inc................. CSCO NASDAQ 52 1/4 544.49 28,449.71 219.4
Computer Associates International,
Inc................................ CA NYSE 73 1/2 241.9 17,779.85 19.37
Dell Computer Corporation.......... DELL NASDAQ 46 3/8 93.1 4,317.51 61.54
Digital Equipment Corporation...... DEC NYSE 58 5/8 149.78 8,780.74 37.54
First Data Corporation............. FDC NYSE 76 3/8 223.30 17,054.54 14.38
Gateway 2000, Inc.................. GATE NASDAQ 35 1/8 74.55 2,618.57 31.71
Hewlett Packard Company............ HWP NYSE 105 3/8 509.96 53,736.51 46.58
Informix Corporation............... IFMX NASDAQ 26 3/8 135.33 3,569.30 63.81
Intel Corporation.................. INTC NASDAQ 67 7/8 821.00 55,725.38 196.8
International Business Machines
Corp............................... IBM NYSE 107 7/8 547.77 59,091.12 80.79
LSI Logic Corporation.............. LSI NYSE 36 1/8 129.30 4,671.07 58.6
Microsoft Corporation.............. MSFT NASDAQ 115 1/8 588.00 67,693.50 108.9
Oracle Corporation................. ORCL NASDAQ 34 1/8 654.23 22,325.60 136.8
QUALCOMM Incorporated.............. QCOM NASDAQ 39 1/4 64.69 2,539.20 28.66
Sun Microsystems, Inc.............. SUNW NASDAQ 55 5/8 197.03 10,959.68 145.3
Tencor Instruments................. TNCR NASDAQ 23 3/4 30.75 730.34 19.59
Texas Instruments Incorporated..... TXN NYSE 56 5/8 189.39 10,724.15 56.67
Vishay Intertechnology, Inc........ VSH NYSE 30 3/8 58.36 1,772.75 8.95
Xerox Corporation.................. XRX NYSE 148 3/8 108.34 16,075.39 9.84
</TABLE>
Each of the issuers of the Underlying Stocks is currently subject to the
informational requirements of the Exchange Act. Accordingly, each of the issuers
files reports, proxy statements and other information with the SEC. Copies of
such reports, proxy statements and other information may be inspected and copied
at certain offices of the Commission at the addresses listed under "Available
Information" in the accompanying Prospectus. The following descriptions of the
issuers of the Underlying Stocks have been taken from the most recent annual
reports on Form 10-K filed by such issuers with the SEC.
ADC TELECOMMUNICATIONS, INC. "designs, manufactures and markets
transmission, enterprise networking and connectivity products for use in
broadband global networks."
ADAPTEC, INC. "is a leading supplier of input/output (I/O) hardware and
software (referred to by Adaptec, Inc. as IOware solutions) used to eliminate
performance bottlenecks between a microcomputer's central processing unit (CPU)
and its peripheral devices, such as hard disk, optical and tape storage devices,
and network file servers."
AMERICA ONLINE, INC. "offers the largest consumer online service in the
United States, serving more than 3.5 million members at the beginning of
September 1995."
S-29
<PAGE>
CISCO SYSTEMS, INC. "develops, manufactures, markets and supports
high-performance multiprotocol internetworking systems that link geographically
dispersed local-area and wide-area networks (LANs and WANs) to form a single,
seamless information infrastructure."
COMPUTER ASSOCIATES INTERNATIONAL, INC. "designs, develops markets and
supports standardized computer software products for use with a broad range of
desktop, midrange and mainframe computers from many different hardware
manufacturers including, among others, IBM, Hewlett-Packard Company, Digital
Equipment Corp., Sun Microsystems, Data General Corp., Tandem Computers Inc. and
Compaq Computer Corp."
DELL COMPUTER CORPORATION "designs, develops, manufactures, markets,
services and supports a wide range of computer systems, including desktops,
notebooks and network servers, and also markets software, peripherals and
service and support programs."
DIGITAL EQUIPMENT CORPORATION "is one of the world's largest suppliers of
networked computer systems and components, software and services and a world
leader in the development and implementation, directly and through partners, of
client/server solutions for open computing environments."
FIRST DATA CORPORATION "provides high-quality, high-volume information
processing and related services to specific client groups: the transaction card,
payment instruments, teleservices, mutual fund, health care, receivables, and
information management industries."
GATEWAY 2000, INC. "is the leading direct marketer of personal computers in
the United States, developing, manufacturing, marketing and supporting a broad
line of desktop and portable personal computers and personal computer-related
products used by individuals, families, businesses and government agencies and
educational institutions."
HEWLETT-PACKARD COMPANY "designs, manufactures and services equipment and
systems for measurement, computation and communications."
INFORMIX CORPORATION "is a multinational supplier of high-performance,
parallel processing database technology for open systems, whose products also
include applications development tools for creating client/server production
applications, decision-support systems, ad-hoc query interfaces, and software
that allows information to be shared transparently from personal computers to
mainframes within the corporate computing environment."
INTEL CORPORATION "designs, develops, manufactures and markets microcomputer
components and related products at various levels of integration."
INTERNATIONAL BUSINESS MACHINES CORP. "is in the business of providing
customer solutions through the use of advanced information technologies,
operating primarily in the single industry segment that creates value by
offering a variety of solutions that include, either singularly or in some
combination, services, software, systems, financing and technologies."
LSI LOGIC CORPORATION "is a leader in the design, development, manufacture
and marketing of high performance application-specific integrated circuits."
MICROSOFT CORPORATION "develops, manufactures, licenses, sells and supports
a wide range of software products, including operating systems for personal
computers, workstations and servers; business and consumer programs for
productivity, reference, education and entertainment; and development tools."
ORACLE CORPORATION "designs, develops, markets and supports computer
software products with a wide variety of uses, including database management and
network products, applications development productivity tools, and end user
applications."
S-30
<PAGE>
QUALCOMM INCORPORATED "is a leader in digital wireless communications
technologies, designing, developing, manufacturing, marketing licensing and
operating advanced communications systems and products based on digital wireless
technology."
SUN MICROSYSTEMS, INC. "is a leading supplier of network computing products
including workstations, servers, software, microprocessors, and a full range of
services and support."
TENCOR INSTRUMENTS "designs, manufactures, markets and services wafer
inspection, film measurement and meteorology systems, and its products are used
primarily in the manufacture of integrated circuits by the semiconductor
industry."
TEXAS INSTRUMENTS INCORPORATED "is engaged in the development, manufacture
and sale of a variety of products in the electrical and electronics industry for
industrial, government and consumer markets."
VISHAY INTERTECHNOLOGY, INC. "is a leading international manufacturer and
supplier of passive electronic components, particularly resistors, capacitors
and inductors, offering its customers "one-stop" access to one of the most
comprehensive passive electronic equipment lines of any manufacturer in the
United States or Europe."
XEROX CORPORATION "is a leader in the global document market, providing
document services that enhance productivity."
THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE WARRANTS OFFERED HEREBY AND
DOES NOT RELATE TO THE UNDERLYING STOCKS. ALL DISCLOSURES CONTAINED IN THIS
PROSPECTUS SUPPLEMENT REGARDING THE ISSUERS OF THE UNDERLYING STOCKS ARE DERIVED
FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED ABOVE. NEITHER HOLDINGS NOR THE
UNDERWRITERS HAVE VERIFIED THE ACCURACY OR THE COMPLETENESS OF THE INFORMATION
CONCERNING THE ISSUERS OF THE UNDERLYING STOCKS INCLUDED IN THOSE DOCUMENTS.
THUS, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR OR SUBSEQUENT TO
THE DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS
OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED ABOVE) THAT WOULD EFFECT THE
TRADING PRICE OF THE UNDERLYING STOCKS HAVE BEEN PUBLICLY DISCLOSED BY THE
ISSUERS OF THE UNDERLYING STOCKS. BECAUSE THE AMOUNT PAYABLE IN RESPECT OF THE
WARRANTS IS TIED TO THE MARKET PRICES OF THE UNDERLYING STOCKS, SUCH EVENTS, IF
ANY, COULD ALSO AFFECT THE TRADING PRICE OF THE WARRANTS. HOLDINGS DOES NOT
INTEND TO FURNISH TO HOLDERS OF WARRANTS SUBSEQUENT INFORMATION WITH RESPECT TO
THE ISSUERS OF THE UNDERLYING STOCKS.
ADJUSTMENTS TO THE MULTIPLIER AND THE INDEX
1. If an Underlying Stock is subject to a stock split or reverse stock
split then once such split has become effective, the Multiplier relating to
such Underlying Stock will be adjusted to equal the product of the number of
shares outstanding after such split has become effective with respect to
each share of such Underlying Stock outstanding immediately prior to the
effectiveness of such split and the prior Multiplier.
2. If an Underlying Stock is subject to an extraordinary stock dividend
or extraordinary stock distribution (i.e., issuance of additional shares of
the Underlying Stock other than in lieu of an ordinary cash dividend) that
is given equally to all holders of shares of the issuer of such Underlying
Stock, then once such Underlying Stock is trading ex-dividend, the
Multiplier will be adjusted so that the new Multiplier shall equal the
former Multiplier plus the product of the
S-31
<PAGE>
number of shares of such Underlying Stock issued with respect to one such
share of Underlying Stock and the prior Multiplier.
3. If the issuer of an Underlying Stock is being liquidated or dissolved
or is subject to a proceeding under any applicable bankruptcy, insolvency or
other similar law such Underlying Stock will continue to be included in the
Index so long as the appropriate Exchange is reporting a market price for
such Underlying Stock (the "Market Price"). Subject to paragraph 7 below, if
a Market Price is no longer available for an Underlying Stock for whatever
reason, including the liquidation or dissolution of the issuer of such
Underlying Stock or the subjection of the issuer of such Underlying Stock to
a proceeding under any applicable bankruptcy, insolvency or other similar
law, then the value of such Underlying Stock will equal zero in connection
with calculating the Spot Index and the Cash Settlement Value for so long as
no Market Price is available, and no attempt will be made to find a
replacement technology stock or increase the value of the Index to
compensate for the deletion of such Underlying Stock.
4. If the issuer of an Underlying Stock has been subject to a merger or
consolidation and is not the surviving entity and holders of such Underlying
Stock are entitled to receive cash or securities in exchange for such
Underlying Stock, then a value for such Underlying Stock will be determined
(i) in the case of cash, at the time of receipt by such holders and will
equal the amount of such cash consideration, and (ii) in the case of
securities, on the first Business Day on which such securities are traded
regular way, and will equal the Market Price of such securities (in each
case (i) and (ii), the "Cash Component"); provided, that if such securities
do not have a Market Price, the Cash Component shall be the fair market
value of such securities, as determined by the Calculation Agent. The Cash
Component, as adjusted for the accrual of interest described below, will be
constant for the remaining term of the Securities. No adjustment will be
made to the Multiplier of such Underlying Stock.
The Cash Component will accrue interest at a rate equal to the London
Inter-Bank Offered Rate ("LIBOR") with a term equal to the period of time from
the Interest Commencement Date (as defined below) to the Expiration Date (the
"Specified Maturity"), determined and fixed (i) in the case of cash, on the
first Business Day that is immediately following the date of determination of
such Cash Component and (ii) in the case of securities, on the fourth Business
Day following the date of determination of such Cash Component (in each case (i)
and (ii), the "LIBOR Determination Date"). LIBOR will accrue on such Cash
Component commencing on the second London Business Day following such LIBOR
Determination Date (the "Interest Commencement Date") up to and including the
Specified Maturity.
LIBOR, will be determined by the Calculation Agent in accordance with the
following provisions:
(i) On the relevant LIBOR Determination Date, LIBOR will be determined
through the application of linear interpolation by reference to the average
of the bid rates and offered rates for deposits of not less than U.S.
$1,000,000 having a maturity immediately before and immediately after the
Specified Maturity, commencing on the Interest Commencement Date, which
appear either (a) if the Specified Maturity is one year or less from the
relevant LIBOR Determination Date, on the display designated as Page 3750 on
the Dow Jones Telerate Service (or such other page as may replace Page 3750
on that service for the purpose of displaying London Interbank offered rates
of major banks) ("Telerate Page 3750"), or (b) if the Specified Maturity is
more than one year from the relevant LIBOR Determination Date, on each of
Telerate Page 3750 and on the display designated as page "SWAP" on the
Reuter Monitor Money Rates Service (or such other page as may replace the
SWAP page on that Service for the purpose of displaying London Interbank
offered rates of major banks) ("Reuters-SWAP"), in each case as of 11:00
A.M., London time; provided that if there is a bid rate and an offered rate
for the Specified Maturity, then LIBOR will be the average of such bid rate
and offered rate. If such bid rate and offered rate
S-32
<PAGE>
do not appear, LIBOR with respect to such LIBOR Determination Date will be
determined as described in (ii) below.
(ii) With respect to a LIBOR Determination Date on which no such bid
rates and offered rates appear on Telerate Page 3750 or Reuters SWAP as
described in (i) above, LIBOR will be determined on the basis of the rates
at approximately 11:00 A.M., London time, on such LIBOR Determination Date,
at which deposits in U.S. dollars having the Specified Maturity are offered
to prime banks in the London Interbank market by four major banks in the
London Interbank market selected by the Calculation Agent commencing on the
Interest Commencement Date and in a principal amount equal to an amount not
less than U.S.$1,000,000 that in the Calculation Agent's judgment is
representative for a single transaction in such market at such time (a
"Representative Amount"). The Calculation Agent will request the principal
London office of each of such banks to provide a quotation of its rate. If
at least two such quotations are provided, LIBOR with respect to such LIBOR
Determination Date will be calculated by reference to the arithmetic mean of
such quotations. If fewer than two quotations are provided, LIBOR with
respect to such LIBOR Determination Date will be calculated by reference to
the arithmetic mean of the rates quoted at approximately 11:00 A.M., New
York City time, on such LIBOR Determination Date by three major banks in The
City of New York, selected by the Calculation Agent, for loans in U.S.
dollars to leading European banks having the Specified Maturity commencing
on the Interest Commencement Date and in a Representative Amount; provided,
however, that if fewer than three banks selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, LIBOR with
respect to such Cash Component will be the LIBOR as last in effect.
"London Business Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
The value of any Underlying Stock converted into a Cash Component as of any
given day will equal the sum of the Cash Component and all interest accrued
thereon as of such day. The interest that has accrued on any given day will only
be reflected in the value of the Index quoted by the AMEX at the end of such day
and not in the values disseminated at interim periods during the day. For
purposes of calculating the Spot Index, the value of any such Underlying Stock
will equal the sum of the Cash Component and all interest accrued up to and
including the Specified Maturity. Interest will not be compounded.
5. If all of the Underlying Stocks of any class or series of an issuer are
converted into or exchanged for the same or a different number of shares of any
class or classes of equity security other than such Underlying Stock, whether by
capital reorganization, recapitalization, reclassification or otherwise, (other
than pursuant to paragraph 4 above) then, once such conversion has become
effective, the former Underlying Stock will be removed from the Index and such
new equity securities will be added to the Index as new Index Securities. The
Multiplier for each such new Underlying Stock will equal the product of the last
value of the Multiplier with respect to the former Underlying Stock and the
number of shares of such new Underlying Stock issued with respect to one share
of the former Underlying Stock.
6. If the issuer of an Underlying Stock issues to all of its shareholders
equity securities of an issuer other than the issuer of the Underlying Stock,
then such new equity securities will be added to the Index as a new Underlying
Stock. The Multiplier for such new Underlying Stock will equal the product of
the last value of the Multiplier with respect to the Underlying Stock for which
the new Underlying Stock is being issued (the "Original Underlying Stock") and
the number of shares of the new Underlying Stock issued with respect to one
share of the Original Underlying Stock.
7. If an Underlying Stock is subject to an extraordinary dividend or an
extraordinary distribution (including upon liquidation or dissolution) of cash
or other property of any kind (other than any such dividend or distribution
otherwise addressed in the preceding paragraphs) which is received equally by
all holders of such Index Securities, then the Calculation Agent shall determine
the fair market value, if
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<PAGE>
any, of such cash or other property received in respect of each share of such
Underlying Stock and the Index shall thereafter be deemed to include an amount
equal to the product of the Multiplier on such date and such fair market value.
The payment of an ordinary cash dividend from current income or retained
earnings will not result in an adjustment to the Multiplier or entitle the
Warrantholders to any cash payments. Extraordinary cash payments to shareholders
may be treated as distributions of assets, and the Multiplier will be adjusted
accordingly.
No adjustments of any Multiplier of an Underlying Stock will be required
unless such adjustment would require a change of at least .1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
The Warrants are not sponsored, endorsed, sold or promoted by the AMEX. No
inference should be drawn from the information contained in this Prospectus
Supplement that the AMEX makes any representation or warranty, implied or
express, to Holdings, the Warrantholders or any member of the public regarding
the advisability of investing in securities generally or in the Warrants in
particular or the ability of the Index to track general stock market
performance. The AMEX has no obligation to take the needs of Holdings or the
Warrantholders into consideration in determining, composing or calculating the
Index. The AMEX is not responsible for, and has not participated in the
determination of the timing of, prices for, or quantities of, the Warrants to be
issued or in the determination or calculation of the equation by which the
Warrants are to be settled in cash. The AMEX has no obligation or liability in
connection with the administration, marketing or trading of the Warrants.
Except with respect to the responsibility of the Calculation Agent to make
certain calculations under certain circumstances as described herein, none of
Holdings, the Warrant Agent, the Calculation Agent or the Underwriters accepts
any responsibility for the calculation, maintenance or publication of the Index
or any Successor Index. The AMEX disclaims all responsibility for any
inaccuracies in the data on which the Index is based, or any mistakes or errors
or omissions in the calculation or dissemination of the Index or for the manner
in which such index is applied in determining the Cash Settlement Value or
Alternative Settlement Amount upon exercise of the Warrants.
S-34
<PAGE>
HISTORICAL DATA ON THE UNDERLYING STOCKS AND ON THE INDEX
HISTORICAL INFORMATION ON THE UNDERLYING STOCKS
The following table sets forth the high, low and closing price for each of
the Underlying Stocks, as reported on the Exchanges, during 1993, 1994, 1995 and
during 1996 (through May 1, 1996), and the closing price on December 31, 1993,
1994 and 1995 and on May 1, 1996. The historical prices of the Underlying Stocks
should not be taken as an indication of future performance, and no assurance can
be given that the prices of the Underlying Stocks will increase sufficiently to
cause the beneficial owners of the Warrants to receive an amount upon exercise
thereof equal to a Cash Settlement Value greater than zero. Any historical
upward or downward trend in the closing level of the Underlying Stocks during
any period set forth below is not any indication that the Underlying Stocks are
more or less likely to decline at any time during the term of the Warrants. The
historical stock prices set forth herein have been adjusted to reflect certain
corporate events that affected the prices of the Underlying Stocks, including,
but not limited to, stock splits, reverse splits, stock dividends, spin-offs and
extraordinary dividends. Certain adjustments to the Index will be made by the
Calculation Agent as set forth under "The Index--Adjustments to the Multiplier
and the Index;" such adjustments may not correspond to the adjustments made in
determining the historical stock prices set forth herein.
<TABLE>
<CAPTION>
UNDERLYING STOCK HIGH LOW CLOSING
- ------------------------------------------------------------- -------- ------- --------
<S> <C> <C> <C>
ADC Telecommunications, Inc.
1993....................................................... $21.875 $9.438 $17.813
1994....................................................... 48.500 15.938 36.500
1995....................................................... 48.500 23.00 38.500
1996 (through May 1)....................................... 43.000 29.750 43.000
Adaptec, Inc.
1993....................................................... 19.875 9.563 19.875
1994....................................................... 47.000 14.250 41.000
1995....................................................... 47.000 22.375 41.000
1996....................................................... 60.750 35.875 58.125
America Online, Inc.
1993....................................................... 8.583 2.625 7.313
1994....................................................... 44.750 6.250 37.500
1995....................................................... 44.750 12.500 37.500
1996 (through May 1) 66.125 32.875 63.500
Cisco Systems, Inc.
1993....................................................... 16.438 9.750 16.156
1994....................................................... 43.938 9.813 37.313
1995....................................................... 43.938 16.251 37.313
1996 (through May 1)....................................... 52.375 32.638 52.250
Computer Associates International, Inc.
1993....................................................... 29.333 13.500 26.667
1994....................................................... 67.675 18.500 56.875
1995....................................................... 67.675 31.583 56.875
1996 (through May 1)....................................... 75.675 52.375 73.500
Dell Computer Corporation
1993....................................................... 24.588 7.938 11.313
1994....................................................... 48.375 9.750 34.625
1995....................................................... 48.375 19.938 34.626
1996 (through May 1)....................................... 46.625 23.469 46.375
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
UNDERLYING STOCK HIGH LOW CLOSING
- ------------------------------------------------------------- -------- ------- --------
<S> <C> <C> <C>
Digital Equipment Corporation
1993....................................................... $ 43.250 $33.375 $ 34.250
1994....................................................... 64.625 18.750 64.125
1995....................................................... 64.625 31.625 64.125
1996 (through May 1)....................................... 75.625 50.250 58.625
First Data Corporation
1993....................................................... 41.675 31.875 40.750
1994....................................................... 70.875 40.375 66.375
1995....................................................... 70.875 46.500 66.375
1996 (through May 1)....................................... 76.375 63.000 76.375
Gateway 2000, Inc.
1993....................................................... 19.875 17.000 19.625
1994....................................................... 37.000 10.625 24.500
1995....................................................... 37.000 16.500 24.500
1996 (through May 1)....................................... 39.375 13.500 35.125
Hewlett-Packard Company
1993....................................................... 43.750 32.500 39.500
1994....................................................... 96.000 36.000 83.750
1995....................................................... 96.000 49.165 83.750
1996 (through May 1)....................................... 110.000 75.500 105.375
Informix Corporation
1993....................................................... 13.500 6.938 10.625
1994....................................................... 34.000 7.250 30.000
1995....................................................... 34.000 14.625 30.000
1996 (through May 1)....................................... 35.375 18.375 26.375
Intel Corporation
1993....................................................... 36.625 21.625 31.000
1994....................................................... 76.438 28.250 56.750
1995....................................................... 76.438 31.813 58.750
1996 (through May 1)....................................... 70.250 50.125 67.875
International Business Machines Corp.
1993....................................................... 59.750 41.000 56.500
1994....................................................... 113.625 52.000 91.375
1995....................................................... 113.625 71.750 91.375
1996 (through May 1)....................................... 128.750 83.125 107.875
LSI Logic Corporation........................................
1993....................................................... 9.500 5.125 7.938
1994....................................................... 60.625 7.375 32.750
1995....................................................... 60.625 18.938 32.750
1996 (through May 1)....................................... 38.250 24.375 36.125
Microsoft Corporation
1993....................................................... 46.125 35.500 40.313
1994....................................................... 109.000 39.313 23.250
1995....................................................... 109.000 59.000 87.750
1996 (through May 1)....................................... 115.125 80.188 115.125
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
UNDERLYING STOCK HIGH LOW CLOSING
- ------------------------------------------------------------- -------- ------- --------
<S> <C> <C> <C>
Oracle Corporation
1993....................................................... $ 16.667 $ 6.278 $ 12.778
1994....................................................... 32.063 11.944 28.250
1995....................................................... 32.063 13.556 28.250
1996 (through May 1)....................................... 36.167 28.667 34.125
QUALCOMM Incorporated
1993....................................................... 43.125 11.625 26.500
1994....................................................... 54.250 15.250 43.000
1995....................................................... 54.250 21.000 43.000
1996 (through May 1)....................................... 43.875 30.625 39.125
Sun Microsystems, Inc.
1993....................................................... 20.125 10.625 14.563
1994....................................................... 49.875 9.188 45.625
1995....................................................... 49.875 15.250 45.625
1996 (through May 1)....................................... 56.125 37.375 55.625
Tencor Instruments
1993....................................................... 6.437 3.750 6.250
1994....................................................... 47.125 5.813 24.375
1995....................................................... 47.125 17.875 24.375
1996 (through May 1)....................................... 29.000 16.500 23.750
Texas Instruments, Inc.
1993....................................................... 42.125 23.000 31.750
1994....................................................... 62.250 31.000 51.500
1995....................................................... 62.250 34.500 51.500
1996 (through May 1)....................................... 58.375 42.750 56.625
Vishay Intertechnology, Inc.
1993....................................................... 16.893 11.662 15.930
1994....................................................... 44.375 14.966 31.500
1995....................................................... 44.375 23.095 31.500
1996 (through May 1)....................................... 34.125 24.375 30.375
Xerox Corporation
1993....................................................... 89.500 70.375 89.375
1994....................................................... 143.250 88.125 137.000
1995....................................................... 143.250 97.000 137.000
1996 (through May 1)....................................... 150.625 119.875 148.375
</TABLE>
S-37
<PAGE>
HISTORICAL INFORMATION ON THE INDEX
The following table sets forth the closing level of the Index at the end of
each month in the period from January 1991 through April 1996. All data
presented in the following table is presented as if the Index had existed during
such periods and had a value of on May 1, 1996. These data on the Index
are not necessarily indicative of the future performance of the Index or what
the value of the Warrants may be. Any upward or downward trend in the closing
level of the Index during any period set forth below is not any indication that
the Index is more or less likely to decline at any time during the term of the
Warrants:
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1991:
January:.......................... 21.74
February.......................... 27.66
March............................. 26.80
April............................. 26.53
May............................... 27.62
June.............................. 24.72
July.............................. 25.95
August............................ 25.82
September......................... 25.08
October........................... 25.69
November.......................... 24.62
December.......................... 25.95
1992:
January........................... 27.84
February.......................... 29.64
March............................. 28.89
April............................. 27.84
May............................... 28.39
June.............................. 26.94
July.............................. 28.63
August............................ 27.51
September......................... 29.19
October........................... 30.29
November.......................... 32.42
December.......................... 32.98
1993:
January........................... 35.99
February.......................... 35.15
March............................. 36.41
April............................. 34.53
May............................... 37.77
June.............................. 39.57
July.............................. 38.02
August............................ 40.95
September......................... 41.25
October........................... 40.58
November.......................... 39.95
December.......................... 41.15
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1994:
January........................... 42.39
February.......................... 43.91
March............................. 42.31
April............................. 40.32
May............................... 41.48
June.............................. 40.00
July.............................. 42.71
August............................ 47.16
September......................... 49.81
October........................... 55.07
November.......................... 54.29
December.......................... 54.39
1995:
January:.......................... 55.08
February.......................... 60.77
March............................. 64.71
April............................. 71.50
May............................... 72.28
June.............................. 81.66
July.............................. 90.22
August............................ 91.65
September......................... 96.12
October........................... 96.45
November.......................... 94.57
December.......................... 86.73
1996:
January:.......................... 88.56
February.......................... 93.71
March............................. 87.78
April............................. 99.60
May 1, 1996....................... --
May , 1996...................... 100
</TABLE>
S-38
<PAGE>
The following graph sets forth the performance of the Index at the end of
each month from January 1991 through April 1996 as if the Index had existed
during such periods and had a value of 100.00 on May , 1996. Past movements of
the Index are not necessarily indicative of the future Index values.
INDEX--PERFORMANCE
Closing Values Through May 1, 1996
125
100
[ GRAPH ]
75
[ PLOT POINTS TO COME ]
50
25
0
1991 1992 1993 1994 1995
Source: Prepared by Holdings from data obtained from publicly available sources.
The May 1, 1996 closing level of the Index was .
S-39
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Simpson Thacher & Bartlett, special counsel to Holdings,
the following discussion is an accurate summary of the material United States
federal income tax consequences of the purchase, ownership, exercise or other
disposition of the Warrants as of the date hereof. Except where noted, it deals
only with Warrants held as capital assets by United States Holders and does not
deal with those with special situations, such as dealers in options or persons
who hold a Warrant in the ordinary course of business, financial institutions,
life insurance companies or purchasers holding Warrants as a part of a hedging
transaction or a "straddle." Moreover, the summary does not consider the
possible application of the "conversion transaction" rules to a holder who holds
a Warrant as part of an integrated investment comprised of a Warrant and one or
more other positions. Furthermore, the discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
federal income tax consequences different from those discussed below. PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF WARRANTS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT
OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER LAWS OF
ANY OTHER TAXING JURISDICTION.
As used herein, a "United States Holder" of a Warrant means a holder that is
a citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
TAXATION OF WARRANTS
Each Warrant will be treated as a cash settlement option. Accordingly, a
United States Holder will be required to recognize gain or loss with respect to
a Warrant on the sale, exchange, exercise (including automatic exercise) or
other disposition of the Warrant.
A United States Holder's tax basis in the Warrant will be equal to such
holder's cost. Upon sale, exchange or exercise (including automatic exercise) of
a Warrant, a United States Holder will recognize gain or loss equal to the
difference between the amount realized, if any, and the United States Holder's
tax basis in the Warrant. Any such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange or
exercise (including automatic exercise) the Warrant has been held for more than
one year. Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
MARK-TO-MARKET RULES
The Warrants currently are not subject to the mark-to-market rules of
section 1256 of the Code. If, subsequent to the issuance of the Warrants, the
SEC determines that the requirements of a contract market are met (i.e., that
the Index is "broad-based") and the Warrants continue to be listed on the AMEX,
Warrants purchased after the SEC determination would be treated as section 1256
contracts and thus "marked-to-market" (i.e., treated as though sold at fair
market value) on the last business day of each taxable year. If the
mark-to-market rules were to apply to the Warrants, a United States Holder might
incur federal income tax liability on an annual basis in respect of an increase
in the value of the Warrant without a corresponding receipt of cash. Moreover,
any gain or loss recognized with respect to a Warrant would be 60% long-term
capital gain or loss and 40% short term capital gain or loss.
S-40
<PAGE>
BACKUP WITHHOLDING
The proceeds received from a sale, exchange or exercise (including automatic
exercise) of a Warrant may be subject to a 31 percent backup withholding tax if
the United States Holder thereof (other than certain exempt recipients such as
corporations) fails to supply an accurate taxpayer identification number of
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 May , 1996 (the "Underwriting Agreement"), Holdings has agreed to
sell to each of the underwriters named below (the "Underwriters"), for which
Lehman Brothers Inc. is acting as representative (the "Representative"), and
each of the Underwriters has severally agreed to purchase, the aggregate number
of Warrants set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF WARRANTS
- --------------------------------------------------------- ------------------
<S> <C>
Lehman Brothers Inc......................................
----------
Total.............................................. 2,000,000
----------
----------
</TABLE>
Holdings has been advised 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. In addition, the Underwriters propose to offer the
Warrants to certain dealers at such prices less a concession not in excess of
$ per Warrant, as the case may be. After the initial public offering, the
public offering prices and such concessions may be changed.
The Underwriters have advised Holdings that they intend to make a market in
the Warrants but they 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.
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. The Representative has
informed Holdings that the Underwriters do not intend to confirm sales to any
account over which they exercise discretionary authority without the prior
written consent of such account.
This Prospectus Supplement, together with the accompanying Prospectus, may
also be used by Lehman Brothers Inc. in connection with offers and sales of
Warrants related to market making transactions, by and through Lehman Brothers
Inc., at negotiated prices related to prevailing market prices at the time of
sale or otherwise. Lehman Brothers Inc. may act as principal or agent in such
transactions.
Holdings has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
S-41
<PAGE>
GLOSSARY
Definitions for the following terms are set forth in this Prospectus
Supplement at the pages indicated:
PAGE ON WHICH
TERM TERM IS DEFINED
- ------------------------------------------------------ ---------------
Alternative Settlement Amount......................... S-5
Alternative Settlement Date........................... S-27
AMEX.................................................. Cover
Applicable Business Day............................... S-25
Automatic Settlement Date............................. S-24
Business Day.......................................... S-7
Calculation Agent..................................... S-22
Cancellation Date..................................... S-13
Cash Component........................................ S-32
Cash Settlement Value................................. Cover
Code.................................................. S-40
Conversion Option..................................... S-9
CTS................................................... S-6
Delisting Date........................................ S-2
DTC................................................... S-9
Exchange Act.......................................... S-2
Exchanges............................................. S-6
Exercise Date......................................... S-20
Exercise Limitation Event............................. S-26
Exercise Notice....................................... S-20
Expiration Date....................................... S-2
Extraordinary Event................................... S-25
Final Exercise Date................................... S-2
Holdings.............................................. Cover
Index................................................. Cover
Index Calculation Day................................. S-7
Interest Commencement Date............................ S-32
LIBOR................................................. S-32
LIBOR Determination Date.............................. S-32
Limit Option.......................................... S-23
Limit Option Reference Index.......................... S-23
London Business Day................................... S-33
Market Price.......................................... S-32
Multiplier............................................ S-28
OCC................................................... S-14
Original Underlying Stock............................. S-34
Participant........................................... S-9
Remaining Warrants.................................... S-12
Representative Amount................................. S-33
Representative........................................ S-41
Reuters-SWAP.......................................... S-33
SEC................................................... S-2
Self-Regulatory Organization.......................... S-2
Settlement Date....................................... S-21
Specified Maturity.................................... S-32
S-42
<PAGE>
PAGE ON WHICH
TERM TERM IS DEFINED
- ----------------------------------------------------- ---------------
Spot Index........................................... S-8
Strike Index......................................... S-8
Successor Index...................................... S-8
Telerate Page 3750................................... S-32
Third Party.......................................... S-8
Underlying Stock..................................... S-16
Underwriters......................................... S-41
Underwriting Agreement............................... S-41
United States Holder................................. S-40
Valuation Date....................................... S-21
Warrant or Warrants.................................. Cover
Warrant Agent........................................ S-15
Warrant Agent's Office............................... S-15
Warrant Agreement.................................... S-15
Warrant Certificate.................................. S-17
Warrantholder or Warrantholders...................... S-8
S-43
<PAGE>
PROSPECTUS
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.$533,706,470, or the
equivalent thereof in one or more foreign currencies or foreign currency units
(such amount being the aggregate proceeds to Holdings from all Debt Securities,
Debt Warrants, Currency Warrants, Index Warrants and Interest Rate Warrants
(collectively, the "Securities") issued and the exercise price of any Debt
Securities issuable upon the exercise of any Debt Warrants). The Securities may
be offered either together or separately and in one or more series in amounts,
at prices and on terms to be determined at the time of the offering. Unless
otherwise specified in an applicable Prospectus Supplement, the Securities will
be sold for, and the Debt Warrants, Currency Warrants, Index Warrants or
Interest Rate Warrants (collectively, the "Warrants") will be exercisable in,
United States dollars, and the principal of and interest, if any, on the Debt
Securities and the cash payments, if any, in respect of the Currency Warrants,
the Index Warrants and the Interest Rate Warrants will be payable in United
States dollars. If this Prospectus is being delivered in connection with the
offering and sale of Debt Securities, the specific designation, priority,
aggregate principal amount, the currency or currency unit for which the Debt
Securities may be purchased, the currency or currency unit in which the
principal and interest, if any, is payable, the rate (or method of calculation)
and time of payment of interest, if any, authorized denominations, maturity, any
redemption terms, any listing on a securities exchange and the initial public
offering price, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto and any other
terms in connection with such offering and sale are set forth in an applicable
Prospectus Supplement. If this Prospectus is being delivered in connection with
the offering and sale of Warrants, the specific designation, aggregate number of
warrants, the currency or currency unit for which the warrants may be purchased,
the currency or currency unit in which the cash settlement value or the exercise
price, if applicable, is payable, the method of calculation of the cash
settlement value, if applicable, the date on which such warrants become
exercisable and the expiration date, provisions, if any, for the automatic
exercise and/or cancellation prior to the expiration date, the initial public
offering price, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto and any other
terms in connection with such offering and sale will be set forth in an
applicable Prospectus Supplement.
The Debt Securities and the Debt Warrants may be issued in registered form or
bearer form with, in the case of Debt Securities, coupons attached. The Currency
Warrants, Index Warrants and Interest Rate Warrants will be issued in registered
form only. In addition, all or a portion of the Securities of a series may be
issued in global form. Debt Securities in bearer form will be offered only
outside the United States to non-United States persons and to offices located
outside the United States of certain United States financial institutions. See
"Description of Debt Securities--Limitations on Issuance of Bearer Securities."
Discussions of certain United States federal income taxation consequences to
holders of Securities and certain of the risks associated with an investment in
Securities will be set forth in the applicable Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Securities will be sold either through underwriters, dealers or agents,
or directly by Holdings. The applicable Prospectus Supplement sets forth the
names of any underwriters or agents (which may include Lehman Brothers Inc., a
subsidiary of Holdings ("Lehman Brothers")) involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the proposed
amounts, if any, to be purchased by underwriters and the compensation, if any,
of such underwriters or agents.
------------------------
This Prospectus together with the applicable Prospectus Supplement may also
be used by Lehman Brothers, in connection with offers and sales of Securities
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
------------------------
May 6, 1996
<PAGE>
AVAILABLE INFORMATION
Holdings is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "SEC"). Such reports and information may be inspected and copied
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the SEC:
New York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison
Street, Chicago, Illinois 60661-2511; and copies of such material can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates. Holdings' 8 3/4% Notes Due 2002 are listed on the New York
Stock Exchange, Inc. (the "Exchange") and Holdings' $55 Million Serial Zero
Coupon Senior Notes Due May 16, 1998, FT-SE Eurotrack 200 Index Call Warrants
Expiring June 4, 1996, 7 1/4% Oracle Yield Enhanced Equity Linked Debt
SecuritiesSM Due 1996, 6 1/2% Amgen Yield Enhanced Equity Linked Debt Securities
Due 1997, Stock Upside Note SecuritiesSM Due 2000 and the AMEX Hong Kong 30
Index Call Warrants Expiring January 23, 1998 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 year ended November 30,
1995.
(2) Holdings' Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996.
(3) Holdings' Current Reports on Form 8-K dated January 4, 1996 and
March 20, 1996.
Each document filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered by an applicable
Prospectus Supplement shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein,
in an applicable Prospectus Supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
Holdings will provide without charge to each person, including any
beneficial owner of any Security, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Mary J. Capko,
the Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial
Center, 27th Floor, New York, New York 10285 (telephone (212) 526-0660).
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THE COMPANY
Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries
hereinafter referred to as the "Company" unless the context otherwise requires)
is one of the leading global investment banks serving institutional, corporate,
government and high net worth individual clients and customers. The Company's
worldwide headquarters in New York and regional headquarters in London and Tokyo
are complemented by offices in additional locations in the United States,
Europe, the Middle East, Latin and South America and the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; institutional
asset management; research; and the trading of foreign exchange, derivative
products and certain commodities. The Company acts as a market maker in all
major equity and fixed income products in both the domestic and international
markets. Lehman Brothers is a member of all principal securities and commodities
exchanges in the United States, as well as the National Association of
Securities Dealers, Inc. ("NASD"), and holds memberships or associate
memberships on several principal international securities and commodities
exchanges, including the London, Tokyo, Hong Kong, Frankfurt and Milan stock
exchanges.
Holdings was incorporated in Delaware on December 29, 1983. Holdings'
principal executive offices are located at 3 World Financial Center, New York,
New York 10285 (telephone (212) 526-7000).
USE OF PROCEEDS
Except as otherwise may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, Holdings intends to apply the net proceeds from
the sale of the Securities for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for each of the three years in the period ended December 31, 1993, the
eleven months ended November 30, 1994, the twelve months ended November 30, 1995
and for the three months ended February 29, 1996:
<TABLE>
<CAPTION>
ELEVEN MONTHS TWELVE MONTHS
YEAR ENDED DECEMBER ENDED ENDED THREE MONTHS ENDED
31, NOVEMBER 30, NOVEMBER 30, FEBRUARY 29,
- ---------------------- ------------- ------------- ------------------
1991 1992 1993 1994 1995 1996
- ---- ---- ---- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
1.03 * 1.00 1.03 1.03 1.05
</TABLE>
- ------------
* Earnings were inadequate to cover fixed charges and would have had to increase
approximately $247 million in order to cover the deficiencies for the period
ended December 31, 1992.
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.
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DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either Senior Debt (as defined below) or
Subordinated Debt (as defined below) of Holdings. The Debt Securities
constituting Senior Debt will be issued under an indenture, dated as of
September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented
and amended by Supplemental Indentures dated as of November 25, 1987, as of
November 27, 1990, as of September 13, 1991, as of October 4, 1993 and as of
October 1, 1995 (the "Senior Indenture"), and the Debt Securities constituting
Subordinated Debt will be issued under an indenture between Holdings and
Chemical Bank, Trustee (the "Subordinated Indenture"). The Senior Indenture and
the Subordinated Indenture are hereinafter collectively referred to as the
"Indentures" and, individually, as an "Indenture". Each Indenture will
incorporate by reference certain Standard Multiple-Series Indenture Provisions,
filed with the SEC on July 30, 1987 and as amended and refiled with the SEC on
November 16, 1987. This Prospectus contains descriptions of all material
provisions of the Indentures. The summary of such provisions of the Indentures
does not purport to be complete; copies of such Indentures are filed as exhibits
to the Registration Statement of which this Prospectus is a part. All articles
and sections of the applicable Indenture, and all capitalized terms set forth
below, have the meanings specified in the applicable Indenture.
GENERAL
Neither Indenture limits the amount of debentures, notes or other evidences
of indebtedness which may be issued thereunder. Each Indenture provides that
Debt Securities may be issued from time to time in one or more series. Since
Holdings, as a holding company, does not have any significant assets other than
the equity securities of its subsidiaries, its cash flow and consequent ability
to service its debt, including the Debt Securities, are dependent upon the
earnings of its subsidiaries and the distribution of those earnings to Holdings,
or upon loans or other payments of funds by those subsidiaries to Holdings.
Holdings' subsidiaries, including Lehman Brothers, are separate and distinct
legal entities and will have no obligation, contingent or otherwise, to pay any
interest or principal on the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. Dividends, loans and
other payments by Lehman Brothers are restricted by net capital and other rules
of various regulatory bodies. See "Capital Requirements." The payment of
dividends by Holdings' subsidiaries is contingent upon the earnings of those
subsidiaries and is subject to various business considerations in addition to
net capital requirements and contractual restrictions.
Since the Debt Securities will be obligations of a holding company, the
ability of holders of the Debt Securities to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Debt Securities being offered
thereby: (1) the title of such Debt Securities and whether such Debt Securities
will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) whether the Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, and if Bearer
Securities are issued, whether Bearer Securities may be exchanged for Registered
Securities and the circumstances and places for such exchange, if permitted; (4)
whether the Debt Securities are to be issued in whole or in part in the form of
one or more temporary or permanent global Debt Securities ("Global Securities")
in registered or bearer form and, if so, the identity of the depositary, if any,
for such Global Security or Securities; (5) the date or dates (or manner of
determining the same) on which such Debt Securities will mature; (6) the rate or
rates (or manner of determining the same) at which such Debt Securities will
bear interest, if any, and the date or dates from which such interest will
accrue; (7) the dates (or manner of determining the same) on which such interest
will be payable and the Regular Record Dates for such Interest Payment Dates for
Debt Securities which are Registered Securities, and the extent to which, or
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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," the Debt Securities may be presented for
registration of transfer or exchange; (10) the date, if any, after which, and
the price or prices in the currency or currency unit in which, such Debt
Securities are payable pursuant to any optional or mandatory redemption
provision; (11) any provisions for payment of additional amounts for taxes and
any provision for redemption, in the event the Company must comply with
reporting requirements in respect of a Debt Security or must pay such additional
amounts in respect of any Debt Security; (12) the terms and conditions, if any,
upon which the Debt Securities of such series may be repayable prior to maturity
at the option of the holder thereof (which option may be conditional) and the
price or prices in the currency or currency unit in which such Debt Securities
are payable; (13) the denominations in which any Debt Securities which are
Registered Securities will be issuable if other than denominations of $1,000 and
any integral multiple thereof, and the denomination or denominations in which
any Debt Securities which are Bearer Securities will be issuable if other than
the denomination of $5,000; (14) the currency, currencies or currency units for
which such Debt Securities may be purchased and the currency, currencies or
currency units in which the principal of and interest, if any, on such Debt
Securities may be payable; (15) any index used to determine the amount of
payments of principal of and premium, if any, and interest, if any, on such Debt
Securities; and (16) other terms of the Debt Securities. (Section 301).
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of or interest, if any, on any series of Debt
Securities is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Debt Securities and such currencies or currency
units will be set forth in an applicable Prospectus Supplement relating thereto.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be in
an applicable Prospectus Supplement.
SENIOR DEBT
The Debt Securities constituting part of the senior debt of Holdings (the
"Senior Debt") will rank equally with all other unsecured debt of Holdings
except Subordinated Debt.
SUBORDINATED DEBT
The Debt Securities constituting part of the subordinated debt of Holdings
(the "Subordinated Debt") will be subordinate and junior in the right of
payment, to the extent and in the manner set forth in the Subordinated
Indenture, to all present or future Senior Debt. "Senior Debt" is defined to
mean (a) any indebtedness for money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness under capitalized leases,
(c) any indebtedness representing the deferred and unpaid purchase price of any
property or business, and (d) all deferrals, renewals, extensions and refundings
of any such indebtedness or obligation; except that the following does not
constitute Senior Debt: (i) indebtedness evidenced by the Subordinated Debt,
(ii) indebtedness which is expressly made equal in right of payment with the
Subordinated Debt or subordinate and subject in right of payment to the
Subordinated Debt, (iii) indebtedness for goods or materials purchased in the
ordinary course of business or for services obtained in the ordinary course of
business or indebtedness consisting of trade
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<PAGE>
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
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
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<PAGE>
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 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
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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 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).
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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 February 29, 1996, Holdings'
Designated Subsidiaries were Lehman Brothers, Lehman Brothers Holdings PLC,
Lehman Brothers UK Holdings Limited, Lehman Brothers U.K. Holdings (Delaware)
Inc., Lehman Brothers International (Europe), Lehman Brothers Japan Inc. and
Lehman Brothers Financial Products Inc.
EVENTS OF DEFAULT
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, the following are Events of Default
under the Indenture with respect to Debt Securities of such series: (a) failure
to pay principal of or premium, if any, on any Debt Security of that series when
due; (b) failure to pay interest, if any, on any Debt Security of that series
and any related coupons when due, continued for 30 days; (c) failure to deposit
any sinking fund payment or analogous obligation, when due, continued for 30
days, in respect of any Debt Security of that series; (d) failure to perform any
other covenant of Holdings in the Indenture (other than a covenant included in
the applicable Indenture solely for the benefit of a series of Debt Securities
other than that series), continued for 90 days after written notice as provided
in the Indenture; (e) certain events in bankruptcy, insolvency or reorganization
in respect of Holdings; and (f) any other Event of Default provided with respect
to Debt Securities of that series. (Section 501). An Event of Default with
respect to a particular series of Debt Securities does not necessarily
constitute an Event of Default with respect to any other series of Debt
Securities issued under the same or another Indenture. The Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except in the payment of principal, premium or interest,
if any) if it considers such withholding to be in the interests of such Holders.
(Section 602).
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, unless the principal of all of the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Securities,
such portion of the principal amount as may be specified in the terms of the
series) of all the Debt Securities of that series to be due and payable
immediately. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained and entered, the Holders of a majority
in principal amount of the outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration. (Section 502). For
information as to waiver of defaults, see "Meetings, Modification and Waiver."
Each Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under such Indenture
at the request or direction of any of the Holders, unless such Holders shall
have
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offered to the Trustee reasonable indemnity. (Section 603). Subject to such
provisions for indemnification of the Trustee, the Holders of a majority in
principal amount of the outstanding Debt Securities of any series will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Debt Securities of that series. (Section 512).
Holdings will be required to furnish to each Trustee annually a statement as
to the performance by Holdings of certain of its obligations under the
applicable Indenture and as to any default in such performance. (Section 1006).
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, each Indenture provides that Holdings
shall be discharged from its obligations under the Debt Securities of such
series (with certain exceptions) at any time prior to the Stated Maturity or
redemption thereof when (a) Holdings has irrevocably deposited with the
applicable Trustee, in trust, (i) sufficient funds in the currency or currency
unit in which the Debt Securities of such series are payable to pay the
principal of (and premium, if any), and interest, if any, to Stated Maturity (or
redemption) on, the Debt Securities of such series, or (ii) such amount of
direct obligations of, or obligations the principal of and interest, if any, on
which are fully guaranteed by, the government which issued the currency in which
the Debt Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series, or (iii) such combination of such funds and securities as
described in (i) and (ii), respectively, as will, together with the
predetermined and certain income to accrue on any such securities as described
in (ii), be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series and (b) Holdings has paid all other sums payable with respect to
the Debt Securities of such series and (c) certain other conditions are met.
Upon such discharge, the Holders of the Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Debt Securities of such
series and replacement of lost, stolen or mutilated Debt Securities, and shall
look only to such deposited funds or obligations for payment. (Sections 401 and
403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, Holdings may
omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms"), Section 1005 ("Limitations on Liens
on Common Stock of Designated Subsidiaries") and any other specified covenant
and any such omission with respect to such Sections shall not be an Event of
Default with respect to the Debt Securities of such series, if (a) Holdings has
irrevocably deposited with the applicable Trustee, in trust, (i) sufficient
funds in the currency or currency unit in which the Debt Securities of such
series are payable to pay the principal of (and premium, if any), and interest,
if any, to Stated Maturity (or redemption) on, the Debt Securities of such
series, or (ii) such amount of direct obligations of, or obligations the
principal of and interest, if any, on which are fully guaranteed by, the
government which issued the currency in which the Debt Securities of such series
are payable and which are not subject to prepayment, redemption or call, as
will, together with the predetermined and certain income to accrue thereon
without consideration of any reinvestment thereof, be sufficient to pay when due
the principal of (and premium, if any), and interest, if any, to Stated Maturity
(or redemption) on, the Debt Securities of such series or, (iii) such
combination of such funds and securities as described in (i) and (ii),
respectively, as will, together with the predetermined and certain income to
accrue on any such securities as described in (ii), be sufficient to pay when
due the principal of (and premium, if any),
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and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series and (b) certain other conditions are met. The obligations of
Holdings under the Indenture with respect to the Debt Securities of such series,
other than with respect to the covenants referred to above shall remain in full
force and effect. (Section 1009).
MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by Holdings and
the applicable Trustee with the consent of the Holders of not less than 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
under such Indenture affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any instalment of principal of or interest, if
any, on, any Debt Security, (b) reduce the principal amount of, or the premium,
if any, or interest, if any, on, any Debt Security, (c) change any obligation of
Holdings to pay additional amounts, (d) reduce the amount of principal of an
Original Issue Discount Security payable upon acceleration of the Maturity
thereof, (e) adversely affect the right of repayment or repurchase, if any, at
the option of the Holder, (f) reduce the amount, or postpone the date fixed for,
any payment under any sinking fund or analogous provision, (g) change the
currency or currency unit of payment of principal of or premium, if any, or
interest, if any, on any Debt Security, (h) change or eliminate the right, if
any, to elect payment in a coin or currency or currency unit other than that in
which Debt Securities which are Registered Securities are denominated or stated
to be payable, (i) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security, (j) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults, (k) reduce the requirements
contained in either Indenture for quorum or voting, or (l) change any obligation
of Holdings to maintain an office or agency in the places and for the purposes
required in the applicable Indenture. (Section 902).
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by Holdings with certain restrictive provisions of the applicable
Indenture. (Section 1007). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series may on behalf of the
Holders of all Debt Securities of that series and any coupons appertaining
thereto waive any past default under the applicable Indenture with respect to
that series, except a default in the 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
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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).
TITLE
Title to any temporary global Debt Security or permanent global Debt
Security in bearer form or any Bearer Securities and any coupons appertaining
thereto will pass by delivery. Holdings, each Trustee and any agent of Holdings
or the applicable Trustee may treat the bearer of any Bearer Security and the
bearer of any coupon and the registered owner of any Registered Security as the
absolute owner thereof (whether or not such Debt Security or coupon shall be
overdue and notwithstanding any notice to the contrary) for the purpose of
making payment and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Debt Security or a Debt Security with a mutilated coupon
appertaining thereto will be replaced by Holdings at the expense of the Holder
upon surrender of such Debt Security to the
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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."
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.
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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.
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
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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).
Other Information
Other important information concerning Debt Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions", "--Enforceability of Rights by
Beneficial Owner; Governing Law" and "--Unsecured Obligations of a Holding
Company".
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CURRENCY WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Index
Warrants or Interest Rate Warrants, or separately, Currency Warrants (a) in the
form of Currency Put Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value (as shall be defined in the
Prospectus Supplement) of the right to sell a specified amount of one currency
(whether U.S. dollars or a foreign currency or foreign currency unit) (a "Base
Currency") for a specified amount of a different currency (whether U.S. dollars
or a foreign currency or foreign currency unit) (a "Reference Currency"), (b) in
the form of Currency Call Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value of the right to purchase a
specified amount of a Base Currency for a specified amount of a Reference
Currency, or (c) in such other form as shall be specified in the related
Prospectus Supplement. The Prospectus Supplement for an issue of Currency
Warrants will set forth the formula pursuant to which the Currency Warrant Cash
Settlement Value will be determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of any Currency Warrants
offered thereby, the Currency Warrant Agreement relating to such Currency
Warrants and the Currency Warrant Certificates representing such Currency
Warrants, including the following: (1) the title of such Currency Warrants; (2)
the aggregate amount of such Currency Warrants; (3) the initial offering price
of such Currency Warrants; (4) the exercise price, if any; (5) the currency or
currency unit in which the initial offering price, the exercise price, if any,
and the Currency Warrant Cash Settlement Value of such Currency Warrants is
payable; (6) the Base Currency and the Reference Currency for such Currency
Warrants; (7) whether such Currency Warrants shall be Currency Put Warrants,
Currency Call Warrants or otherwise; (8) the formula for determining the
Currency Warrant Cash Settlement Value, if applicable, of each Currency Warrant;
(9) whether and under what circumstances a minimum and/or maximum expiration
value is applicable upon the expiration or exercise of such Currency Warrants;
(10) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (11) the date on which the right to exercise such
Currency Warrants shall commence and the date (the "Currency Warrant Expiration
Date") on which such right shall expire; (12) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; (13) the maximum number, if any, of such Currency Warrants that may,
subject to election by Holdings, be exercised by all owners (or by any person or
entity) on any day; (14) any provisions for the automatic exercise of such
Currency Warrants other than at expiration; (15) whether and under what
circumstances such Currency Warrants may be cancelled by Holdings prior to their
expiration date; (16) any other procedures and conditions relating to the
exercise of such Currency Warrants; (17) the identity of the Currency Warrant
Agent; (18) any national securities exchange on which such Currency Warrants
will be listed; (19) provisions, if any, for issuing such Currency Warrants in
certificated form; (20) if such Currency Warrants are not issued in book-entry
form, the place or places at which payments in respect of such Currency Warrants
are to be made by Holdings; (21) if applicable, a discussion of certain United
States federal income tax, accounting or other special considerations applicable
thereto; and (22) any other terms of the Currency Warrants.
Other important information concerning Currency Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions", "--Enforceability of Rights by
Beneficial Owner; Governing Law" and "--Unsecured Obligations of a Holding
Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and
Interest Rate Warrants--Exercise of Warrants", "--Market Disruption and Force
Majeure Events" and "--Settlement Currency" and "--Listing".
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
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Prospectus Supplement) in cash, which amount will be determined by reference to
the amount, if any, by which the Fixed Amount (as shall be defined in the
Prospectus Supplement) at the time of exercise exceeds the Index Value (as shall
be defined in the Prospectus Supplement), (b) in the form of Index Call
Warrants, entitling the owners thereof to receive from Holdings the Index Cash
Settlement Value in cash, which amount will be determined by reference to the
amount, if any, by which the Index Value at the time of exercise exceeds the
Fixed Amount, (c) in the form of Index Spread Warrants, entitling the owners
thereof to receive from Holdings the Index Cash Settlement Value in cash, which
amount will be determined by reference to the amount, if any, by which the
Reference Index Value (as shall be defined in the Prospectus Supplement) at the
time of exercise exceeds the Base Index Value (as shall be defined in the
Prospectus Supplement) or (d) in such other form as shall be specified in the
related Prospectus Supplement. The Prospectus Supplement for an issue of Index
Warrants will set forth the formula pursuant to which the Index Cash Settlement
Value will be determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of Index Warrants offered
thereby, the Index Warrant Agreement relating to such Index Warrants and the
Index Warrant Certificate representing such Index Warrants, including the
following: (1) the title of such Index Warrants; (2) the aggregate amount of
such Index Warrants; (3) the initial offering price of such Index Warrants; (4)
the exercise price, if any; (5) the currency or currency unit in which the
initial offering price, the exercise price, if any, and the Index Cash
Settlement Value of such Index Warrants is payable; (6) the Index or Indices for
such Index Warrants, which may be based on one or more U.S. or foreign stocks,
bonds, or other securities, one or more U.S. or foreign interest rates, one or
more currencies or currency units, or any combination of the foregoing, and may
be a preexisting U.S. or foreign index compiled and published by a third party
or an index based on one or more securities, interest rates or currencies
selected by Holdings solely in connection with the issuance of such Index
Warrants, and certain information regarding such Index or Indices and the
underlying securities, interest rates or currencies (including, to the extent
possible, the policies of the publisher of the Index with respect to additions,
deletions and substitutions of such securities, interest rates or currencies);
(7) whether such Index Warrants shall be Index Put Warrants, Index Call
Warrants, Index Spread Warrants or otherwise; (8) the method of providing for a
substitute Index or Indices or otherwise determining the amount payable in
connection with the exercise of such Index Warrants if any Index changes or
ceases to be made available by its publisher; (9) the formula for determining
the Index Cash Settlement Value, if applicable, of each Index Warrant; (10)
whether and under what circumstances a minimum and/or maximum expiration value
is applicable upon the expiration or exercise of such Index Warrants; (11) the
effect or effects, if any, of the occurrence of a Market Disruption Event or
Force Majeure Event; (12) the date on which the right to exercise such Index
Warrants shall commence and the date (the "Index Warrant Expiration Date") on
which such right shall expire; (13) any minimum number of Index Warrants which
must be exercised at any one time, other than upon automatic exercise; (14) the
maximum number, if any, of such Index Warrants that may, subject to election by
Holdings, be exercised by all owners (or by any person or entity) on any day;
(15) any provisions for the automatic exercise of such Index Warrants other than
at expiration; (16) whether and under what circumstances such Index Warrants may
be cancelled by Holdings prior to their expiration date; (17) any provisions
permitting a Holder to condition any notice of exercise on the absence of
certain specified changes in the Index Value, the Base Index Value or the
Reference Index Value after the date of exercise; (18) any other procedures and
conditions relating to the exercise of such Index Warrants; (19) the identity of
the Index Warrant Agent; (20) any national securities exchange on which such
Index Warrants will be listed; (21) provisions, if any, for issuing such Index
Warrants in certificated form; (22) if such Index Warrants are not issued in
book-entry form, the place or places at which payments in respect of such Index
Warrants are to be made by Holdings; (23) if applicable, a discussion of certain
United States federal income tax, accounting or other special considerations
applicable thereto; and (24) any other terms of such Index Warrants.
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Other important information concerning Index Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions", "--Enforceability of Rights by
Beneficial Owner; Governing Law" and "--Unsecured Obligations of a Holding
Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and
Interest Rate Warrants--Exercise of Warrants", "--Market Disruption and Force
Majeure Events", "--Settlement Currency" and "--Listing".
INTEREST RATE WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Index Warrants or, separately, Interest Rate Warrants (a) in the
form of Interest Rate Put Warrants, entitling the owners thereof to receive from
Holdings the Interest Rate Cash Settlement Value (as shall be defined in the
Prospectus Supplement) in cash, which amount will be determined by reference to
the amount, if any, by which the Spot Amount (as shall be defined in the
Prospectus Supplement) is less than the Strike Amount (as shall be defined in
the Prospectus Supplement) on the applicable valuation date following exercise,
(b) in the form of Interest Rate Call Warrants, entitling the owners thereof to
receive from Holdings the Interest Rate Cash Settlement Value in cash, which
amount will be determined by reference to the amount, if any, by which the Spot
Amount on the applicable valuation date following exercise exceeds the Strike
Amount or (c) in such other form as shall be specified in the related Prospectus
Supplement. The Prospectus Supplement for an issue of Interest Rate Warrants
will set forth the formula pursuant to which the Interest Rate Cash Settlement
Value will be determined, including any multipliers, if applicable. The Strike
Amount may either be a fixed yield, price or rate of a Debt Instrument, a Rate
or any combination of Debt Instruments and/or Rates or a yield, price or rate
that varies during the term of the Interest Rate Warrants in accordance with a
schedule or formula. The Debt Instrument will be one or more instruments
specified in the applicable Prospectus Supplement issued either by the United
States government or by a foreign government. The Rate will be one or more
interest rates or interest rate swap rates established from time to time by one
or more financial institutions specified in the applicable Prospectus
Supplement.
The Prospectus Supplement will describe the terms of Interest Rate Warrants
offered thereby, the Interest Rate Warrant Agreement relating to such Interest
Rate Warrants and the Interest Rate Warrant Certificate representing such
Interest Rate Warrants, including the following: (1) the title of such Interest
Rate Warrants, (2) the aggregate amount of such Interest Rate Warrants; (3) the
initial offering price of such Interest Rate Warrants; (4) the exercise price,
if any; (5) the currency or currency unit in which the initial offering price,
the exercise price, if any, and the Interest Rate Cash Settlement Value of such
Interest Rate Warrants is payable; (6) the Debt Instrument (which may be one or
more debt instruments issued either by the United States government or by a
foreign government), the Rate (which may be one or more interest rates or
interest rate swap rates established from time to time by one or more specified
financial institutions) or the other yield, price or rate utilized for such
Interest Rate Warrants, and certain information regarding such Debt Instrument
or Rate; (7) whether such Interest Rate Warrants shall be Interest Rate Put
Warrants, Interest Rate Call Warrants or otherwise; (8) the Strike Amount, the
method of determining the Spot Amount and the method of expressing movements in
the yield or closing price of the Debt Instrument or in the level of the Rate as
a cash amount in the currency in which the Interest Rate Cash Settlement Value
of such Warrants is payable; (9) the formula for determining the Interest Rate
Cash Settlement Value, if applicable, of each Interest Rate Warrant; (10)
whether and under what circumstances a minimum and/or maximum expiration value
is applicable upon the expiration or exercise of such Interest Rate Warrants;
(11) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (12) the date on which the right to exercise such
Interest Rate Warrants shall commence and the date (the "Interest Rate Warrant
Expiration Date") on which such right shall expire; (13) any minimum number of
Interest Rate Warrants which must be exercised at any one time, other than upon
automatic exercise; (14) the maximum number, if any, of such Interest Rate
Warrants that may, subject to election by Holdings, be exercised by all owners
(or by any person or entity) on any day; (15) any provisions for the automatic
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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 of exercise; (18) any other procedures and
conditions relating to the exercise of such Interest Rate Warrants; (19) the
identity of the Interest Rate Warrant Agent; (20) any national securities
exchange on which such Interest Rate Warrants will be listed; (21) provisions,
if any, for issuing such Interest Rate Warrants in certificated form; (22) if
such Interest Rate Warrants are not issued in book-entry form, the place or
places at which payments in respect of such Interest Rate Warrants are to be
made by Holdings; (23) if applicable, a discussion of certain United States
federal income tax, accounting or other special considerations applicable
thereto; and (24) any other terms of such Interest Rate Warrants.
Other important information concerning Interest Rate Warrants is set forth
below under "Certain Items Applicable to All Warrants--Modifications",
"--Merger, Consolidation, Sale or Other Dispositions", "--Enforceability of
Rights by Beneficial Owner; Governing Law" and "--Unsecured Obligations of a
Holding Company" and "Certain Items Applicable to Currency Warrants, Index
Warrants and Interest Rate Warrants--Exercise of Warrants", "--Market Disruption
and Force Majeure Events", "--Settlement Currency" and "--Listing".
CERTAIN ITEMS APPLICABLE TO ALL WARRANTS
Modifications
Each Warrant Agreement and the terms of each issue of Warrants may be
amended by Holdings and the applicable Warrant Agent, without the consent of the
beneficial owners or the registered holders, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained therein, or in any other manner which Holdings
may deem necessary or desirable and which will not adversely affect the
interests of the beneficial owners of the then outstanding unexercised Warrants
in any material respect (Section 6.1).
Holdings and each Warrant Agent also may modify or amend the applicable
Warrant Agreement and the terms of the related Warrants, with the consent of the
beneficial owners of not less than a majority in number of the then outstanding
unexercised Warrants affected, provided that no such modification or amendment
that reduces the amount receivable upon exercise, cancellation or expiration,
shortens the period of time during which the Warrants may be exercised or
otherwise materially and adversely affects the exercise rights of the beneficial
owners of the Warrants or reduces the percentage number of outstanding Warrants
the consent of whose beneficial owners is required for modification or amendment
of the applicable Warrant Agreement or the terms of the Warrants may be made
without the consent of the beneficial owners affected thereby (Section 6.1).
Merger, Consolidation, Sale or Other Dispositions
If at any time there is a merger or consolidation involving Holdings or a
sale, transfer, conveyance or other disposition of all or substantially all of
the assets of Holdings, then in any such event the successor or assuming
corporation shall succeed to and be substituted for Holdings, with the same
effect as if it had been named in the applicable Warrant Agreement and in the
applicable Warrants as Holdings. Holdings shall thereupon be relieved of any
further obligation under such Warrant Agreement or under such Warrants, and, in
the event of any such merger, consolidation, sale, transfer, conveyance or other
disposition, Holdings as the predecessor corporation may thereupon or at any
time thereafter be dissolved, wound up or liquidated (Section 6.2 of the Debt
Warrant Agreement and Section 3.2 of each other Warrant Agreement).
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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 appropriate
legal action, on their own behalf, their right to exercise their Warrants, to
receive Debt Securities, in the case of Debt Warrants, and to receive payment,
if any, for their Warrants, in the case of Currency Warrants, Index Warrants or
Interest Rate Warrants (Section 4.2 of the Debt Warrant Agreement and Section
3.1 of each other Warrant Agreement). Except as may otherwise be provided in the
Prospectus Supplement relating thereto, each issue of Warrants and the
applicable Warrant Agreement will be governed by and construed in accordance
with the law of the State of New York (Section 6.5).
Unsecured Obligations of a Holding Company
The Warrants are unsecured obligations of Holdings and, therefore, changes
in the perceived creditworthiness of Holdings may be expected to affect trading
prices in Warrants. Since Holdings, as a holding company, does not have any
significant assets other than the equity securities of its subsidiaries, its
cash flow and consequent ability to satisfy its financial obligations, including
Warrants, are dependent upon the earnings of its subsidiaries and the
distribution of those earnings to Holdings, or upon loans or other payments of
funds by those subsidiaries to Holdings. Holdings' subsidiaries, including
Lehman Brothers, are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any amount in respect of Warrants or
to make any funds available therefor, whether by dividends, loans or other
payments. Dividends, loans and other payments by Lehman Brothers are restricted
by net capital and other rules of various regulatory bodies. See "Capital
Requirements." The payment of dividends by Holdings' subsidiaries is contingent
upon the earnings of those subsidiaries and is subject to various business
considerations in addition to net capital requirements and contractual
restrictions. Additionally, since Warrants will be obligations of a holding
company, the ability of holders of Warrants to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
CERTAIN ITEMS APPLICABLE TO CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE
WARRANTS
Exercise of Warrants
Except as may otherwise be provided in the applicable Prospectus Supplement
relating thereto, (a) each Currency Warrant, Index Warrant and Interest Rate
Warrant will entitle the owner, upon payment of the exercise price, if any, to
receive 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
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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.
Settlement Currency
Currency Warrants, Index Warrants and Interest Rate Warrants will be settled
only in U.S. dollars (unless settlement in a foreign currency is specified in
the applicable Prospectus Supplement and is permissible under applicable law)
and accordingly will not require or entitle an owner to sell, deliver, purchase
or take delivery of the currency, security or other instrument underlying such
Warrants. If any of the Currency Warrants, Index Warrants or Interest Rate
Warrants are sold for, or if the exercise price, if any, is payable in, foreign
currencies or foreign currency units or if the amount payable by Holdings in
respect of any series of Currency Warrants, Index Warrants or Interest Rate
Warrants is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Warrants and such currencies or currency units
will be set forth in an applicable Prospectus Supplement relating thereto.
Listing
Unless otherwise provided in the Prospectus Supplement, each issue of
Currency Warrants, Index Warrants and Interest Rate Warrants will be listed on a
national securities exchange, as specified in the applicable Prospectus
Supplement, subject only to official notice of issuance, as a pre-condition to
the sale of any such Warrants. It may be necessary in certain circumstances for
such national securities exchange to obtain the approval of the SEC in
connection with any such listing. In the event that 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
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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 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 underwriters, 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
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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 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 Euroclear System
("Euroclear") and Cedel Bank, societe anonyme ("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 (i) in whole,
definitive Bearer Securities, (ii) in whole, Senior Debt Securities to be
represented thereafter by one or more permanent Global Securities in bearer
form, without interest coupons, and/or (iii) in whole or in part, definitive
Registered Securities, (the date of such exchange, the "Exchange Date");
provided, however, that if definitive Bearer Securities have previously been
issued in exchange for an interest in a permanent Global Security in bearer form
representing Senior Debt Securities of the same series, then interests in such
Senior Debt Securities (with certain exceptions) shall only thereafter be
exchangeable, in whole, for definitive Bearer Securities, definitive Registered
Securities, or any combination thereof (with certain exceptions) 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
"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 permanent Global Security in bearer form may, on the
applicable Exchange Date and upon 30 days' notice to the applicable Trustee
given through Euroclear or Cedel, exchange its interest in whole for definitive
Bearer Securities or, if specified in an applicable Prospectus Supplement, in
whole or in part, for definitive Registered Securities of any authorized
denomination, provided, however, that if definitive Bearer Securities are issued
in partial exchange for Senior Debt Securities represented by such permanent
Global Security or by a temporary Global Security in bearer form of the same
series, such issuance (with certain exceptions) shall give rise to the exchange
of such permanent Global Security in whole for, at the option of the Holders,
definitive Bearer Securities, definitive Registered Securities, or any
combination thereof. No Bearer Security delivered in exchange for a portion of 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 Euroclear
and Cedel with respect to the portion of the temporary Global Security in bearer
form held for its account. Each of Euroclear 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."
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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 a registered broker-dealer, Lehman Brothers is 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. Lehman Brothers computes 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 cannot be withdrawn from a broker-dealer without the
prior approval of the SEC when net capital after the withdrawal would be less
than 25% of its securities positions haircuts (which are deductions from capital
of certain specified percentages of the market value of securities to reflect
the possibility of a market decline prior to disposition). In addition, the Net
Capital Rule requires broker-dealers to notify the SEC and the appropriate
self-regulatory organization two business days before a withdrawal of excess net
capital if the withdrawal would exceed the greater of $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 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 which
in turn could limit Holdings' ability to pay dividends, repay debt and redeem or
purchase shares of its outstanding capital stock.
The Company is subject to other domestic and international regulatory
requirements with which it is required to comply.
PLAN OF DISTRIBUTION
Holdings may sell Securities in any one or more of the following ways: (i)
through, or through underwriting syndicates managed by, Lehman Brothers alone or
with one or more other underwriters; (ii) through one or more dealers or agents
(which may include Lehman Brothers); or (iii) directly to one or more
purchasers. The specific managing underwriter or underwriters or agent or agents
with respect to the offer and sale of Securities are set forth on the cover of a
Prospectus Supplement relating to such Securities and the members of the
underwriting syndicate, if any, are named in such Prospectus
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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 to 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.
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 and sold and will not offer or sell, prior to the date six months after
the date of issue in the case of the Debt Securities, any Securities to persons
in the United Kingdom, except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offer of Securities Regulations 1995;
(ii) it has complied with 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 in the United
Kingdom any document received by it in connection with the issue of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
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The underwriters and agents named in an applicable Prospectus Supplement may
be entitled under agreements entered into with Holdings to indemnification by
Holdings against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the
underwriters and agents may be required to make in respect thereof. The
underwriters and agents may engage in transactions with, or perform services
for, Holdings in the ordinary course of business.
Holdings has been advised by Lehman Brothers that Lehman Brothers may from
time to time purchase and sell Securities in the secondary market. Each offering
of Securities and any market-making activities by Lehman Brothers with respect
to Securities will be conducted in compliance with the requirements of Schedule
E of the By-Laws of the NASD regarding an NASD member firm's participation in
distributing its affiliate's securities. Lehman Brothers may act as principal or
agent in such transactions. This Prospectus may be used by Lehman Brothers in
connection with such transactions. Such sales, if any, will be made at varying
prices related to prevailing market prices at the time of sale. Lehman Brothers
is not obligated to make a market in any Securities and may discontinue any
market-making activities at any time without notice. No assurance can be given
that there will be a secondary market for the Securities.
ERISA MATTERS
Each of Holdings and Lehman Brothers may be considered a "party in interest"
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and a "disqualified person" under corresponding provisions of
the Code, with respect to certain employee benefit plans. Certain transactions
between an employee benefit plan and a party in interest or disqualified person
may result in "prohibited transactions" within the meaning of ERISA and the
Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE SECURITIES SHOULD
CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement relating
to offered Securities, the validity of the Securities offered hereby will be
passed upon for Holdings by Karen M. Muller, Esq., Deputy 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
year ended November 30, 1995, for the eleven months ended November 30, 1994 and
for the year ended December 31, 1993, appearing in the Company's Annual Report
on Form 10-K for the fiscal year ended November 30, 1995 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements and schedules are, and audited financial statements
included in subsequently filed documents will be, incorporated herein by
reference in reliance upon the reports of Ernst & Young LLP 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.
26
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NO DEALER, SALESMAN OR OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY 2,000,000 WARRANTS
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS OR THE
ACCOMPANYING PROSPECTUS SUPPLEMENT AND,
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON LEHMAN BROTHERS
AS HAVING BEEN AUTHORIZED BY HOLDINGS HOLDINGS INC.
OR ANY AGENT OR UNDERWRITER. THIS
PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO SELECT TECHNOLOGY
MAKE SUCH OFFER OR SOLICITATION IN SUCH STOCK INDEX
JURISDICTION. NEITHER THE DELIVERY OF CALL WARRANTS
THIS PROSPECTUS AND THE ACCOMPANYING EXPIRING MAY , 1998
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF HOLDINGS SINCE THE DATE
HEREOF.
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TABLE OF CONTENTS
PAGE -------------------
---- PROSPECTUS SUPPLEMENT
Summary............................... S-3 May , 1996
Risk Factors.......................... S-8 -------------------
Use of Proceeds....................... S-15
Description of the Warrants........... S-15
The Index............................. S-28
Certain United States Federal Income
Tax Considerations.................. S-40
Underwriting.......................... S-41
Glossary.............................. S-42
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............... 14
Global Securities..................... 21
United States Taxation................ 24
Capital Requirements.................. 24
Plan of Distribution.................. 24
ERISA Matters......................... 26 LEHMAN BROTHERS
Legal Opinions........................ 26
Independent Accountants............... 26
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