<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>
SUBJECT TO COMPLETION, DATED JUNE 23, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 23, 1997)
$50,000,000
LEHMAN BROTHERS HOLDINGS INC.
% EXCHANGEABLE NOTES DUE , 2002
EXCHANGEABLE FOR SHARES OF COMMON STOCK OF
GENERAL ELECTRIC COMPANY
------------------
The % Exchangeable Notes due , 2002 (the "Notes") are being
offered by Lehman Brothers Holdings Inc. (the "Company"). Interest on the Notes
is payable semiannually on and , commencing
, 1997. The Notes may not be redeemed prior to , 2000.
Thereafter the Notes may be redeemed, at the option of the Company as set forth
herein, in whole or in part, at the principal amounts thereof plus accrued
interest to the date of redemption.
The Notes are exchangeable at the option of the holder at any time after
, 1998 and prior to maturity, unless previously redeemed, for shares
of common stock, par value $.16 per share ("General Electric Common Stock"), of
General Electric Company ("General Electric") owned by the Company at an
exchange rate of shares of General Electric Common Stock per $1,000
principal amount of Notes (the equivalent of $ per share of General
Electric Common Stock), subject to adjustment in certain events (the "Exchange
Rate"). In lieu of delivering certificates representing General Electric Common
Stock in exchange for any Notes, the Company may pay to the holder surrendering
such Notes an amount in cash equal to the Market Price (as defined herein) of
the General Electric Common Stock for which such Notes are exchangeable, except
where such delivery would violate applicable state law. On June 20, 1997 the
reported closing price of the General Electric Common Stock on the New York
Stock Exchange was $67 5/8 per share. The Notes constitute unsecured senior debt
obligations of the Company ranking PARI PASSU with all other present and future
unsecured general obligations of the Company that are not expressly subordinated
to senior indebtedness.
Notes will only be issued in minimum denominations of $1,000,000 and
integral multiples of $1,000 in excess thereof.
For a discussion of certain United States federal income tax considerations
to holders of Notes, see "Certain United States Federal Income Tax
Consequences".
SEE "RISK FACTORS", ON PAGE S-3, FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE NOTES.
General Electric is neither affiliated with the Company nor involved in this
offering of Notes. The Notes are obligations of the Company and holders thereof
will have no recourse to General Electric for such obligations. See "Risk
Factors--Lack of Affiliation Between the Company and General Electric" in this
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 SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
\
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC (1) DISCOUNT (2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note................................................. % % %
Total(4)................................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from June , 1997.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the Underwriter a 30-day option to purchase up to an
aggregate of $ additional principal amount of Notes on the same
terms and conditions set forth above, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to the Company, before deducting
expenses, will be $ , $ and $ , respectively. See
"Underwriting".
--------------------------
The Notes offered by this Prospectus Supplement are offered by the
Underwriter subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriter and
to certain further conditions.
This Prospectus Supplement, together with the accompanying Prospectus, may
also be used by Lehman Brothers Inc. in connection with offers and sales of
Notes 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
JUNE , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES FOLLOWING THE PRICING OF THE
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE NOTES OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE NOTES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
S-2
<PAGE>
RISK FACTORS
AS DESCRIBED IN MORE DETAIL BELOW, THE TRADING PRICE OF THE NOTES MAY VARY
CONSIDERABLY PRIOR TO MATURITY DUE TO, AMONG OTHER THINGS, FLUCTUATIONS IN THE
PRICE OF GENERAL ELECTRIC COMMON STOCK AND OTHER EVENTS THAT ARE DIFFICULT TO
PREDICT AND BEYOND THE COMPANY'S CONTROL.
RELATIONSHIP BETWEEN THE NOTES AND GENERAL ELECTRIC COMMON STOCK. The
market price of the Notes at any time is expected to be affected by changes in
the price of General Electric Common Stock. It is impossible to predict whether
the price of General Electric Common Stock will rise or fall. Trading prices of
General Electric Common Stock will be influenced by General Electric's
operational results and by complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally, the
markets on which General Electric Common Stock is traded and the market segment
of which General Electric is a part. As indicated in Appendix A to this
Prospectus Supplement, the price of General Electric has fluctuated during
recent periods.
DILUTION OF GENERAL ELECTRIC COMMON STOCK. The number of shares of General
Electric Common Stock (or the cash equivalent thereof, except where such
delivery would violate applicable state law) that a holder of Notes is entitled
to receive upon exchange is subject to adjustment for certain events arising
from stock splits and combinations, stock dividends, extraordinary cash
dividends and certain other actions of General Electric that modify its capital
structure. See "Description of Notes--Dilution Adjustments; Other Adjustment
Events" in this Prospectus Supplement. The number of shares of General Electric
Common Stock (or the cash equivalent thereof) is NOT adjusted for other events,
such as offerings of General Electric Common Stock for cash, that may adversely
affect the price of General Electric Common Stock. There can be no assurance
that General Electric will not make offerings of General Electric Common Stock
in the future or as to the amount of such offerings, if any.
LACK OF AFFILIATION BETWEEN THE COMPANY AND GENERAL ELECTRIC. The Company
is not affiliated with General Electric and, although the Company has no
knowledge that any event that would have a material adverse effect on General
Electric or on the price of General Electric Common Stock is currently being
contemplated by General Electric, such events are beyond the Company's ability
to control and are difficult to predict. General Electric is not involved in the
offering of the Notes and has no obligations with respect to the Notes,
including any obligation to take the needs of the Company or of Holders of the
Notes into consideration for any reason. General Electric will not receive any
of the proceeds of the offering of the Notes made hereby and is not responsible
for, and has not participated in, the determination of the timing of, prices
for, or quantities of, the Notes to be issued. General Electric is not involved
with the administration, marketing or trading of the Notes.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET. It is not possible to predict
how the Notes will trade in the secondary market or whether such market will be
liquid or illiquid. Because the Notes are not listed or traded on any securities
exchange, pricing information for the Notes may be difficult to obtain and the
liquidity of the Notes may be adversely affected.
OTHER CONSIDERATIONS. It is suggested that prospective investors who
consider purchasing Notes should reach an investment decision only after
carefully considering with their advisers the suitability of an investment in
the Notes in light of their particular circumstances. Investors should also
consider the tax consequences of investing in the Notes. See "Certain United
States Federal Income Tax Consequences".
USE OF PROCEEDS
The net proceeds from the sale of the Notes will amount to approximately
$ million ($ million if the Underwriter's over-allotment option is
exercised in full). An amount equal to approximately one-half of the proceeds to
be received by the Company from the sale of the Notes is being used by the
Company or one or more of its subsidiaries before and immediately following the
initial offering of the Notes to acquire General Electric Common Stock or listed
or over-the-counter options
S-3
<PAGE>
contracts in, or other derivative or synthetic instruments related to, General
Electric Common Stock in connection with hedging the Company's obligations under
the Notes. The balance of such proceeds will be used for general corporate
purposes. See "Use of Proceeds" in the accompanying Prospectus. From time to
time after the initial offering and prior to the maturity of the Notes,
depending on market conditions (including the Market Price of General Electric
Common Stock), in connection with hedging with respect to the Notes, the Company
expects that it or one or more of its subsidiaries will increase or decrease
their initial hedging positions using dynamic hedging techniques and may take
long or short positions in General Electric Common Stock, in listed or
over-the-counter options contracts in, or other derivative or synthetic
instruments related to, General Electric Common Stock. In addition, the Company
or one or more of its subsidiaries may purchase or otherwise acquire a long or
short position in Notes from time to time and may, in their sole discretion,
hold or resell such Notes. The Company or one or more of its subsidiaries may
also take positions in other types of appropriate financial instruments that may
become available in the future. To the extent that the Company or one or more of
its subsidiaries have a long hedge position in General Electric Common Stock or
options contracts in, or other derivative or synthetic instruments related to
General Electric Common Stock, the Company or one or more of its subsidiaries
may liquidate a portion of their holdings at any time prior to and including the
maturity of the Notes. Depending, among other things, on future market
conditions, the aggregate amount and the composition of such positions are
likely to vary over time. Profits or losses from any such position cannot be
ascertained until such position is closed out and any offsetting position or
positions are taken into account.
GENERAL ELECTRIC
According to publicly available documents, General Electric, a New York
corporation, is one of the largest and most diversified industrial corporations
in the world. General Electric is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended. Accordingly, General Electric
files reports, proxy statements and other information with the Securities and
Exchange Commission. Copies of such reports, proxy statements and other
information may be inspected and copied at certain offices of the Commission and
at the offices of the New York Stock Exchange, Inc. at the addresses listed
under "Available Information" in the accompanying Prospectus. The Commission
also maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Appendix A to this Prospectus Supplement
contains selected information concerning General Electric derived from such
publicly available documents. To the best of the Company's knowledge, based upon
currently available public documents, as of the date of this Prospectus
Supplement, General Electric is eligible to use Form S-3 under the Securities
Act of 1933, as amended, for securities offerings.
THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE NOTES OFFERED HEREBY AND DOES
NOT RELATE TO THE GENERAL ELECTRIC COMMON STOCK. ALL DISCLOSURES CONTAINED IN
THIS PROSPECTUS SUPPLEMENT REGARDING GENERAL ELECTRIC ARE DERIVED FROM THE
PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH. NEITHER THE
COMPANY NOR THE UNDERWRITER HAS VERIFIED EITHER THE ACCURACY OR THE COMPLETENESS
OF THE INFORMATION CONCERNING GENERAL ELECTRIC INCLUDED THEREIN. 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 IN THE PRECEDING PARAGRAPH) THAT WOULD AFFECT THE
TRADING PRICE OF GENERAL ELECTRIC COMMON STOCK HAVE BEEN PUBLICLY DISCLOSED.
SUCH EVENTS, IF ANY, COULD ALSO AFFECT THE TRADING PRICE OF THE NOTES, THE
COMPANY DOES NOT INTEND TO FURNISH TO HOLDERS OF NOTES SUBSEQUENT INFORMATION
WITH RESPECT TO GENERAL ELECTRIC. THIS STATEMENT IS NOT INTENDED TO AFFECT THE
RIGHTS OF INVESTORS UNDER THE FEDERAL SECURITIES LAWS.
S-4
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes are an issue of the Company's Debt Securities (the "Securities")
described in the accompanying Prospectus to which this Prospectus Supplement
relates which will be issued under an indenture, dated as of September 1, 1987,
between the Company 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, as of October 1, 1995 and as of
June , 1997 (the "Indenture"). The following description of the terms of
the Notes supplements the description of the Securities contained in the
Prospectus and is qualified in its entirety by reference to the terms and
provisions of the Notes. The italicized references below refer to the section
numbers of the Sixth Supplemental Indenture dated as of June , 1997 to the
Indenture ("Sixth Supplemental Indenture") between the Company and Citibank,
N.A., Trustee.
The Notes will mature on , 2002 and will bear interest from
, 1997 at the rate per annum of %, payable semiannually on each
and (commencing 1997). Interest payable on
the Notes will be computed on the basis of a 360-day year consisting of twelve
30-day months. The aggregate principal amount of Notes which may be issued will
be limited to $ ($ in the event the Underwriter's over-allotment
option is exercised in full). The Notes constitute unsecured senior debt
obligations of the Company ranking PARI PASSU with all other present and future
unsecured general obligations of the Company that are not expressly subordinated
to senior indebtedness. The Notes will be issued in registered form without
coupons.
Notes will only be issued in minimum denominations of $1,000,000 and
integral multiples of $1,000 in excess thereof.
CERTIFICATES FOR NOTES
The Notes will be evidenced by certificates in fully registered form (each,
a Certificate"). The Trustee will maintain a register (the "Security Register")
for registering the ownership of and transfers of Notes represented by
Certificates. Prior to due presentment for registration of transfer, the
Company, the Trustee, and any agent of either of them may deem and treat the
person in whose name a Certificate is registered (the "registered holder") as
the absolute owner of the Notes evidenced by such Certificate for any purpose
whatsoever, and as the person entitled to exercise the rights represented by the
Notes evidenced thereby, and neither the Company, the Trustee, nor any agent of
either of them shall be affected by any notice to the contrary. Accordingly, if
a beneficial owner of a Note evidenced by a Certificate is not the registered
holder thereof (for example, if it holds the Certificate through a broker
holding such Notes Certificate in nominee or "street" name), it may exercise its
rights as a Holder only through the registered holder.
The Trustee shall from time to time register the transfer of any outstanding
Certificates upon surrender thereof at the Trustee's Office, duly endorsed, or
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Trustee duly executed by the registered holder thereof, by
the duly appointed legal representative thereof or by its duly authorized
attorney, such signature to be guaranteed by a bank or trust company located, or
with a correspondent office, in The City of New York or by a broker or dealer
which is a member of a national securities exchange. A new Certificate shall be
issued to the transferee upon any such registration or transfer.
At the option of a Holder, Certificates may be exchanged for other
Certificates, representing a like number of Notes, upon surrender to the Trustee
at the Trustee's Office of the Certificates to be exchanged. The Company shall
thereupon execute, and the Trustee shall countersign and deliver, one or more
new Certificates representing a like number of Notes.
S-5
<PAGE>
If any Certificate is mutilated, lost, stolen or destroyed, the Company may
in its discretion execute, and the Trustee may countersign and deliver, in
exchange and substitute for and upon cancellation of the mutilated Certificate,
or in lieu of the lost, stolen or destroyed Certificate, a new Certificate of
like tenor and representing an equivalent number of Notes, but only (in the case
of loss, theft or destruction) upon receipt of evidence satisfactory to the
Company and the Trustee of such loss, theft or destruction of such Certificate
and security or indemnity, if requested, also satisfactory to them. Applicants
for substitute Certificates must also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the Trustee
may prescribe.
The principal of, and interest on Notes in certificated form will be payable
when due at the office of the Trustee, Citibank, N.A., Corporate Trust Service,
at 111 Wall Street, 5th Floor, New York, New York 10043; PROVIDED, HOWEVER, that
payment of interest may be made at the option of the Company by check mailed to
the address of the person entitled thereto as it appears on the books of the
Trustee.
EXCHANGE RIGHTS
The Notes are exchangeable at the option of the holder at any time after
, 1998 and prior to maturity, unless previously redeemed, for shares
of common stock, par value $.16 per share ("General Electric Common Stock"), of
General Electric Company ("General Electric") owned by the Company at an
exchange rate of shares of General Electric Common Stock per $1,000
principal amount of Notes (the equivalent of $ per share of General
Electric Common Stock), subject to adjustment in certain events (the "Exchange
Rate"). See "--Dilution Adjustments; Other Adjustment Events".
In order to exercise the right of exchange, the Holder of any Note must
surrender such Note to Citibank, N.A., who will act as exchange agent for
Holders of Notes (the "Exchange Agent") on behalf of the Company, at its office
maintained for such purpose in New York City, New York. Each Note to be
surrendered must be accompanied by written notice to the Company and the
Exchange Agent that the Holder elects to exchange such Note. Delivery of the
certificates and of any check for any cash may be delayed for a reasonable
period of time at the request of the Company in order to effectuate the
calculation of the adjustments of the General Electric Common Stock, to obtain
any certificate representing securities to be delivered, or to complete any
reapportionment of the shares of General Electric Common Stock which is required
by the Indenture or to comply with any applicable law. No fractional shares of
General Electric Common Stock will be delivered upon exchanges of Notes and in
lieu thereof a cash adjustment based on the Market Price of the General Electric
Common Stock will be paid.
In lieu of delivering certificates representing shares of General Electric
Common Stock in exchange for any Notes, the Company may, at the Company's
option, pay to the Holder surrendering such Notes an amount in cash equal to the
Market Price of the General Electric Common Stock for which such Notes are
exchangeable, determined as of the date of receipt by the Company of the notice
of exchange relating to such Notes (or, if such date is not a business day, on
the business day next preceding such date), except where such delivery would
violate applicable state law. Prior to so directing the Exchange Agent to make
any such cash payment, the Company will deposit with the Exchange Agent the cash
so payable. If the Company elects not to exercise its cash payment option, the
Company will deposit with the Exchange Agent the number of shares of General
Electric Common Stock for which the delivered Notes are exchangeable. The
deposit arrangements with the Exchange Agent will terminate at such time as the
right to exchange Notes with the Exchange Agent shall have expired pursuant to
the Indenture.
The right of a Holder to exchange his or her Notes for General Electric
Common Stock could be adversely affected in the event of the bankruptcy,
insolvency or liquidation of the Company. In such event, shares of General
Electric Common Stock could be assets of the Company subject to the claims of
its general creditors.
S-6
<PAGE>
DILUTION ADJUSTMENTS; OTHER ADJUSTMENT EVENTS
The Exchange Rate is subject to adjustment if General Electric shall (i) pay
a stock dividend or make a distribution, in each case, with respect to General
Electric Common Stock in shares of General Electric Common Stock, (ii) subdivide
or split its outstanding shares of General Electric Common Stock, (iii) combine
the outstanding shares of General Electric Common Stock into a smaller number of
shares, (iv) issue by reclassification (other than a reclassification pursuant
to clause (ii), (iii), (iv) or (v) of the definition of Adjustment Event below)
of its shares of General Electric Common Stock any shares of common stock of
General Electric, or (v) issue rights or warrants to all holders of General
Electric Common Stock entitling them to subscribe for or purchase shares of
General Electric Common Stock (other than rights to purchase shares of General
Electric Common Stock pursuant to a plan for the reinvestment of dividends) at a
price per share less than the Market Price of the General Electric Common Stock
on the Business Day next following the record date for the determination of
holders of General Electric Common Stock entitled to receive such rights or
warrants.
In the case of the events referred to in clauses (i), (ii), (iii) and (iv)
above, the Exchange Rate shall be adjusted so that a holder of any Notes shall
be entitled to receive, upon exchange of any Notes, the number of shares of
General Electric Common Stock (or, in the case of a reclassification referred to
in clause (iv) above, the number of other shares of common stock of General
Electric issued pursuant thereto) which such holder of such Notes would have
owned or been entitled to receive immediately following such event had such
Notes been exchanged immediately prior to such event or any record date with
respect thereto.
In the case of the event referred to in clause (v) above, the Exchange Rate
shall be adjusted by multiplying the Exchange Rate in effect on the record date
for the issuance of the rights or warrants referred to in clause (v) above, by a
fraction, of which the numerator shall be (A) the number of shares of General
Electric Common Stock outstanding on the record date for the issuance of such
rights or warrants, plus (B) the number of additional shares of General Electric
Common Stock offered for subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be (x) the number of shares of
General Electric Common Stock outstanding on the record date for the issuance of
such rights or warrants, plus (y) the number of additional shares of General
Electric Common Stock which the aggregate offering price of the total number of
shares of General Electric Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the Market Price of the
General Electric Common Stock on the Business Day next following the record date
for the determination of holders of General Electric Common Stock entitled to
receive such rights or warrants, which number of additional shares shall be
determined by multiplying such total number of shares by the exercise price of
such rights or warrants and dividing the product so obtained by such Market
Price. To the extent that such rights or warrants expire prior to the exchange
of any Notes, and shares of General Electric Common Stock are not delivered
pursuant to such rights or warrants prior to such expiration, the Exchange Rate
shall be readjusted to the Exchange Rate which would then be in effect had such
adjustments for the issuance of such rights or warrants been made upon the basis
of delivery of only the number of shares of General Electric Common Stock
actually delivered pursuant to such rights or warrants. Any shares of General
Electric Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the close of business on the record date for
such dividend for purposes of calculating the number of outstanding shares of
General Electric Common Stock under this paragraph.
"Market Price" means, as of any date of determination, the average Closing
Price per share of General Electric Common Stock for the 20 Trading Days
immediately prior to the date of determination; provided, however, that if there
are not 20 Trading Days for the General Electric Common Stock occurring later
than the 60th calendar day immediately prior to, but not including, such date,
the Market Price shall be determined as the market value per share of General
Electric Common Stock as of such date as determined by a nationally recognized
investment banking firm retained for such purpose by the Company.
S-7
<PAGE>
"Closing Price" of any security on any date of determination means (i) the
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such security (regular way) on the NYSE on such date, (ii) if
such security is not listed for trading on the NYSE on any such date, as
reported in the composite transactions for the principal United States
securities exchange on which such security is so listed, (iii) if such security
is not so listed on a United States national or regional securities exchange, as
reported by the NASDAQ Stock Market, (iv) if such security is not so reported,
the last quoted bid price for such security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or (v) if
such security is not so quoted, the average of the mid-point of the last bid and
ask prices for such security from each of at least three nationally recognized
investment banking firms selected by the Company for such purpose.
"Trading Day" means a Business Day on which the security, the Closing Price
of which is being determined, (A) is not suspended from trading on any national
or regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of such security.
"Business Day" means any date that is not a Saturday, a Sunday or a day on
which the NYSE, banking institutions or trust companies in The City of New York
are authorized or obligated by law or executive order to close.
All adjustments to the Exchange Rate will be calculated to the nearest
1/10,000th of a share of General Electric Common Stock (or, if there is not a
nearest 1/10,000th of a share, to the next lower 1/10,000th of a share). No
adjustment in the Exchange Rate shall be required unless such adjustment would
require an increase or decrease of at least one percent therein; provided,
however, that any adjustments which by reason of the foregoing are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment.
In the event of (i) any dividend or distribution by General Electric to all
holders of General Electric Common Stock of evidences of its indebtedness or
other assets (excluding (1) dividends or distributions referred to in clause (i)
of the first paragraph under this caption "--Dilution Adjustments; Other
Adjustment Events", (2) any common shares issued pursuant to a reclassification
referred to in clause (iv) of such paragraph and (3) Ordinary Cash Dividends (as
defined below) or any issuance by General Electric to all holders of General
Electric Common Stock of rights or warrants (other than rights or warrants
referred to in clause (v) of the first paragraph under this caption "--Dilution
Adjustments; Other Adjustment Events"), (ii) any consolidation or merger of
General Electric with or into another entity (other than a merger or
consolidation in which General Electric is the continuing corporation and in
which the shares of General Electric Common Stock outstanding immediately prior
to the merger or consolidation are not exchanged for cash, securities or other
property of General Electric or another corporation), (iii) any sale, transfer,
lease or conveyance to another corporation of the property of General Electric
as an entirety or substantially as an entirety, (iv) any statutory exchange of
securities of General Electric with another corporation (other than in
connection with a merger or acquisition) or (v) any liquidation, dissolution or
winding up of General Electric (any such event, an "Adjustment Event"), each
Holder of Notes will receive upon delivery of any Notes for exchange, in lieu of
or (in the case of an Adjustment Event described above) in addition to, shares
of General Electric Common Stock as described above, cash in an amount equal to
the Exchange Rate multiplied by the Market Price.
Notwithstanding the foregoing, with respect to any securities received in an
Adjustment Event that (A) are (i) listed on a United States national securities
exchange, (ii) reported on a United States national securities system subject to
last sale reporting, (iii) traded in the over-the-counter market and reported on
the National Quotation Bureau or similar organization or (iv) for which bid and
ask prices are available from at least three nationally recognized investment
banking firms and (B) are either (x) perpetual equity securities or (y)
non-perpetual equity or debt securities with a stated maturity after the
maturity of the
S-8
<PAGE>
Notes ("Reported Securities"), the Company may, at its option, in lieu of
delivering the amount of cash deliverable in respect of Reported Securities
received in an Adjustment Event, as determined in accordance with the previous
paragraph, deliver a number of such Reported Securities with a value equal to
such cash amount, as determined in accordance with clause (ii) of the definition
of Transaction Value, as applicable; provided, however, that (i) if such option
is exercised, the Company shall deliver Reported Securities in respect of all,
but not less that all, cash amounts that would otherwise be deliverable in
respect of Reported Securities received in an Adjustment Event, (ii) the Company
may not exercise such option if the Company has elected to deliver cash in lieu
of shares of General Electric Common Stock, if any, deliverable upon exchange or
if such Reported Securities have not yet been delivered to the holders entitled
thereto following such Adjustment Event or any record date with respect thereto,
and (iii) subject to clause (ii) of this proviso, the Company must exercise such
option if the Company does not elect to deliver cash in lieu of shares of
General Electric Common Stock, if any, deliverable upon exchange. If the Company
elects to deliver Reported Securities, each Holder of Notes will be responsible
for the payment of any and all brokerage and other transaction costs upon the
sale of such Reported Securities. If, following any Adjustment Event, any
Reported Security ceases to qualify as a Reported Security, then (x) the Company
may no longer elect to such Reported Security in lieu of an equivalent amount of
cash and (y) notwithstanding clause (ii) of the definition of Transaction Value,
the Transaction Value of such Reported Security shall mean the fair market value
of such Reported Security on the date such security ceases to qualify as a
Reported Security, as determined by a nationally recognized investment banking
firm retained for this purpose by the Company.
The amount of cash and/or the kind and amount of securities into which the
Notes shall be exchangeable after an Adjustment Event shall be subject to
adjustment following such Adjustment Event in the same manner and upon the
occurrence of the same type of events as described under this caption
"--Dilution Adjustment: Other Adjustment Events" with respect to General
Electric Common Stock and General Electric.
For purposes of the foregoing, the term "Ordinary Cash Dividend" means, with
respect to any consecutive 365-day period, any dividend with respect to General
Electric Common Stock paid in cash to the extent that the amount of such
dividend, together with the aggregate amount of all other dividends on General
Electric Common Stock paid in cash during such 365-day period, does not exceed
on a per share basis 10% of the average of the Closing Prices of General
Electric Common Stock over such 365-day period.
The term "Transaction Value" means (i) for any cash received in any
Adjustment Event, the amount of cash received per share of General Electric
Common Stock, (ii) for any Reported Securities received in any Adjustment Event,
an amount equal to (x) the average Closing Price per security of such Reported
Securities for the 20 Trading Days immediately prior to exchange of the Notes
multiplied by (y) the number of such Reported Securities (as adjusted pursuant
to the second preceding paragraph) received for each share of General Electric
Common Stock and (iii) for any property received in any Adjustment Event other
than cash or such Reported Securities, an amount equal to the fair market value
of the property received per share of General Electric Common Stock on the date
such property is received, as determined by a nationally recognized investment
banking firm retained for this purpose by the Company; provided, however, that
in the case of clause (ii), (x) with respect to securities that are Reported
Securities by virtue of only clause (A) (iv) of the definition of Reported
Securities in the third preceding paragraph, Transaction Value with respect to
any such Reported Security means the average of the mid-point of the last bid
and ask prices for such Reported Security as of the exchange of the Notes from
each of at least three nationally recognized investment banking firms retained
for such purpose by the Company multiplied by the number of such Reported
Securities (as adjusted pursuant to the method set forth in the second preceding
paragraph) received for each share of General Electric Common Stock and (y) with
respect to all other Reported Securities, if there are not 20 Trading Days for
the General Electric Common Stock occurring later than the 60th calendar day
immediately prior to, but not including, the date of
S-9
<PAGE>
exchange of the Notes, Transaction Value with respect to such Reported Security
means the market value per security of such Reported Security as of the date of
exchange of the Notes as determined by a nationally recognized investment
banking firm retained for such purpose by the Company multiplied by the number
of such Reported Securities (as adjusted pursuant to the method set forth in the
second preceding paragraph) received for each share of General Electric Common
Stock. For purposes of calculating the Transaction Value, any cash, Reported
Securities or other property receivable in any Adjustment Event shall be deemed
to have been received immediately prior to the close of business on the record
date for such Adjustment Event or, if there is no record date for such
Adjustment Event, immediately prior to the close of business on the effective
date of such Adjustment Event.
No adjustments will be made for certain other events, such as offerings of
General Electric Common Stock by General Electric for cash or in connection with
acquisitions.
The Company is required, within ten Business Days following the occurrence
of an event that requires an adjustment to the Exchange Rate or the occurrence
of an Adjustment Event (or, in either case, if the Company is not aware of such
occurrence, as soon as practicable after becoming so aware), to provide written
notice to the Trustee and to each Holder of the Notes of the occurrence of such
event, including a statement in reasonable detail setting forth the method by
which the adjustment to the Exchange Rate or change in the consideration to be
received by Holders of Notes following the Adjustment Event was determined and
setting forth the revised Exchange Rate or consideration, as the case may be.
REDEMPTION PROVISIONS
The Notes may be redeemed on and after , 2000 at the option of
the Company, in whole or from time to time in part, on not less than 30 nor more
than 60 days' notice by mail to the Holders of Notes at their addresses
appearing on the records of the Company at a price equal to the principal amount
of the Notes together with accrued interest to the redemption date. There is no
sinking fund applicable to the Notes.
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of the Notes as of the date hereof. Except where
noted, it deals only with a Note held by initial purchasers as a capital asset
and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance companies,
persons holding the Note as part of a hedging or conversion transaction, United
States Holders whose "functional currency" is not the U.S. dollar or Non-United
States Holders (as defined below). 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 THE NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN
LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein, a "United States Holder" of a Note means a Holder that is a
citizen or resident of the United States, a corporation or partnership created
or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source or a trust that is subject to
the supervision of a court within the United States and the control of a United
States fiduciary as described in Section 7701(a)(30) of the Code. A "Non-United
States Holder" is a Holder that is not a United States Holder.
ACCRUAL OF OID. Under the 1996 original issue discount regulations
applicable to contingent payment debt obligations (the "Contingent Payment Debt
Regulations"), United States Holders of the Notes will be
S-10
<PAGE>
required to accrue original issue discount ("OID") as interest income each year.
United States Holders will accrue such OID each year based on the "comparable
yield" of the Notes. The comparable yield is determined by the yield at which
the Company would issue a fixed rate debt instrument with terms and conditions
similar to the Notes. In order to determine the income of United States Holders,
the Contingent Payment Debt Regulations require the Company to determine, as of
the issue date, the comparable yield for the Notes. The Company is required to
provide the comparable yield to Holders and, solely for tax purposes, is also
required to provide to United States Holders a projected payment schedule that
includes the actual interest payments on a Note and estimates the amount and
timing of contingent payments on a Note. The projected payment schedule must
produce the comparable yield. Although the correct method for estimating the
amount and timing of a Holder's right to exchange a Note for General Electric
Common Stock is not free from doubt, the Company intends to compute the
projected payment schedule based upon the comparable yield and a single
contingent payment to Holders at maturity (the "Deemed Final Payment").
Under the rules applicable to the accrual of OID and based on the projected
payment schedule, the amount of OID on a Note for each accrual period is
determined by multiplying the comparable yield of the Note (adjusted for the
length of the accrual period) by the Note's adjusted issue price at the
beginning of the accrual period (determined under rules set forth in the
Contingent Payment Debt Regulations). Generally the adjusted issue price is
equal to the debt instrument's issue price, increased by the interest previously
accrued on the debt instrument and decreased by the amount of any actual
interest payments on a Note. The amount of OID so determined is then allocated
on a ratable basis to each day in the accrual period that the United States
Holder holds the Note.
A United States Holder is generally bound by the comparable yield and
projected payment schedule established by the Company. However, if a United
States Holder believes that the Company-provided projected payment schedule is
unreasonable, a United States Holder may set its own projected payment schedule
so long as such United States Holder explicitly discloses the use of such
schedule and the reason therefor. Unless otherwise prescribed by the IRS, the
United States Holder must make such disclosure on a statement attached to the
United States Holder's timely filed federal income tax return for the taxable
year in which the Note was acquired.
TAXATION AT MATURITY. If the redemption price at maturity is greater (or
less) than the Deemed Final Payment, such difference will be treated as a
positive (or negative) adjustment. A positive adjustment is treated as
additional interest income and a negative adjustment is treated first as a
reduction of OID accrued for such year and thereafter as an ordinary loss.
SALE, EXCHANGE OR CONVERSION OF NOTES. In general, any gain realized by a
United States Holder on the sale, exchange, or conversion prior to maturity of a
Note is interest income, and any loss on a Note accounted for under the method
described above is ordinary loss to the extent it does not exceed such Holder's
prior interest inclusions on the Note (net of negative adjustments). Therefore,
a Holder that exchanges a Note for General Electric Common Stock will generally
recognize ordinary income (or loss) upon the exchange equal to the difference
between (i) the fair market value of the General Electric Common Stock received
in exchange therefor, increased by the amount of any cash received in lieu of
fractional shares, or, if the Company exercises its cash payment option, the
amount of such cash payment, and (ii) the Holder's tax basis in the Note.
Special rules apply in determining the tax basis of a Note. Generally, a
Holder's basis in the Note is increased by the interest previously accrued by
the Holder on the Note and decreased by the amount of any interest payments.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to interest and
OID on a Note and to the proceeds of sale or exchange of a Note made to United
States Holders other than certain exempt recipients (such as corporations). A 31
percent backup withholding tax will apply to such payments if the
S-11
<PAGE>
United States Holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such United States Holder's U.S. federal income tax
liability provided the required information is furnished to the IRS.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
dated as of June , 1997 (the "Underwriting Agreement"), the Company has
agreed to sell to Lehman Brothers Inc. (the "Underwriter"), and the Underwriter
has agreed to purchase, the Notes.
The Company has been advised that the Underwriter proposes initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement. After the initial public offering, the
public offering price may be changed.
In connection with the offering, the rules of the Commission permit the
Underwriter to engage in certain transactions that stabilize the price of the
Notes. Such transactions may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriter creates a short position in the Notes in connection with
the offering (i.e., if it sells a larger principal amount of the Notes than is
set forth on the cover page of this Prospectus Supplement), the Underwriter may
reduce that short position by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor the Underwriter makes any representations that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
The Company has been advised by the Underwriter that it intends to make a
market in the Notes but it is not obliged to do so and may discontinue
marketmaking at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has granted to the Underwriter an option to purchase up to an
additional $ principal amount of Notes exercisable solely to cover
over-allotments, at the initial offering price to the public, less the
underwriting discount, shown on the cover page of this Prospectus Supplement.
Such option may be exercised at any time until 30 days after the date of the
Underwriting Agreement, respectively.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
This Prospectus Supplement together with the accompanying Prospectus may
also be used by Lehman Brothers Inc. in connection with offers and sales of the
Notes related to marketmaking 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 Inc. is a wholly owned subsidiary of the Company. The
participation of Lehman Brothers Inc. in the offer and sale of the Notes
complies with the requirements of Rule 2720 of the NASD regarding a member firm
underwriting its securities.
S-12
<PAGE>
APPENDIX A
Appendix A to this Prospectus Supplement contains certain information
concerning General Electric including (a) selected financial data for the five
years ended December 31, 1996 and for the three month periods ended March 31,
1997 and 1996, (b) General Electric's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for the three month periods ended
March 31, 1997 and 1996 and (c) the declaration of dividends and the price range
of General Electric Common Stock. General Electric is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act"), and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission
("Commission"), to which reference is made for detailed financial and other
information regarding General Electric. Such reports, proxy statements and other
information can be inspected and copied at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005, on which General Electric Common Stock is
listed. The Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
Commission does not approve or disapprove or pass upon the accuracy or the
adequacy of reports, proxy statements or other information filed with it.
Although the Company has no reason to believe the information concerning General
Electric included therein is not reliable, the Company has not verified either
its accuracy or its completeness. Neither the Company nor the Underwriter
warrants that there have not occurred events not yet publicly disclosed by
General Electric which would affect either the accuracy or the completeness of
the information concerning General Electric included therein. The Company has no
affiliation with General Electric other than its stock ownership and therefore
has no greater access to information relating to General Electric than any other
stockholder. The Company does not intend to furnish to Holders of Notes
subsequent information with respect to General Electric.
A-1
<PAGE>
SELECTED FINANCIAL DATA
The following information has been obtained from General Electric's Annual
Report to Share Owners for the fiscal year ended December 31, 1996 and the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
The accompanying financial information represents the consolidation of
General Electric Company and all companies which it directly or indirectly
controls, either through majority ownership or otherwise. Reference is made to
note 1 to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. That note discusses
consolidation and financial statement presentation. As used herein and in the
Report on Form 10-K, "GE" represents the adding together of all affiliated
companies except General Electric Capital Services, Inc. ("GECS"), which is
presented on a one-line basis; GECS consists of General Electric Capital
Services, Inc. and all of its affiliates; and "consolidated" represents the
adding together of GE and GECS with the effects of transactions between the two
eliminated.
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS; PER-SHARE AMOUNTS IN DOLLARS) 1996 1995 1994 1993
- ------------------------------------------------------------------------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Revenues.................................................................... $ 79,179 $ 70,028 $ 60,109 $ 55,701
Earnings from continuing operations......................................... 7,280 6,573 5,915 4,184
Earnings (loss) from discontinued operations................................ -- --......... (1,189) 993
Effect of accounting change................................................. -- -- --......... (862)
Net earnings................................................................ 7,280 6,573 4,726 4,315
Dividends declared.......................................................... 3,138 2,838 2,546 2,229
Earned on average share owners' equity...................................... 24.0% 23.5% 18.1% 17.5%
Per share
Earnings from continuing operations....................................... $ 4.40 $ 3.90 $ 3.46 $ 2.45
Earnings (loss) from discontinued operations.............................. -- --......... (0.69) 0.58
Effect of accounting change............................................... -- -- --......... (0.51)
Net earnings.............................................................. 4.40 3.90 2.77 2.52
Dividends declared........................................................ 1.90 1.69 1.49 1.305
Stock price range.........................................................106 1/8-69 1/2 73 1/8-49 7/8 54 7/8-45 53 1/2-40 3/8
Total assets of continuing operations....................................... 272,402 228,035 185,871 166,413
Long-term borrowings........................................................ 49,246 51,027 36,979 28,194
Shares outstanding -- average (in thousands)................................ 1,653,697 1,683,812 1,708,738 1,707,979
Share owner accounts -- average............................................. 486,000 460,000 458,000 464,000
Employees at year end
United States............................................................. 155,000 150,000 156,000 157,000
Other countries........................................................... 84,000 72,000 60,000 59,000
Discontinued operations (primarily U.S.) -- --......... 5,000 6,000
------------ ----------- ----------- -----------
Total employees........................................................... 239,000 222,000 221,000 222,000
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
GE DATA
Short-term borrowings....................................................... $ 2,339 $ 1,666 $ 906 $ 2,391
Long-term borrowings........................................................ 1,710 2,277 2,699 2,413
Minority interest........................................................... 477 434 382 355
Share owners' equity........................................................ 31,125 29,609 26,387 25,824
------------ ----------- ----------- -----------
Total capital invested.................................................... $ 35,651 $ 33,986 $ 30,374 $ 30,983
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Return on average total capital invested.................................... 22.2% 21.3% 15.9% 15.2%
Borrowings as a percentage of total capital invested........................ 11.4% 11.6% 11.9% 15.5%
Working capital............................................................. $ (2,147) $ 204 $ 544 $ (419)
Additions to property, plant and equipment.................................. 2,389 1,831 1,743 1,588
GECS DATA
Revenues.................................................................... $ 32,713 $ 26,492 $ 19,875 $ 17,276
Earnings from continuing operations......................................... 2,817 2,415 2,085 1,567
Earnings (loss) from discontinued operations................................ -- --......... (1,189) 240
Net earnings................................................................ 2,817 2,415 896 1,807
Share owner's equity........................................................ 14,276 12,774 9,380 10,809
Minority interest........................................................... 2,530 2,522 1,465 1,301
Borrowings from others...................................................... 125,621 111,598 91,399 81,052
Ratio of debt to equity at GE Capital (a)................................... 7.92:1 7.89:1 7.94:1 7.96:1
Total assets of GE Capital.................................................. $ 200,816 $ 160,825 $ 130,904 $ 117,939
Reserve coverage on financing receivables................................... 2.63% 2.63% 2.63% 2.63%
Insurance premiums written.................................................. $ 8,185 $ 6,158 $ 3,962 $ 3,956
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS; PER-SHARE AMOUNTS IN DOLLARS) 1992
- ------------------------------------------------------------------------------ -----------
<S> <C>
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
Revenues.................................................................... $ 53,051
Earnings from continuing operations......................................... 4,137
Earnings (loss) from discontinued operations................................ 588
Effect of accounting change................................................. --
Net earnings................................................................ 4,725
Dividends declared.......................................................... 1,985
Earned on average share owners' equity...................................... 20.9%
Per share
Earnings from continuing operations....................................... $ 2.41
Earnings (loss) from discontinued operations.............................. 0.34
Effect of accounting change............................................... --
Net earnings.............................................................. 2.75
Dividends declared........................................................ 1.16
Stock price range......................................................... 43 3/4-36 3/8
Total assets of continuing operations....................................... 135,472
Long-term borrowings........................................................ 25,298
Shares outstanding -- average (in thousands)................................ 1,714,396
Share owner accounts -- average............................................. 481,000
Employees at year end
United States............................................................. 168,000
Other countries........................................................... 58,000
Discontinued operations (primarily U.S.) 42,000
-----------
Total employees........................................................... 268,000
-----------
-----------
GE DATA
Short-term borrowings....................................................... $ 3,448
Long-term borrowings........................................................ 3,420
Minority interest........................................................... 350
Share owners' equity........................................................ 23,459
-----------
Total capital invested.................................................... $ 30,677
-----------
-----------
Return on average total capital invested.................................... 16.9%
Borrowings as a percentage of total capital invested........................ 22.4%
Working capital............................................................. $ (822)
Additions to property, plant and equipment.................................. 1,445
GECS DATA
Revenues.................................................................... $ 14,418
Earnings from continuing operations......................................... 1,331
Earnings (loss) from discontinued operations................................ 168
Net earnings................................................................ 1,499
Share owner's equity........................................................ 8,884
Minority interest........................................................... 994
Borrowings from others...................................................... 72,360
Ratio of debt to equity at GE Capital (a)................................... 7.91:1
Total assets of GE Capital.................................................. $ 92,632
Reserve coverage on financing receivables................................... 2.63%
Insurance premiums written.................................................. $ 2,900
</TABLE>
A-2
<PAGE>
- ------------------------
(a) Equity excludes net unrealized gains and losses on investment securities.
Discontinued operations reflect the results of Kidder, Peabody, the GECS
securities broker-dealer, in 1994, 1993 and 1992, and the results of
discontinued GE Aerospace businesses in 1993 and 1992. The 1993 accounting
change represents the adoption of SFAS No. 112, EMPLOYERS' ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS.
CONDENSED STATEMENT OF EARNINGS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
<TABLE>
<CAPTION>
(DOLLARS, EXCEPT PER-SHARE AMOUNTS, IN MILLIONS) THREE MONTHS ENDED MARCH 31 (UNAUDITED)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED GE GECS
-------------------- -------------------- ---------
<CAPTION>
1997 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales of goods..................................................... $ 7,704 $ 7,241 $ 7,705 $ 7,244 $ --
Sales of services.................................................. 2,785 2,473 2,817 2,498 --
Earnings of GECS -- --....... 754 650 --
GECS revenues from operations...................................... 9,509 7,217 -- -- 9,544
Other income....................................................... 159 167 158 166 --
--------- --------- --------- --------- ---------
Total revenues............................................... 20,157 17,098 11,434 10,558 9,544
--------- --------- --------- --------- ---------
Cost of goods sold................................................. 5,534 5,210 5,535 5,213 --
Cost of services sold.............................................. 1,985 1,723 2,017 1,748 --
Interest and other financial charges............................... 1,931 1,875 158 143 1,783
Insurance losses and policyholder and annuity benefits............. 2,244 1,602 -- -- 2,244
Provision for losses on financing receivables...................... 312 213 -- -- 312
Other costs and expenses........................................... 5,537 4,097 1,467 1,443 4,094
Minority interest in net earnings of consolidated affiliates....... 55 60 25 16 30
Total costs and expenses..................................... 17,598 14,780 9,202 8,563 8,463
--------- --------- --------- --------- ---------
Earnings before income taxes....................................... 2,559 2,318 2,232 1,995 1,081
Provision for income taxes......................................... (882) (801) (555) (478) (327)
--------- --------- --------- --------- ---------
Net earnings................................................. $ 1,677 $ 1,517 $ 1,677 $ 1,517 $ 754
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net earnings per share............................................. $ 0.51 $ 0.46
Dividends declared per share....................................... $ 0.26 $ 0.23
<CAPTION>
(DOLLARS, EXCEPT PER-SHARE AMOUNTS, IN MILLIONS)
<S> <C>
1996
---------
<S> <C>
Sales of goods..................................................... $ --
Sales of services.................................................. --
Earnings of GECS --
GECS revenues from operations...................................... 7,245
Other income....................................................... --
---------
Total revenues............................................... 7,245
---------
Cost of goods sold................................................. --
Cost of services sold.............................................. --
Interest and other financial charges............................... 1,735
Insurance losses and policyholder and annuity benefits............. 1,602
Provision for losses on financing receivables...................... 213
Other costs and expenses........................................... 2,678
Minority interest in net earnings of consolidated affiliates....... 44
Total costs and expenses..................................... 6,272
---------
Earnings before income taxes....................................... 973
Provision for income taxes......................................... (323)
---------
Net earnings................................................. $ 650
---------
---------
Net earnings per share.............................................
Dividends declared per share.......................................
</TABLE>
Adjusted to reflect the two-for-one stock split on April 28, 1997.
A-3
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
GENERAL ELECTRIC COMPANY AND CONSOLIDATED AFFILIATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 (UNAUDITED)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED GE GECS
-------------------- -------------------- --------------------
<CAPTION>
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................................... $ 1,677 $ 1,517 $ 1,677 $ 1,517 $ 754 $ 650
Adjustments to reconcile net earnings to cash provided from
(used for) operating activities
Depreciation and amortization.......................... 952 892 382 399 570 493
Earnings retained by GECS.............................. -- -- (454) (424) -- --
Deferred income taxes.................................. 329 258 40 19 289 239
Decrease in GE current receivables..................... 636 490 666 554 -- --
Increase in GE inventories............................. (672) (567) (672) (567) -- --
Increase (decrease) in accounts payable................ (165) (527) 11 (344) (240) (338)
Increase in insurance reserves......................... 655 1,565 -- -- 655 1,565
Provision for losses on financing receivables.......... 312 213 -- -- 312 213
All other operating activities......................... (1,281) (1,493) (342) 3 (754) (1,350)
--------- --------- --------- --------- --------- ---------
Cash from operating activities............................. 2,443 2,348 1,308 1,157 1,586 1,472
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment (including equipment leased
to others)--additions.................................... (1,742) (1,709) (457) (342) (1,285) (1,367)
Net decrease in GECS financing receivables................. 1,385 651 -- -- 1,385 651
Payments for principal businesses purchased................ (46) (506) (19) (409) (27) (97)
All other investing activities............................. (967) (1,267) 206 49 (1,291) (1,370)
--------- --------- --------- --------- --------- ---------
Cash used for investing activities......................... (1,370) (2,831) (270) (702) (1,218) (2,183)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in borrowings (maturities 90 days or less)...... 2,732 (203) 242 1,209 2,457 (1,414)
Newly issued debt (maturities more than 90 days)........... 4,810 8,787 147 12 4,663 8,775
Repayments and other reductions (maturities more than 90
days).................................................... (8,026) (6,034) (148) (138) (7,878) (5,896)
Net purchase of GE shares for treasury..................... (681) (624) (681) (624) -- --
Dividends paid to share owners............................. (855) (767) (855) (767) (300) (225)
All other financing activities............................. 377 (329) -- -- 377 (329)
--------- --------- --------- --------- --------- ---------
Cash from (used for) financing activities.................. (1,643) 830 (1,295) (308) (681) 911
--------- --------- --------- --------- --------- ---------
Increase (decrease) in cash and equivalents................ (570) 347 (257) 147 (313) 200
Cash and equivalents at beginning of year.................. 4,191 2,823 957 874 3,234 1,949
--------- --------- --------- --------- --------- ---------
Cash and equivalents at March 31........................... $ 3,621 $ 3,170 $ 700 $ 1,021 $ 2,921 $ 2,149
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
A-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
The following information has been obtained from General Electric's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
RESULTS OF OPERATIONS
General Electric Company's earnings for the first quarter of 1997 were
$1.677 billion, up 11% from the 1996 period. Earnings per share also increased
11% to $0.51, up from last year's $0.46. Both earnings and earnings per share
were records for the quarter.
Revenues for the first quarter of 1997, including acquisitions, rose to a
record $20.2 billion, 18% higher than last year's first quarter, reflecting
increased global activities and higher sales of spare parts and services by GE's
equipment businesses. Revenues increased at ten of GE's twelve businesses, led
by GE Capital Services, Power Systems and Aircraft Engines.
GE's sales of goods and services were $10.5 billion for the first three
months of 1997, an increase of 8% from 1996. Volume increased by 11%, reflecting
broad growth across all businesses. Overall, selling prices were down slightly,
with most businesses experiencing selling price decreases. There also was a
minor negative effect on selling prices arising from the effects of currency
exchange rate changes on the translation of sales denominated in other than U.S.
dollars.
GE's first quarter operating margin increased to 14.3% of sale, up from last
year's 13.7%, and was a record for the quarter. The first quarter increase was
the fifteenth consecutive quarterly increase of GE's operating margin rate.
Ten of GE's twelve businesses reported higher operating profit for the first
quarter, with six, led by GE Capital Services, Power Systems and Aircraft
Engines, achieving double-digit increases.
GE Capital Services' earnings were $754 million, 16% higher than last year's
$650 million, benefiting from the globalization and diversity of its businesses.
The record results were led by strong double-digit increases in specialized
financing, specialty insurance and equipment management activities.
Cash generated from GE's operating activities was $1.3 billion in the first
quarter, compared with last year's $1.2 billion. As part of the $13 billion
share repurchase program, GE purchased $843 million of its stock during the
first quarter to reach $7.3 billion -- 203 million shares, adjusted for the
April 1997 2-for-1 stock split -- purchased since December 1994.
SEGMENT ANALYSIS
The comments that follow compare revenues and operating profit by industry
segment for the first quarters of 1997 and 1996.
- AIRCRAFT ENGINES had considerably higher operating profit on strong
revenue growth from the first quarter of 1996. The revenue and operating profit
increases both resulted from sharply higher volume in commercial engines as well
as in services, including results from an acquired services business.
- APPLIANCES reported revenues and operating profit that were somewhat
higher than in the first quarter of 1996. The revenue increase was primarily
attributable to acquisition-related growth as well as share gains in certain
U.S. product lines. The improvement in operating profit reflected productivity
and the volume increase.
- BROADCASTING operating profit was considerably higher on revenues that
were about the same as last year's first quarter. The revenue comparison
reflects the lack of a current-year counterpart to NBC's broadcast of the
January 1996 Superbowl. The increase in operating profit was primarily
attributable to
A-5
<PAGE>
improved prime-time pricing, increased international distribution of
programming, and growth in NBC's cable programming services, which more than
offset higher license fees for certain prime-time programs that were renewed.
- GE CAPITAL SERVICES net earnings increased by 16% to $754 million
primarily as a result of strong double-digit increases in specialized financing,
specialty insurance and equipment management activities. Overall, the increase
in net earnings for the lending, leasing, and equipment management businesses of
GECS was attributable to a higher average level of invested assets as well as
increased financing spreads, reflecting both higher yields and lower borrowing
rates. The growth in earnings from specialty insurance activities reflected
increased premium and investment income, from both origination volume and
investment portfolio growth, partially offset by increases in reserves for
insurance losses, primarily related to the new volume.
- INDUSTRIAL PRODUCTS AND SYSTEMS reported considerably higher operating
profit on a slight increase in revenues. The revenue increase reflected volume
increases across all businesses in the segment, partially offset by lower
selling prices. The improvement in operating profit was attributable to the
combined effects of productivity, particularly at Lighting and Electrical
Distribution and Control, and higher volume which more than offset lower selling
prices and cost increases.
- MATERIALS revenues were slightly lower compared with last year, as the
effects of lower selling prices more than offset higher volume. Operating profit
was also slightly lower, reflecting primarily the decrease in selling prices
and, to a lesser extent, cost inflation, the combination of which more than
offset strong productivity gains and the higher volume.
- POWER GENERATION reported revenues that were much higher than in last
year's first quarter, reflecting continued strong growth in Nuovo Pignone and
higher volume in services, partially offset by lower selling prices. Operating
profit was sharply higher primarily as a result of strong productivity,
particularly at Nuovo Pignone, which more than offset the effects of lower
selling prices.
- TECHNICAL PRODUCTS & SERVICES revenues were much higher than in the first
quarter of 1996, reflecting volume growth in both Medical Systems and
Information Services, which more than offset the effects of lower selling
prices. Operating profit at Medical Systems was somewhat lower, primarily as a
result of a provision for patent litigation involving the Company's MRI product
line, and the effects of lower selling prices, the combination of which more
than offset higher volume and productivity. Operating profit at Information
Services was slightly higher as productivity and improved volume offset the
effects of lower selling prices.
- ALL OTHER operating profit, principally related to the licensing of GE
technology to others, was slightly higher on revenues that were about the same
as last year.
OTHER
New accounting standards issued during the first quarter of 1997 include
Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE.
Among other things, the new Statement replaces the disclosure of primary
earnings per share with "basic" earnings per share, modifies the calculation of
diluted earnings per share (formerly referred to as fully diluted earnings per
share), and requires the presentation of both basic and diluted earnings per
share on the face of the income statement. The effects of applying the new
Statement will be immaterial to GE. SFAS No. 128 is effective for financial
statements for periods ending after December 15, 1997.
FINANCIAL CONDITION
With respect to the Condensed Statement of Financial Position, consolidated
assets of $270.1 billion were $2.3 billion lower than at December 31, 1996.
A-6
<PAGE>
GE assets were $60.0 billion at March 31, 1997, an increase of $0.1 billion
from December 31, 1996. The increase was principally attributable to higher
inventories, reflecting principally seasonal increases in several GE businesses,
and was largely offset by a decrease in receivables resulting from improved
asset management.
GECS assets decreased by $2.4 billion from the end of 1996. GE Capital
Corporation's financing receivables, which, net of allowance for losses,
aggregated $97.1 billion at the end of the first quarter, decreased $2.6 billion
from the year-end 1996 level of $99.7 billion. The decrease resulted principally
from the combination of normal seasonal declines in credit card receivables and
the currency translation effects resulting from the strengthening of the U.S.
dollar during the quarter. Management believes that GE Capital's allowance for
losses of $2.6 billion (2.63% of the receivables balance at March 31, 1997 --
the same as year end 1996) is appropriate given the strength and diversity of
the portfolio and current economic circumstances. Property, plant and equipment,
which consists principally of equipment leased to others on operating leases,
increased $0.6 billion principally as a result of new auto lease volume.
Consolidated liabilities of $236.5 billion at March 31, 1997, were $1.8
billion lower than the year-end 1996 balance of $238.3 billion. GE liabilities
increased by $0.7 billion; GECS' liabilities decreased by $2.4 billion.
GE borrowings were $4.3 billion ($2.6 billion short-term and $1.7 billion
long-term) at March 31, 1997, an increase of $0.3 billion from December 31,
1996. GE's ratio of debt to total capital at the end of March 1997 was 12.3%
compared with 11.4% at the end of last year and 14.7% at March 31, 1996. Other
changes in GE's liabilities comprised numerous, relatively small items.
GECS liabilities decreased by $2.4 billion, principally reflecting reduced
financing needs resulting from decreases in financing receivables. Short-term
borrowings increased $1.4 billion from year-end 1996, while long-term borrowings
decreased by $2.9 billion.
With respect to cash flows, consolidated cash and equivalents were $3.6
billion at March 31, 1997, a decrease of about $0.6 billion during the quarter.
Cash and equivalents were $3.2 billion at March 31, 1996, an increase of about
$0.3 billion during last year's first quarter.
GE cash and equivalents decreased $0.3 billion to $0.7 billion at March 31,
1997, compared with $1.0 billion at year end 1996. During the first quarter of
1997, operating cash flows increased to $1.3 billion, compared with $1.2 billion
in the first quarter of 1996. Cash used for investing activities ($0.3 billion)
principally represented acquisitions and investments in new plant and equipment
for a wide variety of capital expenditure projects to reduce costs and improve
efficiencies. Cash used for financing activities ($1.3 billion) included $0.9
billion for dividends paid to share owners, representing a 13% increase in the
per-share dividend rate compared with first quarter of last year, and $0.8
billion for repurchases of the Company's common stock under the share repurchase
program. The dividends and share repurchase were partially offset by $0.4
billion provided from the combination of higher borrowings and dispositions of
GE shares from treasury.
GE cash and equivalents increased $0.1 billion to $1.0 billion at March 31,
1996, compared with $0.9 billion at year end 1995. During the first quarter of
1996, operating cash flows increased to $1.2 billion, up from $0.5 billion in
the first quarter of 1995, the result of relatively insignificant improvements
in a number of sources of such cash flows. Cash used for investing activities
($0.7 billion) principally related to acquisitions and investments in new plant
and equipment for a wide variety of capital expenditure projects to reduce costs
and improve efficiencies. Cash used for financing activities ($0.3 billion)
included $0.8 billion for dividends paid to share owners, representing a 12%
increase in the per-share dividend rate compared with first quarter of 1995, and
$0.9 billion for repurchases of the Company's common stock under the share
repurchase program. The dividends and share repurchase were partially offset by
$1.4 billion provided from the combination of higher borrowings and dispositions
of GE shares from treasury.
A-7
<PAGE>
GECS cash and equivalents decreased $0.3 billion during the first quarter of
1997, when $1.6 billion of cash was provided from operating activities. The
principal use of GECS cash during the period was for investing activities ($1.2
billion), which was more than accounted for by additions to equipment that is
provided to third parties on operating leases ($1.3 billion) and increases in
other investing activities ($1.3 billion), principally related to investment
securities, partially offset by lower financing receivables ($1.4 billion).
GECS cash and equivalents increased $0.2 billion during the first quarter of
1996, when $1.5 billion of cash was provided from operating activities. The
principal use of GECS cash during the period was for investing activities ($2.2
billion), which was more than accounted for by additions to equipment that is
provided to third parties on operating leases ($1.4 billion), partially offset
by lower financing receivables ($0.7 billion).
A-8
<PAGE>
DIVIDEND AND PRICE RANGE OF GENERAL ELECTRIC COMMON STOCK
The following information has been obtained from General Electric's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997 and published financial
sources.
At May 5, 1997, General Electric has 3,266,384,877 shares of General
Electric Common Stock issued and outstanding. General Electric Common Stock is
listed on the New York Stock Exchange (its principal market; trading symbol: GE)
and on the Boston Stock Exchange. General Electric Common Stock also is listed
on certain foreign exchanges, including The Stock Exchange, London. Trading, as
reported on the New York Stock Exchange, Inc., Composite Transactions Tape, and
dividend information follows:
<TABLE>
<CAPTION>
COMMON STOCK MARKET PRICE
-----------------------------------
<S> <C> <C> <C>
DIVIDENDS
HIGH LOW DECLARED
--------- --------- -------------
<CAPTION>
(IN DOLLARS)
<S> <C> <C> <C>
1995
Fourth quarter.................................................................... $ 73 1/8 $ 61 $ .46
Third quarter..................................................................... 64 5/8 56 3/8 .41
Second quarter.................................................................... 59 1/4 53 3/8 .41
First quarter..................................................................... 56 49 7/8 .41
1996
Fourth quarter.................................................................... $ 106 1/8 $ 90 1/2 $ .52
Third quarter..................................................................... 92 77 7/8 .46
Second quarter.................................................................... 88 1/8 74 1/8 .46
First quarter..................................................................... 80 1/2 69 1/2 .46
1997*
Second quarter (through June , 1997)............................................ 67 48 9/16 --
First quarter..................................................................... 54 3/16 47 15/16 .26
</TABLE>
- ------------------------
* Market price and dividend amount have been adjusted for a two-for-one stock
split that was paid on May 9, 1997 to holders of General Electric Common
Stock as of April 28, 1997.
A-9
<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.$497,131,485, 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.
--------------------------
June 23, 1997
<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. The SEC also maintains a Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. Holdings' Common
Stock is listed on the New York Stock Exchange, Inc. (the "Exchange") and the
Pacific Stock Exchange. Holdings' 8 3/4% Notes Due 2002 and 8.30% Quarterly
Income Capital Securities Due 2035 are listed on the Exchange and Holdings' $55
Million Serial Zero Coupon Senior Notes Due May 16, 1998, Global
Telecommunications Stock Upside Note Securities-SM- Due 2000 and the AMEX Hong
Kong 30 Index Call Warrants Expiring 1998 and Select Technology Index Call
Warrants Expiring 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,
1996.
(2) Holdings' Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997.
(3) Holdings' Current Reports on Form 8-K dated January 7, 1997 and
March 24, 1997.
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, 8th Floor, New York, New York 10285 (telephone (212) 526-0660).
2
<PAGE>
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 two years in the period ended December 31, 1993, the
eleven months ended November 30, 1994, the two years ended November 30, 1996 and
for the three months ended February 28, 1997:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, NOVEMBER 30, NOVEMBER 30, FEBRUARY 28,
- ---------------------- ----------------- -------------------- -----------------------
1992 1993 1994 1995 1996 1997
----- --------- ----------------- --------- --------- -----------------------
<S> <C> <C> <C> <C> <C>
* 1.00 1.03 1.03 1.06 1.07
</TABLE>
- ------------------------
* Earnings were inadequate to cover fixed charges and would have had to
increase approximately $247 million in 1992 in order to cover the
deficiency.
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
3
<PAGE>
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 The
Chase Manhattan Bank, as successor to Chemical Bank, Trustee, as amended and
supplemented by the Supplemental Indenture dated as of February 1, 1996 (the
"Subordinated Indenture"). The Senior Indenture and the Subordinated Indenture
are hereinafter collectively referred to as the "Indentures" and, individually,
as an "Indenture". Each Indenture will incorporate by reference certain Standard
Multiple-Series Indenture Provisions, filed with the SEC on July 30, 1987 and as
amended and refiled with the SEC on November 16, 1987. This Prospectus contains
descriptions of all material provisions of the Indentures. The summary of such
provisions of the Indentures does not purport to be complete; copies of such
Indentures are filed as exhibits to the Registration Statement of which this
Prospectus is a part. All articles and sections of the applicable Indenture, and
all capitalized terms set forth below, have the meanings specified in the
applicable Indenture.
GENERAL
Neither Indenture limits the amount of debentures, notes or other evidences
of indebtedness which may be issued thereunder. Each Indenture provides that
Debt Securities may be issued from time to time in one or more series. Since
Holdings, as a holding company, does not have any significant assets other than
the equity securities of its subsidiaries, its cash flow and consequent ability
to service its debt, including the Debt Securities, are dependent upon the
earnings of its subsidiaries and the distribution of those earnings to Holdings,
or upon loans or other payments of funds by those subsidiaries to Holdings.
Holdings' subsidiaries, including Lehman Brothers, are separate and distinct
legal entities and will have no obligation, contingent or otherwise, to pay any
interest or principal on the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. Dividends, loans and
other payments by Lehman Brothers are restricted by net capital and other rules
of various regulatory bodies. See "Capital Requirements." The payment of
dividends by Holdings' subsidiaries is contingent upon the earnings of those
subsidiaries and is subject to various business considerations in addition to
net capital requirements and contractual restrictions.
Since the Debt Securities will be obligations of a holding company, the
ability of holders of the Debt Securities to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Debt Securities being offered
thereby: (1) the title of such Debt Securities and whether such Debt Securities
will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) whether the Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, and if Bearer
Securities are issued, whether Bearer Securities may be exchanged for Registered
Securities and the circumstances and places for such exchange, if permitted; (4)
whether the Debt Securities are to be issued in whole or in part in the form of
one or more temporary or permanent global Debt Securities ("Global Securities")
in registered or bearer form and, if so, the identity of the depositary, if any,
for such Global Security or Securities; (5) the date or dates (or manner of
determining the same) on which such Debt Securities will mature; (6) the rate or
rates (or manner of determining the same) at which such Debt Securities will
bear interest, if any, and the date or dates from which such interest will
accrue; (7) the dates (or manner of determining the same) on which such interest
will be payable and the Regular Record Dates for such Interest Payment Dates for
Debt Securities which are Registered Securities, and the extent to which, or the
manner in which, any interest payable on a
4
<PAGE>
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; (16) the terms and conditions, if
any, pursuant to which such Debt Securities may be converted or exchanged for
other securities of Holdings or any other person; (17) the terms and conditions,
if any, pursuant to which the principal of and premium if any, and interest, if
any, on such Debt Securities are payable at the election of Holdings or the
holder thereof, in securities or other property; and (18) 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)
5
<PAGE>
indebtedness for goods or materials purchased in the ordinary course of business
or for services obtained in the ordinary course of business or indebtedness
consisting of trade payables or (iv) indebtedness which is subordinated to any
obligation of Holdings of the type specified in clauses (a) through (d) above.
The effect of clause (iv) is that Holdings may not issue, assume or guaranty any
indebtedness for money borrowed which is junior to the Senior Debt and senior to
the Subordinated Debt. (Subordinated Indenture Section 1401).
Upon the failure to pay the principal or premium, if any, on Senior Debt
when due or upon the maturity of any Senior Debt by lapse of time, acceleration
or otherwise, all principal thereof, interest thereon, if any, and other amounts
due in connection therewith shall first be paid in full, before any payment is
made on account of the principal, premium, if any, or interest, if any, on the
Subordinated Debt or to acquire any of the Subordinated Debt or on account of
the redemption, sinking fund or analogous provisions in the Subordinated
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
6
<PAGE>
provided below, and all matured coupons in default) of such series will be
exchangeable into Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. Unless
otherwise indicated in an applicable Prospectus Supplement, any Bearer Security
surrendered in exchange for a Registered Security between a Regular Record Date
or a Special Record Date and the relevant date for payment of interest shall be
surrendered without the coupon relating to such date for payment of interest and
interest will not be payable in respect of the Registered Security issued in
exchange for such Bearer Security, but will be payable only to the Holder of
such coupon when due in accordance with the terms of the applicable Indenture.
(Section 305). Except as provided in an applicable Prospectus Supplement, Bearer
Securities will not be issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by Holdings for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental 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
7
<PAGE>
payment by Holdings or the delivery by Holdings of the Bearer Security in
definitive form (including interests in a permanent Global Security) (the
"Certification Date"), a written certificate in the form and to the effect
described under "Denominations, Registration and Transfer" is provided to
Holdings. No payment with respect to any Bearer Security will be made at any
office or agency of Holdings in the United States or by check mailed to any
address in the United States or by transfer to an account maintained with a bank
located in the United States. Notwithstanding the foregoing, payment of
principal of (and premium, if any) and interest on Bearer Securities denominated
and payable in U.S. dollars will be made at the office of Holdings' Paying Agent
in the Borough of Manhattan, The City of New York if, and only if, payment of
the full amount thereof in U.S. dollars at all offices or agencies outside the
United States is illegal or effectively precluded by exchange controls or other
similar restrictions. (Section 1002).
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Registered Securities
(other than a Global Security) will be made at the office of such Paying Agent
or Paying Agents as Holdings may designate from time to time, except that at the
option of Holdings payment of any interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 305,
307, 1002). Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any instalment of interest on Registered Securities will be made to
the Person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest payment. (Section 307).
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of each Trustee under the applicable Indenture in The City of
New York will be designated as Holdings' sole Paying Agent for payments with
respect to Debt Securities which are issuable solely as Registered Securities
and as Holdings' Paying Agent in the Borough of Manhattan, The City of New York,
for payments with respect to Debt Securities (subject to the limitations
described above in the case of Bearer Securities) which may be issuable as
Bearer Securities. Any Paying Agents outside the United States and any other
Paying Agents in the United States initially designated by Holdings for the Debt
Securities will be named in an applicable Prospectus Supplement. Holdings may at
any time designate additional Paying Agents or rescind the designation of any
Paying Agents or approve a change in the office through which any Paying Agent
acts, except that, if Debt Securities of a series are issuable only as
Registered Securities, Holdings will be required to maintain a Paying Agent in
each Place of Payment for such series, and if Debt Securities of a series may be
issuable as Bearer Securities, Holdings will be required to maintain (i) a
Paying Agent in the Borough of Manhattan, The City of New York for payments with
respect to any Registered Securities of the series (and for payments with
respect to Bearer Securities of the series in the circumstances described above,
but not otherwise), and (ii) a Paying Agent in a Place of Payment located
outside the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment; provided that
if the Debt Securities of such series are listed on The Luxembourg Stock
Exchange (the "Stock Exchange") or any other stock exchange located outside the
United States and such stock exchange shall so require, Holdings will maintain a
Paying Agent in Luxembourg or any other required city located outside the United
States, as the case may be, for the Debt Securities of such series. (Section
1002).
All moneys paid by Holdings to a Paying Agent for the payment of principal
of (and premium, if any) or interest on any Debt Security which remain unclaimed
at the end of two years after such principal, premium or interest shall have
become due and payable will be repaid to Holdings and the Holder of such Debt
Security or any coupon will thereafter look only to Holdings for payment
thereof. (Section 1003).
LIMITATION ON LIENS
So long as any Debt Securities remain outstanding, unless an applicable
Prospectus Supplement relating thereto provides otherwise, Holdings will not,
and will not permit any Designated Subsidiary (as defined below), directly or
indirectly, to create, issue, assume, incur or guarantee any indebtedness for
8
<PAGE>
money borrowed which is secured by a mortgage, pledge, lien, security interest
or other encumbrance of any nature on any of the present or future common stock
of a Designated Subsidiary unless the Debt Securities and, if Holdings so
elects, any other indebtedness of Holdings ranking at least PARI PASSU with the
Debt Securities, shall be secured equally and ratably with (or prior to) such
other secured indebtedness for money borrowed so long as it is outstanding.
(Section 1005).
The term "Designated Subsidiary" means any present or future consolidated
subsidiary of Holdings, the consolidated net worth of which constitutes at least
5% of the consolidated net worth of Holdings. As of March 31, 1997, 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 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).
9
<PAGE>
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), 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).
10
<PAGE>
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 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
11
<PAGE>
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 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).
12
<PAGE>
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.
13
<PAGE>
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 such Debt Warrants
issued with each such Debt Security and the date, if any, on and after which
such Debt Warrants and such Debt
14
<PAGE>
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".
15
<PAGE>
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 Prospectus
16
<PAGE>
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.
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
17
<PAGE>
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
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
18
<PAGE>
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).
19
<PAGE>
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.
20
<PAGE>
MARKET DISRUPTION AND FORCE MAJEURE EVENTS
If so specified in the applicable Prospectus Supplement, following the
occurrence of a Market Disruption Event or Force Majeure Event (as each term
shall be defined therein), the Cash Settlement Value of a Currency Warrant, an
Index Warrant or an Interest Rate Warrant may be determined on a different basis
than under normal exercise of a Warrant or the determination of the applicable
Cash Settlement Value. In addition, if so specified in the applicable Prospectus
Supplement, Currency Warrants, Index Warrants and Interest Rate Warrants may, in
certain circumstances, be cancelled by Holdings prior to their expiration date
and the holders thereof will be entitled to receive only the applicable
Cancellation Amount. The Cancellation Amount may be either a fixed amount or an
amount that varies during the term of the Warrants in accordance with a schedule
or formula.
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.
21
<PAGE>
Unless otherwise specified in an applicable Prospectus Supplement,
Securities which are to be represented by a Global Security in registered form
to be deposited with or on behalf of a Depository will be registered in the name
of such Depository or its nominee. Upon the issuance of a Global Security in
registered form, the Depository for such Global Security will credit the
respective principal amounts, in the case of Debt Securities, and the respective
number of warrants, in the case of Warrants represented by such Global Security
to the accounts of institutions that have accounts with such Depository or its
nominee ("participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Securities or by Holdings, if such Securities are
offered and sold directly by Holdings. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that 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
22
<PAGE>
respect to the Securities of a series, an owner of a beneficial interest in a
Global Security representing Securities of such series may, on terms acceptable
to Holdings and the Depository for such Global Security, receive Securities of
such series in definitive form. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in
definitive form of Securities of the series represented by such Global Security
equal in principal amount, in the case of Debt Securities, or number, in the
case of Warrants, to such beneficial interest and to have such Securities
registered in its name (if the Securities of such series are issuable as
registered securities). Unless otherwise specified by Holdings, Securities of
such series so issued in definitive form will be issued either as registered or
bearer securities (if the Securities of such series are issuable in such form)
and in authorized denominations, in the case of Debt Securities, or in
authorized numbers, in the case of Warrants, as specified in the applicable
Prospectus Supplement. See, however, "Description of Debt
Securities--Limitations on Issuance of Bearer Securities" above for a
description of certain restrictions on the issuance of a Bearer Security in
definitive form in exchange for an interest in a Global Security.
BEARER DEBT SECURITIES
If so specified in an applicable Prospectus Supplement, pending the
availability of a permanent Global Security, all or any portion of the Debt
Securities of a series which may be issuable as bearer securities will 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."
23
<PAGE>
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 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
24
<PAGE>
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.
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.
25
<PAGE>
This Prospectus together with an 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.
Lehman Brothers may act as principal or agent in such transactions. 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.
The underwriting and agency arrangements for any offering of the Securities
will comply with the requirements of Rule 2720 of the NASD regarding an NASD
member firm's participating in distributing its affiliate's 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, 1996, the year ended November 30, 1995 and for the
eleven months ended November 30, 1994, appearing in the Company's Annual Report
on Form 10-K for the year ended November 30, 1996 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 incorporated herein by reference in reliance upon
the reports of Ernst & Young LLP pertaining to such financial statements given
upon the authority of such firm as experts in accounting and auditing.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY AGENT OR UNDERWRITER. THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors................................... S-3
Use of Proceeds................................ S-3
General Electric............................... S-4
Description of Notes........................... S-5
Certain United States Federal Income
Tax Consequences............................... S-10
Underwriting................................... S-11
Appendix A..................................... A-1
PROSPECTUS
Available Information.......................... 2
Documents Incorporated by Reference............ 2
The Company.................................... 3
Use of Proceeds................................ 3
Ratio of Earnings to Fixed Charges............. 3
Description of Debt Securities................. 4
Description of Warrants........................ 14
Global Securities.............................. 21
United States Taxation......................... 24
Capital Requirements........................... 24
Plan of Distribution........................... 24
ERISA Matters.................................. 26
Legal Opinions................................. 26
Independent Accountants........................ 26
</TABLE>
$50,000,000
LEHMAN BROTHERS HOLDINGS INC.
% EXCHANGEABLE NOTES
DUE , 2002
EXCHANGEABLE FOR SHARES OF
COMMON STOCK OF
GENERAL ELECTRIC COMPANY
---------------------
PROSPECTUS SUPPLEMENT
JUNE , 1997
---------------------
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
