<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 17, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 17, 1998)
YEELDS-SM-
LEHMAN BROTHERS HOLDINGS INC.
% Cisco Systems Yield Enhanced Equity Linked Debt Securities Due 2001
(ISSUE PRICE AND PRINCIPAL AMOUNT BASED ON THE PRICE OF CISCO SYSTEMS, INC.
COMMON STOCK)
----------------------------------------
The % Cisco Systems Yield Enhanced Equity Linked Debt Securities Due 2001
(a "YEELD" or a "Security", and in the aggregate, the "YEELDS" or the
"Securities") of Lehman Brothers Holdings Inc. ("Holdings") are being offered at
an issue price (the "Issue Price") of $ . The YEELDS will mature on
, 2001, subject to extension upon the occurrence of certain
Non-Trading Days. The YEELDS are to be issued as a series of Debt Securities
under the Senior Indenture described in the accompanying Prospectus and will
constitute "Senior Debt" of Holdings as described in the accompanying
Prospectus. The YEELDS may not be redeemed prior to maturity and are not subject
to any sinking fund.
The principal amount of each YEELD payable at maturity (the "Principal
Amount") will equal the lesser of (A) % of the Issue Price (the "Cap") and
(B) (i) if Holdings elects the Cash Settlement Option (as defined below), the
average of the Closing Prices on the ten Trading Dates prior to and including
the maturity date (the "Ten Day Average Closing Price") of the common stock (the
"Cisco Common Stock") of Cisco Systems, Inc. ("Cisco") or (ii) if Holdings
elects the Stock Settlement Option (as defined below), the Closing Price of the
Cisco Common Stock on the date of maturity. As a result, the Principal Amount
will not under any circumstances exceed $ . At maturity, the Principal
Amount will be paid by Holdings either in cash (the "Cash Settlement Option") or
in shares of Cisco Common Stock based upon the Principal Amount (the "Stock
Settlement Option"), at Holdings' sole option. Holdings will, by written notice
given not later than , 2001, notify the Trustee and the registered
holders (as defined herein) of Holdings' election of either the Stock Settlement
Option or the Cash Settlement Option. If Holdings elects the Stock Settlement
Option, no fractional shares of Cisco Common Stock will be issued (SEE
"Description of Securities--No Fractional Shares" in this Prospectus
Supplement). Determination of the Closing Price and the Ten Day Average Closing
Price of the Cisco Common Stock is subject to adjustment as a result of certain
dilution events (SEE "Description of Securities--Dilution Adjustments" in this
Prospectus Supplement). Interest on each YEELD is payable quarterly on each
, , and , commencing ,
1998, at the rate of % of the Issue Price per annum (or $ per annum). For a
discussion of certain United States federal income tax consequences for the
beneficial owners of YEELDS (the "Holders"), SEE "Certain United States Federal
Income Tax Considerations" in this Prospectus Supplement.
SEE"RISK FACTORS", BEGINNING ON PAGE S-5 OF THIS PROSPECTUS SUPPLEMENT, FOR
A DISCUSSION OF CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE
SECURITIES.
Cisco is neither affiliated with Holdings or its subsidiaries nor involved
in this offering of YEELDS. The YEELDS are Senior Debt obligations of Holdings
and the Holders will have no recourse to Cisco for such obligations. SEE "Risk
Factors--Lack of Affiliation Between Holdings and Cisco" in this Prospectus
Supplement.
Application will be made to list the Securities on the American Stock
Exchange.
--------------------------
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 DISCOUNTS
PUBLIC(1) AND COMMISSIONS
<S> <C> <C>
Per Security...................................................... $ $
Total(3).......................................................... $ $
<CAPTION>
PROCEEDS TO
HOLDINGS(1)(2)
<S> <C>
Per Security...................................................... $
Total(3).......................................................... $
</TABLE>
(1) Plus accrued interest, if any, from , 1998.
(2) Before deducting expenses payable by Holdings estimated to be $ .
(3) Holdings has granted to the Underwriter an option, exercisable for 30 days
from the date of this Prospectus Supplement, to purchase up to an additional
YEELDS to cover over-allotments, if any. If all such YEELDS are
purchased, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Holdings will be $ , $ and $ ,
respectively.
--------------------------
The YEELDS 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. The Underwriter reserves the right to reject
orders in whole or in part. It is expected that delivery of the Securities will
be made at the offices of Lehman Brothers Inc., New York, New York, on or about
, 1998.
This Prospectus Supplement, together with the accompanying Prospectus, may
also be used by Lehman Brothers Inc. in connection with offers and sales of
YEELDS 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
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE SECURITIES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE SECURITIES PRIOR TO THE PRICING OF
THE SECURITIES OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE
SECURITIES, THE PURCHASE OF THE SECURITIES FOLLOWING THE PRICING OF THE OFFERING
TO COVER A SYNDICATE SHORT POSITION IN THE SECURITIES OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE SECURITIES. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING" IN THIS PROSPECTUS SUPPLEMENT.
S-2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS.
<TABLE>
<S> <C>
Issuer....................... Lehman Brothers Holdings Inc. ("Holdings").
Securities Offered........... % Cisco Systems Yield Enhanced Equity Linked Debt Securities
Due 2001 (a "YEELD" or a "Security", and in the aggregate,
the "YEELDS" or the "Securities"). The Securities are to be
issued as a series of Debt Securities under the Senior
Indenture described in the accompanying Prospectus and will
constitute Senior Debt of Holdings.
Issue Price.................. $ .
Denominations................ $ and integral multiples of $ in excess
thereof.
Stated Maturity.............. The YEELDS will mature on , 2001, subject to
extension upon the occurrence of certain Non-Trading Days.
Payments..................... Each YEELD will bear interest from , 1998, at
the rate of % of the Issue Price per annum (or $
per annum) until the Principal Amount (defined below) of
such YEELD is paid or made available for payment at maturity
either in cash or in the form of shares of Cisco Common
Stock (based upon the Principal Amount). Interest on the
YEELDS will be payable quarterly in arrears on each
, , and ,
commencing , 1998 (each an "Interest Payment
Date"), and at maturity. Interest on the YEELDS will be
computed on the basis of the actual number of days elapsed
over a 360-day year of twelve 30-day months. Each payment of
interest in respect of an Interest Payment Date will include
interest accrued through the day before such Interest
Payment Date. If an Interest Payment Date falls on a day
that is not a Business Day, the interest payment to be made
on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if
made on such Interest Payment Date and no additional
interest will accrue as a result of such delayed payment.
SEE "Description of Securities--Interest Payments" in this
Prospectus Supplement.
The principal amount of each YEELD payable at maturity (the
"Principal Amount") will equal the lesser of (A) % of the
Issue Price (the "Cap") and (B) (i) if Holdings elects the
Cash Settlement Option (as defined below), the average of
the Closing Prices on the ten Trading Dates prior to and
including the maturity date (the "Ten Day Average Closing
Price") of the common stock (the "Cisco Common Stock") of
Cisco Systems, Inc. ("Cisco") or (ii) if Holdings elects the
Stock Settlement Option (as defined below), the Closing
Price of the Cisco Common Stock on the date of maturity. At
maturity, the Principal Amount will be paid by Holdings
either, at Holdings' sole option with prior written notice
by Holdings to the Trustee and the registered holders, in
cash (the "Cash Settlement Option") or in shares of Cisco
Common Stock based upon the
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Principal Amount (the "Stock Settlement Option"); provided
that in the event that the Trustee or the Holders accelerate
the maturity of the YEELDS, Holdings will be deemed to have
elected the Cash Settlement Option for all purposes herein.
If Holdings elects the Stock Settlement Option, no
fractional shares of Cisco Common Stock will be issued (SEE
"Description of Securities--No Fractional Shares" in this
Prospectus Supplement). Determination of the Closing Price
and the Ten Day Average Closing Price of the Cisco Common
Stock is subject to adjustment as a result of certain
dilution events (SEE "Description of Securities--Dilution
Adjustments" in this Prospectus Supplement). SEE
"Description of Securities--General" in this Prospectus
Supplement.
Risk Factors................. The YEELDS are subject to certain special considerations and
risk factors. SEE "Risk Factors" in this Prospectus
Supplement.
</TABLE>
S-4
<PAGE>
RISK FACTORS
AS DESCRIBED IN MORE DETAIL BELOW, THE TRADING PRICE OF THE YEELDS MAY VARY
CONSIDERABLY PRIOR TO MATURITY DUE, AMONG OTHER THINGS, TO FLUCTUATIONS IN THE
PRICE OF CISCO COMMON STOCK AND OTHER EVENTS THAT ARE DIFFICULT TO PREDICT AND
BEYOND HOLDINGS' CONTROL.
COMPARISON TO OTHER DEBT SECURITIES. The terms of the YEELDS differ from
those of ordinary debt securities in that the Principal Amount received at
maturity, whether through the Cash Settlement Option or the Stock Settlement
Option, is not fixed, but is based on the price of Cisco Common Stock on
maturity and, if the Cash Settlement Option is elected, the price of Cisco
Common Stock prior to maturity. There can be no assurance that the Principal
Amount will be greater than the Issue Price and, if (in the case of the Stock
Settlement Option) the Closing Price or (in the case of the Cash Settlement
Option) the Ten Day Average Closing Price of the Cisco Common Stock is less than
the Issue Price, the Principal Amount will be less, in which case an investment
in YEELDS may result in a loss. The opportunity for appreciation afforded by an
investment in the YEELDS is less than that afforded by an investment in Cisco
Common Stock because at maturity, a Holder may receive less per YEELD than
either the Closing Price or the Ten Day Average Closing Price of a share of
Cisco Common Stock on such date if the Principal Amount payable to such Holder
at maturity has been limited by the Cap. SEE "Description of
Securities--General" in this Prospectus Supplement. In addition, if both the Ten
Day Average Closing Price and the Closing Price of the Cisco Common Stock are
lower than the Cap (SEE "Description of Securities--General" in this Prospectus
Supplement), because such Ten Day Average Closing Price is calculated with
reference to Trading Days prior to the date of maturity of the YEELDS and
because the price of a share of Cisco Common Stock on the date of maturity may
be higher than the Ten Day Average Closing Price of the Cisco Common Stock, the
Principal Amount, if the Cash Settlement Option is elected, will not only be
less than the Cap but may also be less than the price of a share of Cisco Common
Stock on the date of maturity (and therefore may be less than the Principal
Amount which would have been received if the Stock Settlement Option had been
elected). Alternatively, if both the Ten Day Average Closing Price and the
Closing Price of the Cisco Common Stock are lower than the Cap and if the price
of a share of Cisco Common Stock on the date of maturity is lower than such Ten
Day Average Closing Price and the Stock Settlement Option is elected, the
Principal Amount will not only be less than the Cap but will also be less than
the Principal Amount which would have been received if the Cash Settlement
Option had been elected. Furthermore, if either the Ten Day Average Closing
Price or the Closing Price of the Cisco Common Stock is lower than the Cap but
the other of such two prices is the same as or higher than the Cap, election of
the Stock Settlement Option (if the Closing Price of the Cisco Common Stock is
lower than the Ten Day Average Closing Price) or election of the Cash Settlement
Option (if the Ten Day Average Closing Price is lower than the Closing Price of
the Cisco Common Stock) will result in a Principal Amount which is less than the
amount which would have been received had the other settlement option been
elected and less than the Cap. The amount payable at maturity with respect to
each YEELD, whether through the Cash Settlement Option or the Stock Settlement
Option, will not under any circumstances exceed % of the Issue Price.
RELATIONSHIP OF YEELDS AND CISCO COMMON STOCK. The market price of YEELDS
at any time is expected to be affected primarily by changes in the price of
Cisco Common Stock. As indicated in "Price Range of Cisco Common Stock" in this
Prospectus Supplement, the price of Cisco Common Stock has during certain recent
periods been highly volatile. Historical prices of Cisco Common Stock should not
be taken as an indication of Cisco Common Stock's future performance during the
term of the YEELDS.
It is impossible to predict whether the price of Cisco Common Stock will
rise or fall. Trading prices of Cisco Common Stock will be influenced by Cisco's
operational results, creditworthiness, dividend rate, if any, on the Cisco
Common Stock and by complex and interrelated political, economic, financial and
other factors that can affect the capital markets generally, the markets on
which Cisco Common Stock is traded and the market segment of which Cisco is a
part. SEE "Cisco Systems, Inc." in this Prospectus Supplement. Such factors
include, but are not limited to, market interest and yield rates, the time
remaining to maturity
S-5
<PAGE>
of the YEELDS and existing, future and potential domestic and international
requirements and regulations affecting or relating to, among other things,
telecommunications law and tariffs. In the United States for example, according
to publicly available documents, Cisco's products must comply with various
Federal Communication Commission requirements and regulations.
HEDGING ACTIVITIES BY HOLDINGS. Certain hedging activity by Holdings or one
or more of its subsidiaries can potentially increase or decrease the price of
Cisco Common Stock and, accordingly, increase or decrease the Principal Amount.
SEE "Use of Proceeds" in this Prospectus Supplement. There can be no assurance
that such activity by Holdings or one or more of its subsidiaries will not
affect such price.
DILUTION OF CISCO COMMON STOCK; PARTIAL TENDER OR EXCHANGE OFFERS. The
Principal Amount is subject to adjustment for certain events arising from stock
splits and combinations, stock dividends, extraordinary cash dividends and
certain other actions of Cisco that modify its capital structure. SEE
"Description of Securities--Dilution Adjustments" in this Prospectus Supplement.
The Principal Amount is not adjusted for other events, such as offerings of
Cisco Common Stock for cash, that may adversely affect the price of Cisco Common
Stock and, because of the relationship of the Principal Amount to the price of
Cisco Common Stock, may adversely affect the price of YEELDS. There can be no
assurance that Cisco will not make offerings of Cisco Common Stock in the future
or as to the amount of such offerings, if any. Additionally, the Principal
Amount is not adjusted for events such as the occurrence of a partial tender or
exchange offer for Cisco Common Stock by Cisco or any third party. Such events
may affect the market value of the YEELDS.
LACK OF AFFILIATION BETWEEN HOLDINGS AND CISCO. Holdings is not affiliated
with Cisco and, although Holdings has no material non-public information that
any of the events described in the preceding subsection are currently being
contemplated by Cisco or of any event that would have a material adverse effect
on Cisco or on the price of Cisco Common Stock, such events are beyond Holdings'
ability to control and are difficult to predict.
Cisco is not involved in the offering of YEELDS and has no obligations with
respect to the YEELDS, including any obligation to take the needs of Holdings or
of Holders into consideration for any reason. Cisco will not receive any of the
proceeds of the offering of the YEELDS made hereby and is not responsible for,
and has not participated in, the determination of the timing of, prices for, or
quantities of, the YEELDS to be issued or in the determination or calculation of
the Principal Amount. Cisco is not involved with the administration, marketing
or trading of the YEELDS and has no obligations with respect to the Principal
Amount to be paid, whether through the Cash Settlement Option or the Stock
Settlement Option (or the election of either such option), to Holders at
maturity. Holders will not be entitled to any rights with respect to the Cisco
Common Stock (including, without limitation, voting rights, the rights to
receive any dividends or other distributions in respect thereof and the right to
tender or exchange Cisco Common Stock in any partial tender or exchange offer by
Cisco or any third party) unless and until the Holders receive shares of Cisco
Common Stock from Holdings at maturity through the Stock Settlement Option.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET. It is not possible to predict
how the YEELDS will trade in the secondary market or whether such market will be
liquid or illiquid.
AFFILIATION OF CALCULATION AGENT. Because Lehman Brothers Inc., acting as
the calculation agent, will determine the Principal Amount, and because Lehman
Brothers Inc. is an affiliate of Holdings, potential conflicts of interest may
exist between Lehman Brothers Inc. and the Holders, including with respect to
adjustments, calculations or determinations that may influence the determination
of the Principal Amount. SEE "Description of Securities--General" and
"Description of Securities--Dilution Adjustments" in this Prospectus Supplement.
S-6
<PAGE>
TAX CONSEQUENCES. Investors should consider the tax consequences of
investing in YEELDS. No statutory, judicial or administrative authority directly
addresses the characterization of the YEELDS or instruments similar to the
YEELDS for United States federal income tax purposes. As a result, significant
aspects of the United States federal income tax consequences of an investment in
the YEELDS are not certain. No ruling is being requested from the Internal
Revenue Service (the "IRS") with respect to the YEELDS and no assurance can be
given that the IRS will agree with the conclusions expressed herein. SEE
"Certain United States Federal Income Tax Considerations" in this Prospectus
Supplement.
OTHER CONSIDERATIONS. It is suggested that prospective investors who
consider purchasing YEELDS should reach an investment decision only after
carefully considering with their advisors the suitability of an investment in
YEELDS in light of their particular circumstances.
USE OF PROCEEDS
An amount equal to approximately one-half of the proceeds to be received by
Holdings from the sale of the YEELDS is being used by Holdings or one or more of
its subsidiaries before and immediately following the initial offering of the
YEELDS to acquire Cisco Common Stock or listed or over-the-counter options
contracts in, or other derivative or synthetic instruments related to, Cisco
Common Stock in connection with hedging Holdings' obligations under the YEELDS.
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 YEELDS, depending on market
conditions (including the market price of Cisco Common Stock), in connection
with hedging with respect to the YEELDS, Holdings 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 Cisco
Common Stock, in listed or over-the-counter options contracts in, or other
derivative or synthetic instruments related to, Cisco Common Stock. In addition,
Holdings or one or more of its subsidiaries may purchase or otherwise acquire a
long or short position in YEELDS from time to time and may, in their sole
discretion, hold or resell such YEELDS. Holdings 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 Holdings
or one or more of its subsidiaries have a long hedge position in Cisco Common
Stock or options contracts in, or other derivative or synthetic instruments
related to, Cisco Common Stock, Holdings or one or more of its subsidiaries may
liquidate a portion of their holdings at or about the time of the maturity of
the YEELDS. 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. Certain activity by Holdings or one or more of its subsidiaries
described above can potentially increase or decrease the price of Cisco Common
Stock and, accordingly, increase or decrease the Principal Amount. Although
Holdings has no reason to believe that any such activity will have a material
impact on the price of the Cisco Common Stock, there can be no assurance that
Holdings or one or more of its subsidiaries will not affect such price as a
result of such activities.
S-7
<PAGE>
CISCO SYSTEMS, INC.
According to publicly available documents, Cisco, a California corporation,
provides products which are used to connect computing devices to networks or to
connect computer networks to each other. Cisco is subject to the informational
requirements of the Securities Exchange Act of 1934. Accordingly, Cisco 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 Securities and Exchange
Commission at the addresses listed under "Available Information" in the
accompanying Prospectus. To the best of Holdings' knowledge, based upon
currently available public documents, as of the date of this Prospectus
Supplement, Cisco 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 YEELDS OFFERED HEREBY AND
DOES NOT RELATE TO THE CISCO COMMON STOCK. ALL DISCLOSURES CONTAINED IN THIS
PROSPECTUS SUPPLEMENT REGARDING CISCO ARE DERIVED FROM THE PUBLICLY AVAILABLE
DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH. NEITHER HOLDINGS NOR THE
UNDERWRITER HAS PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS, VERIFIED
EITHER THE ACCURACY OR THE COMPLETENESS OF THE INFORMATION CONCERNING CISCO
INCLUDED THEREIN OR MADE ANY DUE DILIGENCE INQUIRY WITH RESPECT TO CISCO IN
CONNECTION WITH THE OFFERING OF THE YEELDS. 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 CISCO COMMON STOCK HAVE BEEN OR WILL BE PUBLICLY DISCLOSED AND NEITHER
HOLDINGS NOR THE UNDERWRITER MAKES ANY REPRESENTATION AS TO THE ACCURACY OR
COMPLETENESS OF SUCH DOCUMENTS. BECAUSE THE PRINCIPAL AMOUNT IS RELATED TO THE
TRADING PRICE OF CISCO COMMON STOCK, SUCH EVENTS, IF ANY, WOULD ALSO AFFECT THE
TRADING PRICE OF THE YEELDS. HOLDINGS DOES NOT INTEND TO FURNISH TO HOLDERS OF
YEELDS SUBSEQUENT INFORMATION WITH RESPECT TO CISCO. NEITHER HOLDINGS, THE
UNDERWRITER NOR ANY OF THEIR RESPECTIVE AFFILIATES MAKES ANY REPRESENTATION TO
ANY PURCHASER OF THE YEELDS AS TO THE PERFORMANCE OF CISCO COMMON STOCK.
Holdings or one or more of its affiliates may presently or from time to time
engage in business with Cisco including the extending of loans to, or the making
of equity investments in, Cisco or providing advisory services to Cisco,
including merger and acquisition advisory services. In the course of such
business, Holdings or its affiliates may acquire non-public information with
respect to Cisco and, in addition, one or more affiliates of Holdings may
publish research reports with respect to Cisco. Any prospective purchaser of a
YEELD should undertake an independent investigation of Cisco as in its judgment
is appropriate in order to make an informed decision with respect to an
investment in Cisco Common Stock.
S-8
<PAGE>
PRICE RANGE OF CISCO COMMON STOCK
Cisco Common Stock is listed and traded on the NASDAQ National Market System
(the "NMS") under the symbol "CSCO". The following table sets forth, for the
periods indicated, the high and low sale prices on the NMS for Cisco Common
Stock (split-adjusted based on the prices reported by NMS as of the dates of the
prices listed below for the first quarter of 1998) but such historical prices
should not be taken as an indication of Cisco Common Stock's future performance
during the term of the YEELDS.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter............................................................................. $13 3/64 $10 55/64
Second Quarter............................................................................ $17 19/64 $12 7/8
Third Quarter............................................................................. $24 3/64 $16 51/64
Fourth Quarter............................................................................ $29 19/64 $21 31/64
1996
First Quarter............................................................................. $33 21/64 $21 51/64
Second Quarter............................................................................ $38 11/64 $29 35/64
Third Quarter............................................................................. $42 1/4 $31 27/64
Fourth Quarter............................................................................ $45 3/4 $38 27/64
1997
First Quarter............................................................................. $49 59/64 $31 27/64
Second Quarter............................................................................ $47 1/8 $30 59/64
Third Quarter............................................................................. $54 5/8 $45 35/64
Fourth Quarter............................................................................ $60 19/64 $48 35/64
1998
First Quarter (through February 12, 1998)................................................. $65 15/16 $54 1/4
</TABLE>
Cisco paid no dividends in fiscal year 1997 and has not, as of the date of
this Prospectus Supplement, declared a dividend payable in fiscal year 1998.
Holdings makes no representation as to the amount of dividends, if any, that
Cisco will pay in the future. In any event, Holders will not be entitled to
receive any dividends that may be payable on Cisco Common Stock.
DESCRIPTION OF SECURITIES
GENERAL
The YEELDS are to be issued as a series of Debt Securities under the Senior
Indenture, which is more fully described in the accompanying Prospectus. The
following description of the particular terms of the YEELDS offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth under the
heading "Description of Debt Securities" in the accompanying Prospectus. For a
description of the rights attaching to different series of Debt Securities under
the Senior Indenture, SEE "Description of Debt Securities" in the accompanying
Prospectus. The YEELDS constitute "Senior Debt" as defined in the accompanying
Prospectus.
Certain capitalized terms used herein have the meanings ascribed thereto in
the accompanying Prospectus. Reference is also made to the Glossary for the
locations of other defined terms used herein.
The aggregate number of YEELDS to be issued will be , subject to the
over-allotment option granted by Holdings to the Underwriter (SEE "Underwriting"
in this Prospectus Supplement). The Securities will be issued in denominations
of $ and multiples of $ in excess thereof. The YEELDS will
mature on , 2001, subject to extension in the case of certain
Non-Trading Days. On the maturity date, the Holder of a YEELD will be entitled
to receive the principal amount (the "Principal Amount") which will equal the
lesser of (A) % of the Issue Price (the "Cap") and (B) (i) if
S-9
<PAGE>
Holdings elects the Cash Settlement Option (as defined below), the average of
the Closing Prices on the ten Trading Dates prior to and including the maturity
date (the "Ten Day Average Closing Price") of the common stock (the "Cisco
Common Stock") of Cisco Systems, Inc. ("Cisco") or (ii) if Holdings elects the
Stock Settlement Option (as defined below), the Closing Price of the Cisco
Common Stock on the date of maturity. At maturity, the Principal Amount will be
paid by Holdings either in cash (the "Cash Settlement Option") or in shares of
Cisco Common Stock based upon the Principal Amount (the "Stock Settlement
Option"), at Holdings' sole option; provided that in the event that the Trustee
or the Holders accelerate the maturity of the YEELDS as described under
"Description of Securities--Events of Default and Acceleration" in this
Prospectus Supplement and "Description of Debt Securities--Events of Default" in
the accompanying Prospectus, Holdings will be deemed to have elected the Cash
Settlement Option for all purposes herein. Absent any such acceleration,
Holdings will, by written notice given not later than , 2001, notify
the Trustee and the registered holders (as defined herein) of Holdings' election
of either the Stock Settlement Option or the Cash Settlement Option. If Holding
elects the Stock Settlement Option, no fractional shares of Cisco Common Stock
will be issued (SEE "Description of Securities--No Fractional Shares" in this
Prospectus Supplement). Determination of the Closing Price and the Ten Day
Average Closing Price of the Cisco Common Stock is subject to adjustment as a
result of certain dilution events (SEE "Description of Securities--Dilution
Adjustments" in this Prospectus Supplement). Lehman Brothers Inc., acting as the
calculation agent, shall determine the Principal Amount.
The "Closing Price" of any security on any date of determination means the
closing sale price or last reported sale price of such security on the NMS on
such date or, if such security is not listed for trading on the NMS on any such
date, on such other national securities exchange or association that is the
primary market for the trading of such security. A "Trading Day" is defined as a
Business Day on which the security the Closing Price of which is being
determined (a) is not suspended from trading on any national securities exchange
or association at the close of business and (b) has traded at least once on the
national securities exchange or association that is the primary market for the
trading of such security. "Business Day" with respect to the YEELDS means any
day that is not a Saturday, a Sunday or a day on which the NYSE, the American
Stock Exchange or any other national securities exchange is authorized or
obligated by law or executive order to close.
The maximum aggregate Principal Amount is $ ($ , if the
Underwriter's over-allotment option is exercised in full). Holdings in the
future may, however, "reopen" the issue of YEELDS and issue additional YEELDS at
a later time or issue additional Debt Securities or other securities with terms
similar to those of the YEELDS, and such issuances may affect the trading value
of the YEELDS.
The YEELDS are not redeemable by Holdings or repayable at the option of any
Holder prior to maturity and are not subject to any sinking fund. Upon the
occurrence of an Event of Default with respect to the YEELDS, Holders may
accelerate the maturity of the YEELDS, as described under "Description of
Securities--Events of Default and Acceleration" in this Prospectus Supplement
and "Description of Debt Securities--Events of Default" in the accompanying
Prospectus.
NO FRACTIONAL SHARES
At maturity, if Holdings has elected to pay the Principal Amount pursuant to
the Stock Settlement Option, Holdings will pay cash to each Holder in lieu of
paying fractional shares of Cisco Common Stock in an amount equal to the
corresponding fractional amount of such shares which would otherwise be payable
by Holdings in settlement of the Principal Amount multiplied by the Principal
Amount.
NON-TRADING DAYS
In the event that , 2001 is not a Trading Day (a "Non-Trading
Day"), the YEELDS will not mature on , 2001, but the maturity of the
YEELDS will be extended until the next Trading Day and the Principal Amount will
be based on the Closing Price or Ten Day Average Closing
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Price, as the case may be, of the Cisco Common Stock on such Trading Day. The
YEELDS will continue to accrue interest until the Principal Amount of the YEELDS
is paid at maturity, whether through the Cash Settlement Option or the Stock
Settlement Option, which, in the event that the maturity of the YEELDS is
extended as a result of a Non-Trading Day, will be payable to the Holders of
YEELDS on the date of such extended maturity.
INTEREST PAYMENTS
Each YEELD will bear interest from , 1998, at the rate of %
of the Issue Price per annum (or $ per annum) until the Principal Amount
of such YEELD is paid or made available for payment, whether through the Cash
Settlement Option or the Stock Settlement Option, at maturity. Interest on the
YEELDS will be payable quarterly in arrears on each , ,
and , commencing , 1998 (each an "Interest
Payment Date"), and at maturity. Interest on the YEELDS will be computed on the
basis of the actual number of days elapsed over a 360-day year of twelve 30-day
months. Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
DILUTION ADJUSTMENTS
The Closing Price and the Ten Day Average Closing Price, as the case may be,
of the Cisco Common Stock shall be subject to adjustment as described below to
the extent that any of the events requiring such adjustment occur during the
period commencing on the date hereof and ending at the date of maturity of the
YEELDS:
(i) CISCO COMMON STOCK DIVIDENDS, EXTRAORDINARY CASH DIVIDENDS AND OTHER
DISTRIBUTIONS. If a dividend or other distribution is declared (a) on any
class of Cisco's capital stock (or on the capital stock of any Cisco
Survivor, as defined in (iv) below) payable in shares of Cisco Common Stock
(or the common stock of any Cisco Survivor) or (b) on Cisco Common Stock
payable in cash in an amount greater than 10% of the Closing Price of Cisco
Common Stock (if the Stock Settlement Option is elected) or 10% of the Ten
Day Average Closing Price of Cisco Common Stock (if the Cash Settlement
Option is elected) on the date fixed for the determination of the
shareholders of Cisco entitled to receive such cash dividend (an
"Extraordinary Cash Dividend"), then the Closing Price or the Ten Day
Average Closing Price, as the case may be, of the Cisco Common Stock (or the
common stock of any Cisco Survivor) at the close of business on each Trading
Day following the date (the "Cisco Record Date") fixed for the determination
of the shareholders of Cisco (or any Cisco Survivor) entitled to receive
such distribution shall (for purposes of calculating the Principal Amount)
be increased by multiplying such Closing Price or Ten Day Average Closing
Price, as the case may be, by a fraction of which the numerator shall be the
sum of (x) the number of shares of Cisco Common Stock (or the common stock
of any Cisco Survivor) outstanding on the Cisco Record Date plus (y) the
number of shares constituting such distribution or, in the case of an
Extraordinary Cash Dividend, the number of shares of Cisco Common Stock (or
the common stock of any Cisco Survivor) that could be purchased with the
amount of such Extraordinary Cash Dividend at the Closing Price or the Ten
Day Average Closing Price, as the case may be, of Cisco Common Stock on the
Trading Day immediately subsequent to such Cisco Record Date, and the
denominator shall be the number of shares of Cisco Common Stock (or the
common stock of any Cisco Survivor) outstanding on the Cisco Record Date;
provided that if any such dividend or distribution is declared during the
period of time beginning after the first date and before or on the final
date for determination of the Ten Day Average Closing Price of the Cisco
Common Stock (assuming the Cash Settlement Option is elected), for purposes
of such
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<PAGE>
dividend or distribution, the Ten Day Average Closing Price of the Cisco
Common Stock shall not be multiplied by the fraction described above but the
individual Closing Prices of the Cisco Common Stock occurring after the
Cisco Record Date used in calculating such Ten Day Average Closing Price
shall be multiplied by such fraction.
(ii) SUBDIVISIONS AND COMBINATIONS OF CISCO COMMON STOCK. In the event
that the outstanding shares of Cisco Common Stock (or the common stock of
any Cisco Survivor) are subdivided into a greater number of shares, the
Closing Price (if the Stock Settlement Option is elected) or the Ten Day
Average Closing Price (if the Cash Settlement Option is elected) of Cisco
Common Stock (or the common stock of any Cisco Survivor) used to calculate
the Principal Amount on each Trading Day following the date on which such
subdivision becomes effective will be proportionately increased, and,
conversely, in the event that the outstanding shares of Cisco Common Stock
(or the common stock of any Cisco Survivor) are combined into a smaller
number of shares, such Closing Price or Ten Day Average Closing Price, as
the case may be, will be proportionately reduced; provided that if any such
subdivision or combination becomes effective during the period of time
beginning after the first date and before or on the final date for
determination of the Ten Day Average Closing Price of the Cisco Common Stock
(assuming the Cash Settlement Option is elected), for purposes of such
subdivision or combination, the Ten Day Average Closing Price of the Cisco
Common Stock shall not be increased or decreased as described above but the
individual Closing Prices of the Cisco Common Stock occurring after the date
on which such subdivision or combination becomes effective used in
calculating such Ten Day Average Closing Price shall be so increased or
decreased.
(iii) RECLASSIFICATIONS OF CISCO COMMON STOCK. In the event that Cisco
Common Stock (or the common stock of any Cisco Survivor) is changed into the
same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise (except to
the extent otherwise provided in (i) or (ii) above or pursuant to a
consolidation, merger, sale, transfer, lease or conveyance, liquidation,
dissolution or winding-up, as described in (iv) below), the Principal Amount
shall be calculated by using the Closing Price or the Ten Day Average
Closing Price, as the case may be, of the shares of stock into which a share
of Cisco Common Stock (or the common stock of any Cisco Survivor) was
changed on each Trading Day following the effectiveness of such change.
(iv) DISSOLUTION OF CISCO; MERGERS, CONSOLIDATIONS OR SALES OF ASSETS IN
WHICH CISCO IS NOT THE SURVIVING ENTITY; SPIN-OFFS. In the event of any (A)
consolidation or merger of Cisco, or any surviving entity or subsequent
surviving entity of Cisco (a "Cisco Survivor") with or into another entity
(other than a consolidation or merger in which Cisco is the surviving
entity), (B) sale, transfer, lease or conveyance of all or substantially all
of the assets of Cisco or any Cisco Survivor, (C) liquidation, dissolution
or winding-up of Cisco or any Cisco Survivor or (D) any declaration of a
distribution on Cisco Common Stock of the common stock of any subsidiary of
Cisco (a "Cisco Spin-Off") (any of the events described in (A), (B), (C) or
(D), a "Reorganization Event"), the Principal Amount will be the value of
the cash and other property (including securities) received by a holder of a
share of Cisco Common Stock in any such Reorganization Event plus, in the
case of an Cisco Spin-Off, the value of a share of Cisco Common Stock, or,
to the extent that such holder obtains securities in any Reorganization
Event, the value of the cash and other property received by the holder of
such securities in any subsequent Reorganization Event. For purposes of
determining the Principal Amount, the value of (A) any cash and other
property (other than listed securities) received in any such Reorganization
Event will be an amount equal to the value of such cash and other property
at the effective time of such Reorganization Event and (B) any property
consisting of listed securities received in any such Reorganization Event
will be an amount equal to the Closing Price of such securities on the
maturity date.
NOTWITHSTANDING THE FOREGOING, THE PRINCIPAL AMOUNT WILL NOT, UNDER ANY
CIRCUMSTANCES, EXCEED $ .
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Lehman Brothers Inc., acting as calculation agent, shall be solely
responsible for the determination and calculation of (and determination of any
method for calculating) any dividends, distributions, numbers of shares, other
securities or other property or assets (including cash) in connection with any
of the events described in paragraphs (i) through (iv), above, and its
determinations and calculations with respect thereto shall be conclusive.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to the YEELDS shall have occurred
and be continuing, the amount payable to a Holder upon any acceleration
permitted under the Senior Indenture (which shall be paid to such Holder in
cash) will be equal to: (i) the Principal Amount thereof (determined as though
the YEELDS matured on the date of acceleration) plus (ii) an additional amount,
if any, of interest calculated to the date of payment of the Principal Amount.
SEE "Description of Securities--Interest Payments" in this Prospectus
Supplement. If a bankruptcy proceeding is commenced in respect of Holdings, the
claim of the Holder of a YEELD may be limited, under Section 502 (b) (2) of
Title 11 of the United States Code, to the Principal Amount plus an additional
amount, if any, of contingent interest calculated as though the date of the
commencement of the proceeding was an Interest Payment Date.
CERTIFICATES FOR SECURITIES
The YEELDS 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 YEELDS represented by
Certificates. Prior to due presentment for registration of transfer, Holdings,
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 YEELDS evidenced by such Certificate for any purpose whatsoever,
and as the person entitled to exercise the rights represented by the YEELDS
evidenced thereby, and neither Holdings, 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 YEELD evidenced by a Certificate is not the registered
holder thereof (for example, if it holds the Certificate through a broker
holding such YEELD 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 of transfer.
At the option of a Holder, Certificates may be exchanged for other
Certificates, representing a like number of YEELDS, upon surrender to the
Trustee at the Trustee's Office of the Certificates to be exchanged. Holdings
shall thereupon execute, and the Trustee shall countersign and deliver, one or
more new Certificates representing a like number of YEELDS.
If any Certificate is mutilated, lost, stolen or destroyed, Holdings may in
its discretion execute, and the Trustee may countersign and deliver, in exchange
and substitution 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 YEELDS, but only (in the case of
loss, theft or destruction) upon receipt of evidence satisfactory to Holdings
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 Holdings or the Trustee may prescribe.
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<PAGE>
The principal of, and interest on YEELDS in certificated form will be
payable when due at the office of the Trustee, Citibank, N.A., Corporate Trust
Services, at 111 Wall Street, 5th Floor, New York, New York 10043; provided,
however, that payment of interest may be made at the option of Holdings by check
mailed to the address of the person entitled thereto as it appears on the books
of the Trustee.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the ownership of the YEELDS as of the date hereof. Except where
noted, it deals only with the YEELDS held as capital assets by initial holders
and does not deal with those with special situations, such as dealers in options
or persons who hold a YEELD in the ordinary course of business, financial
institutions, life insurance companies or Purchasers holding the YEELDS as part
of a hedging transaction or a "straddle." Furthermore, the discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
No statutory, judicial or administrative authority directly addresses the
characterization of the YEELDS or instruments similar to the YEELDS for United
States federal income tax purposes. As a result, significant aspects of the
United States federal income tax consequences of an investment in the YEELDS are
not certain. No ruling is being requested from the Internal Revenue Service (the
"IRS") with respect to the YEELDS and no assurance can be given that the IRS
will agree with the conclusions expressed herein. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF THE YEELDS 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 YEELD means a Holder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source or a trust which
is subject to the supervision of a court within the United States and the
control of one or more United States persons as described in section 7701(a)(30)
of the Code. A "Non-United States Holder" is a Holder who is not a United States
Holder.
By purchasing a YEELD, the Holder agrees with Holdings to treat, for federal
income tax purposes, a YEELD as a capped forward purchase contract on Cisco
Common Stock ("Forward Contract") coupled with a cash deposit, bearing interest
at the stated rate on a YEELD, pledged by the Holders to Holdings. At maturity
of the YEELDS, the cash deposit will be unconditionally and irrevocably applied
by Holdings in full satisfaction of each Holder's obligation under the Forward
Contract, and Holdings will deliver to each Holder the number of shares of Cisco
Common Stock or the amount of cash the Holder is entitled to receive at the time
pursuant to the terms of the YEELDS.
TAXATION OF UNITED STATES HOLDERS
In accordance with the agreement described above as to the federal income
tax treatment of a YEELD, a United States Holder will include currently in
income, as ordinary interest income, payments denominated as interest (including
an interest payment at maturity) that are made with respect to the YEELDS, in
accordance with such Holder's regular method of tax accounting. Upon the sale,
exchange, or other disposition of a YEELD, a United States Holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale or other disposition and the United States Holder's aggregate tax basis
in the YEELDS. Such gain or loss generally will be long-term capital gain or
loss if the United States Holder has held the YEELDS for more than one year at
the time of disposition. Under the agreement described above, if Holdings
delivers Cisco Common Stock at maturity of the YEELDS, a
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<PAGE>
United States Holder will recognize no gain or loss on the purchase of the Cisco
Common Stock against application of monies received by Holdings in respect of
the YEELDS. A United States Holder will have a tax basis in such stock equal to
the United States Holder's tax basis in the YEELDS (less the portion of the tax
basis of the YEELDS allocable to any fractional share, as described in the next
sentence). A United States Holder will recognize gain or loss (which will be
short-term capital gain or loss) with respect to cash received in lieu of
fractional shares, in an amount equal to the difference between the amount of
cash received and the portion of the basis of the YEELDS allocated to the
fractional shares (based on the relative number of fractional shares and full
shares delivered to the Holder). If Holdings delivers cash at maturity of a
YEELD, a United States Holder will recognize gain or loss equal to the
difference between the amount of cash received and the United States Holder's
tax basis in the YEELDS. Holdings intends to treat the gain or loss from the
settlement of the Forward Contract as capital gain or loss although the IRS may
take the position that such gain or loss is ordinary.
The distinction between capital gain or loss and ordinary income or loss is
important for purposes of the limitations on a United States Holder's ability to
offset capital losses against ordinary income. In addition, certain individuals
are subject to taxation at a reduced rate on long-term capital gains depending
upon the holding period of such capital asset. Prospective investors should
consult their own tax advisors with respect to the capital gains rates
applicable to them.
The IRS may contend that the YEELDS should be characterized for federal
income tax purposes under a different approach than that described above. For
example, the IRS may contend that the YEELDS should be treated as debt
instruments subject to Treasury regulations dealing with "contingent payment"
debt instruments (the "Regulations"). Under the "noncontingent bond method"
described in the Regulations, a United States Holder would accrue interest
income each year based on the comparable yield and projected payment schedule of
the YEELDS. Under this method, the timing of a United States Holder's income
would be accelerated. Moreover, in the event that the amount payable at maturity
on the YEELDS is greater (or less) than the amount provided in the projected
payment schedule, such difference would be treated as a positive (or negative)
adjustment. A positive adjustment is treated as additional interest income. A
negative adjustment is treated first as a reduction of interest accrued for such
year and then as an ordinary loss to the extent it does not exceed such Holder's
prior interest inclusions on the YEELD. Any additional negative adjustment would
be treated as a capital loss. Similarly, any gain realized by a United States
Holder on the sale or exchange of a YEELD would be treated as interest income,
and any loss would be treated as an ordinary loss to the extent it does not
exceed prior interest inclusions and capital loss thereafter.
TAXATION OF NON-UNITED STATES HOLDERS
Based on the treatment of the YEELDS described above and subject to the
discussion below concerning backup withholding, in the case of a Non-United
States Holder of a YEELD, payments made with respect to such YEELD (other than
payments of interest to certain parties related to Holdings and its
subsidiaries), including payments on any sale or disposition of such YEELD,
should not be subject to United States withholding tax, provided that such
Holder complies with applicable certification requirements.
As discussed above, alternative characterizations of the YEELDS for federal
income tax purposes are possible, some of which may require withholding tax to
be imposed with respect to payments on the YEELDS. Should payments with respect
to the YEELDS become subject to withholding tax, Holdings will withhold tax at
the statutory rate. However, until the IRS provides further guidance, no tax
will be withheld. Non-United States Holders should consult their own tax
advisors.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder may be subject to information reporting and to backup withholding
at a rate of 31% of certain amounts paid to the Holder unless such Holder
provides proof of an applicable exemption or a
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correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not an additional tax and may be allowed as a
refund or a credit against such Holder's United States 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 , 1998 (the "Underwriting Agreement"), Holdings has
agreed to sell to Lehman Brothers Inc. (the "Underwriter"), and the Underwriter
has agreed to purchase, all of the YEELDS.
Holdings has been advised that the Underwriter proposes initially to offer
the YEELDS to the public at the public offering price set forth on the cover
page of this Prospectus Supplement and to certain dealers at such price less a
concession not in excess of $ per YEELD. The selected dealers may
reallow a concession not in excess of $ per YEELD to certain other
dealers. After the initial public offering, the public offering price and such
concessions may be changed.
Holdings has granted an option to the Underwriter, exercisable within 30
days of the date of this Prospectus Supplement, to purchase up to an additional
YEELDS to cover over-allotments, if any, at the price to the public less
the underwriting discounts and commissions specified on the cover page of this
Prospectus Supplement. To the extent that the Underwriter exercises such option,
the Underwriter will be committed, subject to certain conditions, to purchase
the additional YEELDS.
Until the distribution of the YEELDS is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriter and certain
selling group members to bid for and purchase the YEELDS. As an exception to
these rules, the Underwriter is permitted to engage in certain transactions that
stabilize the price of the YEELDS. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
YEELDS. In addition, if the Underwriter over-allots (I.E., if it sells more
YEELDS than are set forth on the cover page of this Prospectus Supplement), and
thereby creates a short position in the YEELDS in connection with the offering,
the Underwriter may reduce that short position by purchasing YEELDS in the open
market. The Underwriter also may elect to reduce any short position by
exercising all or part of the over-allotment option described herein. 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 Holdings 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 YEELDS. In addition, neither Holdings nor the Underwriter makes any
representation that the Underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Holdings has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
This Prospectus Supplement together with the accompanying Prospectus may
also be used by Lehman Brothers Inc. in connection with offers and sales of
YEELDS 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 Inc. is a wholly owned subsidiary of Holdings. The
participation of Lehman Brothers Inc. in the offer and sale of the YEELDS
complies with the requirements of Rule 2720 of the NASD regarding underwriting
securities of an affiliate.
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GLOSSARY
Definitions for the following terms are set forth in this Prospectus
Supplement at the pages indicated:
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM TERM IS DEFINED
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Business Day............................................................................. S-10
Cap...................................................................................... Cover
Cash Settlement Option................................................................... Cover
Certificate.............................................................................. S-13
Cisco.................................................................................... Cover
Cisco Common Stock....................................................................... Cover
Cisco Record Date........................................................................ S-11
Cisco Spin-Off........................................................................... S-12
Cisco Survivor........................................................................... S-12
Closing Price............................................................................ S-10
Code..................................................................................... S-14
Extraordinary Cash Dividend.............................................................. S-11
Forward Contract......................................................................... S-14
Holders.................................................................................. Cover
Holdings................................................................................. Cover
Interest Payment Date.................................................................... S-3
IRS...................................................................................... S-7
Issue Price.............................................................................. Cover
NMS...................................................................................... S-9
Non-Trading Day.......................................................................... S-10
Non-United States Holder................................................................. S-14
Principal Amount......................................................................... Cover
registered holder........................................................................ S-13
Regulations.............................................................................. S-15
Reorganization Event..................................................................... S-12
Securities............................................................................... Cover
Security................................................................................. Cover
Security Register........................................................................ S-13
Stock Settlement Option.................................................................. Cover
Ten Day Average Closing Price............................................................ Cover
Trading Day.............................................................................. S-10
Underwriter.............................................................................. S-16
Underwriting Agreement................................................................... S-16
United States Holder..................................................................... S-14
YEELD.................................................................................... Cover
YEELDS................................................................................... Cover
</TABLE>
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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.
--------------------------
February 17, 1998
<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 fiscal quarters
ended February 28, 1997, May 31, 1997, and August 31, 1997.
(3) Holdings' Current Reports on Form 8-K dated January 8, 1997, March
26, 1997, June 26, 1997, September 4, 1997, September 30, 1997, and January
7, 1998.
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, Paris, 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 nine months ended August 31, 1997:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, NOVEMBER 30, NOVEMBER 30, AUGUST 31,
- ---------------------- ----------------- -------------------- ---------------------
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 August 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 Financial Products
Inc., Lehman Brothers Special Financing Inc., Lehman Brothers Commercial Paper
Inc. and Lehman Brothers Finance S.A. (Geneva).
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).
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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).
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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
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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).
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CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between, on
the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the Debt Securities to which an
applicable Prospectus Supplement accompanying this Prospectus relates are
described in such Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Denominations, Registration and Transfer"), or delivered in definitive
form in connection with a sale during the restricted period, in the United
States or to United States persons other than to (a) the United States office of
(i) an international organization (as defined in Section 7701 (a)(18) of the
Code), (ii) a foreign central bank (as defined in Section 895 of the Code), or
(iii) any underwriter, agent, or dealer offering or selling Bearer Securities
during the restricted period (a "Distributor") pursuant to a written contract
with the issuer or with another Distributor, that purchases Bearer Securities
for resale or for its own account and agrees to comply with the requirements of
Section 165 (j)(3)(A), (B), or (C) of the Code, or (b) the foreign branch of a
United States financial institution purchasing for its own account or for
resale, which institution agrees to comply with the requirements of Section 165
(j)(3)(A), (B), or (C) of the Code. In addition, a sale of a Bearer Security may
be made during the restricted period to a United States person who acquired and
holds the Bearer Security on the Certification Date through a foreign branch of
a United States financial institution that agrees to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Code. Any Distributor
(including an affiliate of a Distributor) offering or selling Bearer Securities
during the restricted period must agree not to offer or sell Bearer Securities
in the United States or to United States persons (except as discussed above) and
must employ procedures reasonably designed to ensure that its employees or
agents directly engaged in selling Bearer Securities are aware of these
restrictions.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Section 165(j) and 1287(a) of the
Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations under
United States tax laws. See the applicable Prospectus Supplement for a summary
of material U.S. federal income tax consequences to United States persons
investing in Bearer Securities.
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States and an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source, and "United States" means the United States of America (including the
States and the District of Columbia) and its possessions including Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands. The term "Non-United States Holder" means any Holder which is
not an United States person.
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DESCRIPTION OF WARRANTS
The Debt Warrants, Currency Warrants, Index Warrants and Interest Rate
Warrants are to be issued under separate warrant agreements (each a "Warrant
Agreement" and respectively a "Debt Warrant Agreement", a "Currency Warrant
Agreement", an "Index Warrant Agreement" and an "Interest Rate Warrant
Agreement") to be entered into between Holdings and one or more banks or trust
companies, as warrant agent (each a "Warrant Agent" and respectively a "Debt
Warrant Agent", a "Currency Warrant Agent", an "Index Warrant Agent" and an
"Interest Rate Warrant Agent"), all as shall be set forth in the Prospectus
Supplement relating to the Warrants being offered thereby. A form of each type
of Warrant Agreement, including a form of warrant certificate representing each
type of Warrant (each a "Warrant Certificate" and respectively a "Debt Warrant
Certificate", a "Currency Warrant Certificate", an "Index Warrant Certificate"
and an "Interest Rate Warrant Certificate"), reflecting the alternative
provisions that may be included in the Warrant Agreements to be entered into
with respect to particular offerings of Warrants, are incorporated by reference
as exhibits to the Registration Statement of which this Prospectus is a part.
The descriptions contained herein of the Warrant Agreements and the Warrant
Certificates and summaries of certain provisions of the Warrant Agreements and
the Warrant Certificates do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
applicable Warrant Agreements and the Warrant Certificates, including the
definitions therein of certain terms not otherwise defined in this Prospectus.
Wherever particular sections of, or terms defined in, the Warrant Agreements are
referred to, such sections or defined terms are incorporated herein by
reference.
The particular terms of each issue of Warrants, as well as any modifications
or additions to the general terms of the applicable Warrant Agreement or Warrant
Certificate, will be described in the Prospectus Supplement relating to such
Warrants. Accordingly, for a description of the terms of a particular issue of
Warrants, reference must be made to the Prospectus Supplement relating thereto
and to the descriptions set forth below.
DEBT WARRANTS
Holdings may issue, together with Debt Securities, Currency Warrants, Index
Warrants or Interest Rate Warrants, or separately, Debt Warrants for the
purchase of Debt Securities. If any of the Debt Warrants are sold for foreign
currencies or foreign currency units or if any series of Debt Warrants is
exercisable in foreign currencies or foreign currency units, the restrictions,
elections, tax consequences, specific terms and other information with respect
to such issue of Debt Warrants and such currencies or currency units will be set
forth in an applicable Prospectus Supplement relating thereto.
If so specified in the applicable Prospectus Supplement, the Debt Warrants
may, in certain circumstances, be cancelled by Holdings prior to their
expiration date and the holders thereof will be entitled to receive only the
applicable Cancellation Amount. The Cancellation Amount may be either a fixed
amount or an amount that varies during the term of the Debt Warrants in
accordance with a schedule or formula.
GENERAL
The Prospectus Supplement will describe the terms of any Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the title of such Debt Warrants; (2) the aggregate amount of such
Debt Warrants; (3) the initial offering price of such Debt Warrants; (4) the
exercise price; (5) the currency or currency unit in which the initial offering
price and/or the exercise price of such Debt Warrants is payable; (6) whether
the Debt Warrants are to be issuable in registered or bearer form or both, and
if in bearer form, whether such Debt Warrants may be exchanged for Debt Warrants
in registered form and the circumstances and places for such exchange, if
permitted; (7) if applicable, the title and terms of related Debt Securities
with which such Debt Warrants are issued, the number of such Debt Warrants
issued with each such Debt Security and the date, if any, on and after which
such Debt Warrants and such Debt
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Securities will be separately transferable; (8) the title, aggregate principal
amount and terms of the Debt Securities purchasable upon exercise of all of such
Debt Warrants; (9) the principal amount of Debt Securities purchasable upon
exercise of each Debt Warrant and the price at which such principal amount of
Debt Securities may be purchased upon such exercise; (10) the date on which the
right to exercise such Debt Warrants shall commence and the date (the "Debt
Warrant Expiration Date") on which such right shall expire; (11) any minimum
number of Debt Warrants which must be exercised at any one time, other than upon
automatic exercise; (12) the maximum number, if any, of such Debt Warrants that
may, subject to election by Holdings, be exercised by all owners (or by any
person or entity) on any day; (13) any provisions for the automatic exercise of
such Debt Warrants; (14) whether and under what circumstances such Debt Warrants
may be cancelled by Holdings prior to expiration; (15) any other procedures and
conditions relating to the exercise of such Debt Warrants; (16) the identity of
the Debt Warrant Agent; (17) any national securities exchange on which such Debt
Warrants will be listed; (18) provisions, if any, for issuing such Debt Warrants
in certificated form; (19) if applicable, a discussion of certain United States
federal income tax, accounting or other special considerations applicable
thereto; and (20) any other terms of the Debt Warrants.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and, if in registered form, may be
presented for registration of transfer and Debt Warrants may be exercised at the
corporate trust office of the Debt Warrant Agent or any other office indicated
in the Prospectus Supplement relating thereto (Section 3.1). Prior to the
exercise of Debt Warrants, holders of Debt Warrants will not be entitled to
payments of principal of (or premium, if any) or interest, if any, on the Debt
Securities purchasable upon such exercise, or to enforce any of the covenants in
the applicable Indenture (Section 4.1).
EXERCISE OF DEBT WARRANTS
Unless otherwise provided in the Prospectus Supplement, each Debt Warrant
will entitle the holder thereof to purchase for cash such principal amount of
Debt Securities at such exercise price as shall in each case be set forth in, or
be determinable as set forth in, the Prospectus Supplement relating to the Debt
Warrants offered thereby (Sections 2.1). Debt Warrants may be exercised at any
time up to the close of business on the Debt Warrant Expiration Date specified
in the Prospectus Supplement relating to the Debt Warrants offered thereby.
After the close of business on the Debt Warrant Expiration Date (or such later
date to which such Debt Warrant Expiration Date may be extended by Holdings),
unexercised Debt Warrants will become void (Section 2.2).
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, Holdings will, as soon as practicable, forward to the
person entitled thereto the Debt Securities purchasable upon such exercise. If
fewer than all of the Debt Warrants represented by such Debt Warrant Certificate
are exercised, a new Debt Warrant Certificate will be issued for the remaining
amount of Debt Warrants (Section 2.3).
OTHER INFORMATION
Other important information concerning Debt Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions",
"--Enforceability of Rights by Beneficial Owner; Governing Law" and "--Unsecured
Obligations of a Holding Company".
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CURRENCY WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Index
Warrants or Interest Rate Warrants, or separately, Currency Warrants (a) in the
form of Currency Put Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value (as shall be defined in the
Prospectus Supplement) of the right to sell a specified amount of one currency
(whether U.S. dollars or a foreign currency or foreign currency unit) (a "Base
Currency") for a specified amount of a different currency (whether U.S. dollars
or a foreign currency or foreign currency unit) (a "Reference Currency"), (b) in
the form of Currency Call Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value of the right to purchase a
specified amount of a Base Currency for a specified amount of a Reference
Currency, or (c) in such other form as shall be specified in the related
Prospectus Supplement. The Prospectus Supplement for an issue of Currency
Warrants will set forth the formula pursuant to which the Currency Warrant Cash
Settlement Value will be determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of any Currency Warrants
offered thereby, the Currency Warrant Agreement relating to such Currency
Warrants and the Currency Warrant Certificates representing such Currency
Warrants, including the following: (1) the title of such Currency Warrants;
(2) the aggregate amount of such Currency Warrants; (3) the initial offering
price of such Currency Warrants; (4) the exercise price, if any; (5) the
currency or currency unit in which the initial offering price, the exercise
price, if any, and the Currency Warrant Cash Settlement Value of such Currency
Warrants is payable; (6) the Base Currency and the Reference Currency for such
Currency Warrants; (7) whether such Currency Warrants shall be Currency Put
Warrants, Currency Call Warrants or otherwise; (8) the formula for determining
the Currency Warrant Cash Settlement Value, if applicable, of each Currency
Warrant;
(9) whether and under what circumstances a minimum and/or maximum expiration
value is applicable upon the expiration or exercise of such Currency Warrants;
(10) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (11) the date on which the right to exercise such
Currency Warrants shall commence and the date (the "Currency Warrant Expiration
Date") on which such right shall expire; (12) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; (13) the maximum number, if any, of such Currency Warrants that may,
subject to election by Holdings, be exercised by all owners (or by any person or
entity) on any day; (14) any provisions for the automatic exercise of such
Currency Warrants other than at expiration; (15) whether and under what
circumstances such Currency Warrants may be cancelled by Holdings prior to their
expiration date; (16) any other procedures and conditions relating to the
exercise of such Currency Warrants; (17) the identity of the Currency Warrant
Agent; (18) any national securities exchange on which such Currency Warrants
will be listed; (19) provisions, if any, for issuing such Currency Warrants in
certificated form; (20) if such Currency Warrants are not issued in book-entry
form, the place or places at which payments in respect of such Currency Warrants
are to be made by Holdings; (21) if applicable, a discussion of certain United
States federal income tax, accounting or other special considerations applicable
thereto; and (22) any other terms of the Currency Warrants.
Other important information concerning Currency Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions",
"--Enforceability of Rights by Beneficial Owner; Governing Law" and "--Unsecured
Obligations of a Holding Company" and "Certain Items Applicable to Currency
Warrants, Index Warrants and Interest Rate Warrants--Exercise of Warrants",
"--Market Disruption and Force Majeure Events" and "--Settlement Currency" and
"--Listing".
INDEX WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Interest Rate Warrants, or separately, Index Warrants (a) in the
form of Index Put Warrants, entitling the owners thereof to receive from
Holdings the Index Cash Settlement Value (as shall be defined in the Prospectus
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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
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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
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date; (17) any provisions permitting a Holder to condition any notice of
exercise on the absence of certain specified changes in the Spot Amount after
the date of exercise; (18) any other procedures and conditions relating to the
exercise of such Interest Rate Warrants; (19) the identity of the Interest Rate
Warrant Agent; (20) any national securities exchange on which such Interest Rate
Warrants will be listed; (21) provisions, if any, for issuing such Interest Rate
Warrants in certificated form; (22) if such Interest Rate Warrants are not
issued in book-entry form, the place or places at which payments in respect of
such Interest Rate Warrants are to be made by Holdings; (23) if applicable, a
discussion of certain United States federal income tax, accounting or other
special considerations applicable thereto; and (24) any other terms of such
Interest Rate Warrants.
Other important information concerning Interest Rate Warrants is set forth
below under "Certain Items Applicable to All Warrants--Modifications",
"--Merger, Consolidation, Sale or Other Dispositions", "--Enforceability of
Rights by Beneficial Owner; Governing Law" and "--Unsecured Obligations of a
Holding Company" and "Certain Items Applicable to Currency Warrants, Index
Warrants and Interest Rate Warrants--Exercise of Warrants", "--Market Disruption
and Force Majeure Events", "--Settlement Currency" and "--Listing".
CERTAIN ITEMS APPLICABLE TO ALL WARRANTS
MODIFICATIONS
Each Warrant Agreement and the terms of each issue of Warrants may be
amended by Holdings and the applicable Warrant Agent, without the consent of the
beneficial owners or the registered holders, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained therein, or in any other manner which Holdings
may deem necessary or desirable and which will not adversely affect the
interests of the beneficial owners of the then outstanding unexercised Warrants
in any material respect (Section 6.1).
Holdings and each Warrant Agent also may modify or amend the applicable
Warrant Agreement and the terms of the related Warrants, with the consent of the
beneficial owners of not less than a majority in number of the then outstanding
unexercised Warrants affected, provided that no such modification or amendment
that reduces the amount receivable upon exercise, cancellation or expiration,
shortens the period of time during which the Warrants may be exercised or
otherwise materially and adversely affects the exercise rights of the beneficial
owners of the Warrants or reduces the percentage number of outstanding Warrants
the consent of whose beneficial owners is required for modification or amendment
of the applicable Warrant Agreement or the terms of the Warrants may be made
without the consent of the beneficial owners affected thereby (Section 6.1).
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
If at any time there is a merger or consolidation involving Holdings or a
sale, transfer, conveyance or other disposition of all or substantially all of
the assets of Holdings, then in any such event the successor or assuming
corporation shall succeed to and be substituted for Holdings, with the same
effect as if it had been named in the applicable Warrant Agreement and in the
applicable Warrants as Holdings. Holdings shall thereupon be relieved of any
further obligation under such Warrant Agreement or under such Warrants, and, in
the event of any such merger, consolidation, sale, transfer, conveyance or other
disposition, Holdings as the predecessor corporation may thereupon or at any
time thereafter be dissolved, wound up or liquidated (Section 6.2 of the Debt
Warrant Agreement and Section 3.2 of each other Warrant Agreement).
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ENFORCEABILITY OF RIGHTS BY BENEFICIAL OWNER; GOVERNING LAW
Each Warrant Agent will act solely as an agent of Holdings in connection
with the issuance and exercise of the applicable Warrants and will not assume
any obligation or relationship of agency or trust for or with any owner of a
beneficial interest in any Warrant or with the registered holder thereof
(Section 5.2). A Warrant Agent shall have no duty or responsibility in case of
any default by Holdings in the performance of its obligations under the
applicable Warrant Agreement or Warrant Certificate including, without
limitation, any duty or responsibility to initiate any proceedings at law or
otherwise or to make any demand upon Holdings (Section 5.2). Beneficial owners
may, without the consent of the applicable Warrant Agent, enforce by appropriate
legal action, on their own behalf, their right to exercise their Warrants, to
receive Debt Securities, in the case of Debt Warrants, and to receive payment,
if any, for their Warrants, in the case of Currency Warrants, Index Warrants or
Interest Rate Warrants (Section 4.2 of the Debt Warrant Agreement and Section
3.1 of each other Warrant Agreement). Except as may otherwise be provided in the
Prospectus Supplement relating thereto, each issue of Warrants and the
applicable Warrant Agreement will be governed by and construed in accordance
with the law of the State of New York (Section 6.5).
UNSECURED OBLIGATIONS OF A HOLDING COMPANY
The Warrants are unsecured obligations of Holdings and, therefore, changes
in the perceived creditworthiness of Holdings may be expected to affect trading
prices in Warrants. Since Holdings, as a holding company, does not have any
significant assets other than the equity securities of its subsidiaries, its
cash flow and consequent ability to satisfy its financial obligations, including
Warrants, are dependent upon the earnings of its subsidiaries and the
distribution of those earnings to Holdings, or upon loans or other payments of
funds by those subsidiaries to Holdings. Holdings' subsidiaries, including
Lehman Brothers, are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any amount in respect of Warrants or
to make any funds available therefor, whether by dividends, loans or other
payments. Dividends, loans and other payments by Lehman Brothers are restricted
by net capital and other rules of various regulatory bodies. See "Capital
Requirements." The payment of dividends by Holdings' subsidiaries is contingent
upon the earnings of those subsidiaries and is subject to various business
considerations in addition to net capital requirements and contractual
restrictions. Additionally, since Warrants will be obligations of a holding
company, the ability of holders of Warrants to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
CERTAIN ITEMS APPLICABLE TO CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE
WARRANTS
EXERCISE OF WARRANTS
Except as may otherwise be provided in the applicable Prospectus Supplement
relating thereto, (a) each Currency Warrant, Index Warrant and Interest Rate
Warrant will entitle the owner, upon payment of the exercise price, if any, to
receive the applicable Cash Settlement Value of such Warrant, on the applicable
Exercise Date, in each case as such terms will further be defined in the
applicable Prospectus Supplement relating thereto (Section 2.2) and (b) if not
exercised prior to 1:30 p.m., New York City time, on the Business Day preceding
the applicable Warrant Expiration Date, the Warrants will be deemed
automatically exercised on such Warrant Expiration Date (Section 2.3). As
described below, Currency Warrants, Index Warrants and Interest Rate Warrants
may also be deemed to be automatically exercised if they are delisted.
Procedures for exercise of the Currency Warrants, Index Warrants and Interest
Rate Warrants will be set out in the applicable Prospectus Supplement.
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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.
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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
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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."
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UNITED STATES TAXATION
A summary of the material U.S. federal income tax consequences to U.S.
persons investing in Securities will be set forth in the applicable Prospectus
Supplement. The summary of U.S. federal income tax consequences contained in the
Prospectus Supplement will be presented for informational purposes only,
however, and will not be intended as legal or tax advice to prospective
purchasers. Prospective purchasers of Securities are urged to consult their own
tax advisors prior to any acquisition of Securities.
CAPITAL REQUIREMENTS
As a registered broker-dealer, Lehman Brothers is subject to the SEC's net
capital rule (Rule 15c3-1, the "Net Capital Rule"), promulgated under the
Exchange Act. The Exchange monitors the application of the Net Capital Rule by
Lehman Brothers. Lehman Brothers computes net capital under the alternative
method of the Net Capital Rule which requires the maintenance of minimum net
capital, as defined. A broker-dealer may be required to reduce its business if
its net capital is less than 4% of aggregate debit balances and may also be
prohibited from expanding its business or paying cash dividends if resulting net
capital would be less than 5% of aggregate debit balances. In addition, the Net
Capital Rule does not allow withdrawal of subordinated capital if net capital
would be less than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule equity capital cannot be withdrawn from a broker-dealer without the
prior approval of the SEC when net capital after the withdrawal would be less
than 25% of its securities positions haircuts (which are deductions from capital
of certain specified percentages of the market value of securities to reflect
the possibility of a market decline prior to disposition). In addition, the Net
Capital Rule requires broker-dealers to notify the SEC and the appropriate
self-regulatory organization two business days before a withdrawal of excess net
capital if the withdrawal would exceed the greater of $500,000 or 30% of the
broker-dealer's excess net capital, and two business days after a withdrawal
that exceeds the greater of $500,000 or 20% of excess net capital. Finally, the
Net Capital Rule authorizes the SEC to order a freeze on the transfer of capital
if a broker-dealer plans a withdrawal of more than 30% of its excess net capital
and the SEC believes that such a withdrawal would be detrimental to the
financial integrity of the firm or would jeopardize the broker-dealer's ability
to pay its customers.
Compliance with the Net Capital Rule could limit those operations of Lehman
Brothers that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
could restrict Holdings' ability to withdraw capital from Lehman Brothers which
in turn could limit Holdings' ability to pay dividends, repay debt and redeem or
purchase shares of its outstanding capital stock.
The Company is subject to other domestic and international regulatory
requirements with which it is required to comply.
PLAN OF DISTRIBUTION
Holdings may sell Securities in any one or more of the following ways: (i)
through, or through underwriting syndicates managed by, Lehman Brothers alone or
with one or more other underwriters; (ii) through one or more dealers or agents
(which may include Lehman Brothers); or (iii) directly to one or more
purchasers. The specific managing underwriter or underwriters or agent or agents
with respect to the offer and sale of Securities are set forth on the cover of a
Prospectus Supplement relating to such Securities and the members of the
underwriting syndicate, if any, are named in such Prospectus 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
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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.
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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.
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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 SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY HOLDINGS OR ANY AGENT OR UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF HOLDINGS SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Summary......................................... S-3
Risk Factors.................................... S-5
Use of Proceeds................................. S-7
Cisco Systems, Inc.............................. S-8
Price Range of Cisco Common Stock............... S-9
Description of Securities....................... S-9
Certain United States Federal Income Tax
Considerations................................ S-14
Underwriting.................................... S-16
Glossary........................................ S-17
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>
YEELDS
LEHMAN BROTHERS
HOLDINGS INC.
% CISCO SYSTEMS YIELD ENHANCED
EQUITY LINKED DEBT SECURITIES
DUE 2001
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PROSPECTUS SUPPLEMENT
, 1998
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LEHMAN BROTHERS
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