<PAGE>
Filed Pursuant
To Rule 424(b)(2)
Registration No. 033-53651
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 17, 1998)
$9,000,000
LEHMAN BROTHERS HOLDINGS INC.
NOTES DUE AUGUST 31, 2006
PERFORMANCE LINKED TO A BASKET OF JAPANESE STOCKS
-------------------------------
GENERAL:
- - Senior unsecured debt securities of Lehman Brothers Holdings.
- - Basket: Five Japanese common stocks. The common stocks in the basket
are Fujitsu Limited, NTT Mobile Communications Network, Inc., Sumitomo
Electric Industries, Fuji Bank LTD and Softbank Corporation. These
companies are not involved in this offering and have no obligations
with respect to the notes.
- - Denominations: $250,000 and integral multiples of $5,000 in excess
thereof.
- - Stated maturity date: August 31, 2006, subject to postponement if a
market disruption event occurs.
PAYMENTS:
- - Lehman Brothers Holdings will pay you interest semi-annually at a rate
equal to 0.25% per year, beginning March 1, 2000.
- - At stated maturity, Lehman Brothers Holdings will pay to you, per
$1,000 principal amount of notes, the greater of:
(1) $1,000, plus accrued but unpaid interest; and
(2) the alternative redemption amount, plus accrued but unpaid
interest.
The alternative redemption amount per $1,000 principal amount of notes
is equal to the level of the basket at stated maturity, multiplied by a
conversion ratio determined by dividing $1,000 by 110, which represents
110% of the initial level of the basket of 100. You can perform this
calculation using the following formula:
$1,000 x the level of the basket
-------
110
As a result, you will only receive the alternative redemption amount
if, on the stated maturity date, the level of the basket has increased
by more than 10% from its initial level.
- - After August 27, 2002, Lehman Brothers Holdings may redeem each $1,000
principal amount of your notes at a price equal to the amount that
would be payable to you at the stated maturity date, but calculated as
of the redemption date.
- - After August 27, 2001, you may require Lehman Brothers Holdings to
repurchase each $1,000 principal amount of your notes at a price equal
to the alternative redemption amount plus accrued but unpaid interest.
INVESTING IN THE NOTES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE S-6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
-------------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- -----
<S> <C> <C>
Public offering price ............................ 100% $9,000,000
Underwriting discount ............................ 0% $0
Proceeds to Lehman Brothers Holdings ............. 100% $9,000,000
</TABLE>
Lehman Brothers Holdings has granted the underwriter a 30-day option to purchase
up to an additional $1,350,000 aggregate principal amount of notes on the same
terms and conditions as set forth above solely to cover over-allotments, if any.
-------------------------------
The notes are expected to be ready for delivery in book-entry form only through
The Depository Trust Company on or about September 1, 1999.
Lehman Brothers Inc., a wholly-owned subsidiary of Lehman Brothers Holdings,
makes a market in Lehman Brothers Holdings' securities. It may act as principal
or agent in, and this prospectus may be used in connection with, those
transactions. Any such sales will be made at varying prices related to
prevailing market prices at the time of sale.
-------------------------------
LEHMAN BROTHERS
August 27, 1999
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. NO ONE
HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT COVER OF THE DOCUMENT. SECURITIES ARE NOT BEING OFFERED IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED.
-------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUPPLEMENT
SUMMARY INFORMATION--Q&A.............................................. S-3
RISK FACTORS.......................................................... S-6
USE OF PROCEEDS AND HEDGING........................................... S-9
RATIO OF EARNINGS TO FIXED CHARGES.................................... S-9
DESCRIPTION OF THE NOTES.............................................. S-9
THE BASKET............................................................. S-14
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.......................... S-17
BOOK-ENTRY ISSUANCE.................................................... S-19
UNDERWRITING........................................................... S-21
EXPERTS................................................................ S-21
PROSPECTUS
AVAILABLE INFORMATION......................................................2
DOCUMENTS INCORPORATED BY REFERENCE........................................2
THE COMPANY................................................................2
USE OF PROCEEDS............................................................3
RATIO OF EARNINGS TO FIXED CHARGES.........................................3
DESCRIPTION OF DEBT SECURITIES.............................................4
DESCRIPTION OF WARRANTS...................................................11
GLOBAL SECURITIES.........................................................17
UNITED STATES TAXATION....................................................19
CAPITAL REQUIREMENTS......................................................19
PLAN OF DISTRIBUTION......................................................20
ERISA MATTERS.............................................................21
LEGAL OPINIONS............................................................21
INDEPENDENT ACCOUNTANTS...................................................21
</TABLE>
S-2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary highlights selected information from the prospectus supplement and
accompanying prospectus to help you understand the notes. You should carefully
read this prospectus supplement and the accompanying prospectus to understand
fully the terms of the notes and the tax and other considerations that are
important to you in making a decision about whether to invest in the notes. You
should pay special attention to the "Risk Factors" section beginning on page S-6
to determine whether an investment in the notes is appropriate for you. For your
convenience, there are references throughout this document to specific page
numbers where more detailed information on some of the terms and concepts
discussed can be found.
WHAT ARE THE NOTES?
The notes are a series of senior debt of Lehman Brothers Holdings whose value is
tied to the performance of the five Japanese common stocks in the basket. The
notes will rank equally with all other unsecured debt of Lehman Brothers
Holdings except subordinated debt, and will mature on August 31, 2006 unless
postponed because a market disruption event occurs. See "Description of the
Notes--Determination of alternative redemption amount" beginning on page S-10.
WHAT IS THE BASKET?
The basket is made up of five Japanese common stocks. The five Japanese common
stocks in the basket are Fujitsu Limited, NTT Mobile Communications Network,
Inc., Sumitomo Electric Industries, Fuji Bank LTD and Softbank Corporation. See
"The Basket" beginning on page S-14.
WHAT PAYMENTS WILL I RECEIVE ON THE NOTES?
Lehman Brothers Holdings will pay you interest semi-annually at a rate of 0.25%
per year, beginning March 1, 2000. You will also receive a payment at the
redemption, the repurchase or the stated maturity of the notes.
WHAT WILL I RECEIVE IF I HOLD THE NOTES UNTIL STATED MATURITY?
Lehman Brothers Holdings has designed the notes for investors who want to
protect their investment by receiving at least the principal amount of their
investment at stated maturity and who also want to participate in a possible
increase in the basket. At stated maturity, you will receive a payment per
$1,000 principal amount of notes equal to the greater of:
- - $1,000, plus accrued but unpaid interest; and
- - the alternative redemption amount, plus accrued but unpaid interest.
As a result, if you hold the notes until their stated maturity, you will not
receive less than the principal amount.
HOW DOES THE REDEMPTION FEATURE WORK?
Lehman Brothers Holdings may redeem all or part of the notes on one or more
occasions on or after August 27, 2002 at a redemption price per $1,000 principal
amount of notes equal to the greater of:
- - $1,000, plus accrued but unpaid interest; and
- - the alternative redemption amount, plus accrued but unpaid interest.
As a result, if Lehman Brothers Holdings redeems your notes, you will not
receive less than the principal amount.
Citibank, N.A., the trustee for the notes, will give you at least 30 days'
notice of any redemption.
HOW CAN YOU REQUIRE LEHMAN BROTHERS HOLDINGS TO REPURCHASE YOUR NOTES?
On or after August 27, 2001, you may instruct Lehman Brothers Holdings to
repurchase all or part of your notes at a price per note equal to the
alternative redemption amount, plus accrued but unpaid interest, by giving
Lehman Brothers Holdings notice on any business day at the corporate trust
office of Citibank, N.A., the trustee for the notes. The repurchase date will be
the third business day following the five business day period which begins on
the business day after you have given notice, unless payment is postponed
because a market disruption event occurs. See "Description of the
Notes--Determination of alternative redemption amount" beginning on page S-10.
If Lehman Brothers Holdings repurchases your notes, the amount you receive may
be greater or less than $1,000 per $1,000 principal amount of notes.
HOW WILL THE ALTERNATIVE REDEMPTION AMOUNT BE CALCULATED?
The alternative redemption amount per $1,000 principal amount of notes will be
calculated by the following formula:
$1,000 x the level of the basket
---------
110
This formula accounts for the 10% increase above the initial level of the basket
that must occur before you receive any amount above $1,000 per $1,000 principal
amount of notes and the portion of any increase that you will receive if the
basket has increased by more than 10%.
S-3
<PAGE>
The level of the basket at stated maturity or upon redemption or repurchase will
be generally based on the closing prices on the Tokyo Stock Exchange of the
common stocks and other equity securities in the basket, in Japanese yen, on the
third Japanese business day prior to the stated maturity date, the redemption
date or the repurchase date, as the case may be. The level of the basket will
also include any cash included in the basket as a result of extraordinary
corporate transactions involving the issuers of the common stocks. See
"Description of the Notes--Determination of alternative redemption amount"
beginning on page S-10 for details.
ALTERNATIVE REDEMPTION AMOUNT--EXAMPLES
Here are two examples of hypothetical alternative redemption amount
calculations:
EXAMPLE 1: THE LEVEL OF THE BASKET IS 105.
Alternative redemption amount per $1,000 principal amount of notes =
$1,000 x 105 = $954.55
--------
110
As a result, at stated maturity or upon redemption, you will receive $1,000,
plus accrued but unpaid interest, per $1,000 principal amount of notes because
the amount per $1,000 principal amount of notes is greater than $954.55. If you
require Lehman Brothers Holdings to repurchase your notes, you will only receive
$954.55, plus accrued but unpaid interest, per $1,000 principal amount of notes.
EXAMPLE 2: THE LEVEL OF THE BASKET IS 150.
Alternative redemption amount per $1,000 principal amount of notes =
$1,000 x 150 =$1,363.64
--------
110
As a result, at stated maturity or upon redemption, you will receive $1,363.64,
plus accrued but unpaid interest, per $1,000 principal amount of notes because
that amount is greater than$1,000 per $1,000 principal amount of notes. If you
require Lehman Brothers Holdings to repurchase your notes, you will also receive
$1,363.64, plus accrued but unpaid interest, per $1,000 principal amount of
notes.
WILL THE AMOUNT I RECEIVE ON THE NOTES BE AFFECTED BY CURRENCY EXCHANGE RATES?
No, the amount you receive on the notes will not be affected by currency
exchange rates. The amount you receive will be based upon the difference between
the initial level and ending level of the basket which is determined without
converting the values of the common stocks in the basket from yen to U.S.
dollars.
HOW HAVE THE FIVE JAPANESE COMMON STOCKS THAT UNDERLIE THE BASKET PERFORMED
HISTORICALLY?
Lehman Brothers Holdings has provided tables, beginning on page S-15, showing
the performance from 1995 through August 27, 1999 of the five Japanese common
stocks in the basket. Lehman Brothers Holdings has provided this historical
information to help you evaluate the behavior of the common stocks in the basket
so that you can make an informed decision with respect to an investment in the
notes. You should realize, however, that past performance is not necessarily
indicative of how the common stocks, the basket and the notes will perform in
the future.
WHAT CHANGES WILL OCCUR IN THE BASKET?
Changes will be made to the basket if the issuers whose common stocks comprise
the basket engage in extraordinary transactions. For example, if an issuer is
not the surviving entity in a merger, the issuer's common stock will be removed
from the basket and the basket will then include equity securities of the
successor entity or cash received in the merger plus accrued interest. If an
issuer distributes equity securities of a subsidiary to shareholders, the
subsidiary's equity securities will then be added to the basket. See "The
Basket--Adjustments to the multipliers and the basket" beginning on page S-16.
HOW WILL I BE ABLE TO FIND THE LEVEL OF THE BASKET?
You can call Lehman Brothers Inc. at 212-526-0900 to obtain the level of the
basket and the number of shares of each of the common stocks and other equity
securities in the basket per note.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the notes are subject to a number of risks. See "Risk Factors" beginning on
page S-6.
WHAT ABOUT TAXES?
The notes will be subject to U.S. Treasury regulations that apply to contingent
payment debt instruments. As a result, you will be subject to federal income tax
on the accrual of original issue discount in respect of the notes. In addition,
gain or loss on the sale, exchange or other disposition will generally be
ordinary gain or loss. See "United States Federal Income Tax Consequences"
beginning on page S-17.
WHO IS LEHMAN BROTHERS HOLDINGS?
Lehman Brothers Holdings is one of the leading global investment banks, serving
institutional, corporate, government and high net worth clients and customers.
Lehman Brothers Holdings' 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 America and the
Asia Pacific region. See
S-4
<PAGE>
"Available Information," "Documents Incorporated By Reference" and "The Company"
on pages 2 and 3 of the accompanying prospectus.
WHAT IS THE ROLE OF LEHMAN BROTHERS INC.?
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, is the
underwriter for the offering and sale of the notes. Lehman Brothers Inc. will
also be the calculation agent for purposes of calculating the amount payable to
you. Potential conflicts of interest may exist between Lehman Brothers Inc. and
you as a beneficial owner of the notes. See "Risk Factors--Potential conflicts
of interest exist because Lehman Brothers Holdings controls Lehman Brothers
Inc., which acts as the calculation agent" on page S-8 and "Description of the
Notes--Calculation agent" beginning on page S-12.
After the initial offering, Lehman Brothers Inc. intends to buy and sell the
notes to create a secondary market in the notes, and may stabilize or maintain
the market price of the notes during the initial distribution of the notes.
However, Lehman Brothers Inc. will not be obligated to engage in any of these
market activities, or to continue them once they are begun.
IN WHAT FORM WILL THE NOTES BE ISSUED?
The notes will be represented by one or more global securities that will be
deposited with and registered in the name of DTC or its nominee. This means that
you will not receive a certificate for your notes.
S-5
<PAGE>
RISK FACTORS
You should carefully consider the risk factors set forth below as well as the
other information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated herein by reference. As described in
more detail below, the trading price of the notes may vary considerably prior to
the maturity date due, among other things, to fluctuations in the price of the
common stocks and other equity securities that make up the basket and other
events that are difficult to predict and beyond Lehman Brothers Holdings'
control.
You should reach an investment decision only after you have carefully considered
with your advisors the suitability of an investment in notes in light of your
particular circumstances.
THESE NOTES ARE DIFFERENT FROM CONVENTIONAL DEBT SECURITIES OF LEHMAN BROTHERS
HOLDINGS IN SEVERAL WAYS.
- - THE YIELD MAY BE LOWER THAN THE YIELD ON A CONVENTIONAL DEBT SECURITY OF
COMPARABLE MATURITY. The amount Lehman Brothers Holdings pays you at
maturity may be less than the return you could earn on other investments.
Because the amount you receive at stated maturity may be equal to or only
slightly greater than $1,000 per $1,000 principal amount of notes, the
effective yield to maturity on the notes may be less than that which would
be payable on a conventional fixed-rate, non-callable debt security of
Lehman Brothers Holdings. In addition, any return may not fully compensate
you for any opportunity cost to you when you take into account inflation
and other factors relating to the time value of money.
- - IF THE ALTERNATIVE REDEMPTION AMOUNT IS LESS THAN $1,000, YOU WILL ONLY
RECEIVE THE PRINCIPAL AMOUNT OF THE NOTES AT MATURITY, PLUS ACCRUED BUT
UNPAID INTEREST. This may be true even if the level of the basket exceeds
100 at some time during the life of the notes because the basket must
increase by more than 10% above its initial level before the alternative
redemption amount becomes greater than $1,000 per $1,000 principal amount
of notes.
YOUR RETURN ON THE NOTES COULD BE LESS THAN IF YOU OWNED THE COMMON STOCKS OR
OTHER EQUITY SECURITIES IN THE BASKET OR OTHER SECURITIES.
- - YOU WILL NOT RECEIVE ANY APPRECIATION UNLESS THE BASKET INCREASES BY MORE
THAN 10% ABOVE ITS INITIAL LEVEL. Because you will not receive any
appreciation until the basket increases by more than 10% above its initial
level, your return on the notes could be less than the return obtainable
if you had owned the common stocks or other equity securities in the
basket or another instrument that is directly linked to those common
stocks or other equity securities. Even if the level of the basket
increases by more than 10%, you will realize only a portion of the
increase above 10%.
- - YOUR RETURN WILL NOT REFLECT DIVIDENDS ON THE COMMON STOCKS OR OTHER
EQUITY SECURITIES IN THE BASKET. Your return on the notes will also not
reflect the return you would realize if you actually owned the common
stocks or other equity securities in the basket and received the dividends
paid on those common stocks or other equity securities. This is because
the calculation agent will calculate the amount payable to you by
reference to the prices of the common stocks and other equity securities
in the basket without taking into consideration the value of dividends
paid on those common stocks or other equity securities.
YOUR RETURN MAY BE AFFECTED BY FACTORS AFFECTING THE VALUE OF THE EQUITY
SECURITIES IN THE BASKET.
- - THE JAPANESE SECURITIES MARKET IS CHARACTERIZED BY RISKS THAT ARE
DIFFERENT THAN RISKS IN THE U.S. SECURITIES MARKETS. Because stocks
included in the basket have been issued by Japanese companies, the return
on your notes will be affected by risks relating to an investment in
Japanese equity securities. The Japanese securities markets may be more
volatile than U.S. or other securities markets and may be affected by
market developments in different ways than U.S. or other securities
markets. Direct or indirect government intervention to stabilize the
Japanese securities markets and cross-shareholdings in Japanese companies
in those markets may affect prices and volume of trading in those markets.
Also, there may be less publicly available information about Japanese
companies than about U.S. companies that are subject to the reporting
requirements of the U.S. Securities and Exchange Commission. In addition,
Japanese companies are subject to accounting, auditing and financial
reporting standards and requirements that differ from those applicable to
U.S. reporting companies.
- - THE VALUE OF THE SECURITIES IN THE BASKET IS SUBJECT TO POLITICAL,
ECONOMIC AND OTHER FACTORS IN JAPAN. Securities prices in Japan are
subject to political, economic, financial and social factors that apply in
Japan. In addition, recent or future changes in the Japanese government's
economic and fiscal policies, the possible imposition of, or changes in,
currency exchange laws or other Japanese laws or restrictions applicable
to Japanese companies or investments in Japanese equity securities and
fluctuations in the rate of exchange between
S-6
<PAGE>
currencies may negatively affect the Japanese securities markets.
Moreover, the Japanese economy may differ favorably or unfavorably from
the U.S. economy in economic factors such as growth in gross national
product, rates of inflation, capital reinvestment, resources and
self-sufficiency.
- - CHANGES IN U.S. AND JAPANESE INTEREST RATES ARE EXPECTED TO AFFECT THE
TRADING OF THE NOTES. In general, if U.S. interest rates increase, Lehman
Brothers Holdings expects the value of the notes to decrease. If U.S.
interest rates decrease, Lehman Brothers Holdings expects the value of the
notes to increase. Interest rates may also affect the Japanese economy,
and, in turn, the value of the basket.
- - CHANGES IN DIVIDEND RATES IN JAPAN ARE EXPECTED TO AFFECT THE TRADING
VALUE OF THE NOTES. If dividend rates on the equity securities comprising
the basket increase, Lehman Brothers Holdings expects the value of the
notes to decrease. Conversely, if dividend rates on the equity securities
comprising the basket decrease, Lehman Brothers Holdings expects the value
of the notes to increase.
- - VOLATILITY OF THE JAPANESE YEN/U.S. DOLLAR EXCHANGE RATE. The Japanese
yen/U.S. dollar rate is a foreign exchange spot rate that reflects the
amount of Japanese yen that can be purchased for U.S. dollars and thus
measures the relative values of the Japanese yen and the U.S. dollar. The
rate increases when the U.S. dollar appreciates relative to the Japanese
yen. The rate is expressed as a rate that reflects the amount of Japanese
yen that can be purchased for the U.S. dollar. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. In
general, if the volatility of the rate increases, we expect that the
trading value of the notes will increase and, conversely, if the volatiliy
of the rate decreases, we expect that the trading value of the notes will
decrease.
HISTORICAL VALUES OF THE FIVE JAPANESE COMMON STOCKS SHOULD NOT BE TAKEN AS AN
INDICATION OF THE FUTURE PERFORMANCE OF THE BASKET DURING THE TERM OF THE NOTES.
The trading prices of the common stocks and other equity securities in the
basket and the cash included in the basket will determine the level of the
basket. As a result, it is impossible to predict whether the level of the basket
will fall or rise. Trading prices of the common stocks and other equity
securities in the basket will be influenced by complex and interrelated
political, economic, financial and other factors that can affect the markets in
which those securities are traded and the values of those common stocks and
other equity securities themselves.
THE VALUE OF THE NOTES WILL BE AFFECTED BY NUMEROUS FACTORS, SOME OF WHICH ARE
RELATED IN COMPLEX WAYS.
The value of the notes in the secondary market will be affected by supply and
demand of the notes, the level of the basket and a number of other factors, some
of which are interrelated in complex ways. As a result, the effect of any one
factor may be offset or magnified by the effect of another factor. The price at
which you will be able to sell the notes prior to stated maturity may be at a
discount, which could be substantial, from their principal amount, if, at that
time, the level of the basket is less than, equal to, or not sufficiently above
110, which is 110% of the basket's initial level of 100. An increase of 10%
above the initial level of the basket is the increase that must occur before you
participate in the basket's appreciation. A change in a specific factor could
have the following impacts on the market value of the notes, assuming all other
conditions remain constant.
- - REDEMPTION FEATURE. Lehman Brothers Holdings' ability to redeem the notes
prior to their stated maturity is likely to limit the secondary market
price at which the notes will trade.
- - VALUE. Lehman Brothers Holdings expects that the market value of the notes
will depend substantially on the amount, if any, by which the current
level of the basket exceeds 110% of its initial level of 100. If you
decide to sell your notes when the level of the basket does not exceed the
initial level, you may receive substantially less than the amount that
would be payable at stated maturity based on that basket level because of
expectations that the basket will continue to fluctuate until the
alternative redemption amount is determined. If you decide to sell your
notes when the level of the basket is below 110% of its initial level of
100, you can expect to receive less than the principal amount of the note.
Political, economic and other developments that affect the stocks in the
basket may also affect the level of the basket and, thus, the value of the
notes.
- - VOLATILITY OF THE BASKET. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the basket
increases or decreases, the trading value of the notes may be adversely
affected.
- - MERGER AND ACQUISITION TRANSACTIONS. Some of the common stocks or other
equity securities in the basket may be affected by mergers and
acquisitions, which can contribute to volatility of the basket.
Additionally, as a result of a merger or acquisition, one or more common
stocks or other equity securities in the basket may be replaced in the
basket with a surviving or acquiring entity's securities. The surviving or
acquiring entity's securities may not have the same characteristics as the
common stock originally included in the basket.
S-7
<PAGE>
- - TIME REMAINING TO MATURITY. The value of the notes may be affected by the
time remaining to maturity. As the time remaining to the maturity of the
notes decreases, this time value may decrease, adversely affecting the
trading value of the notes.
- - DIVIDEND YIELDS. If dividend yields on the common stocks in the basket or
other equity securities in the basket increase, the value of the notes may
be adversely affected, since the basket does not incorporate the value of
those payments.
- - LEHMAN BROTHERS HOLDINGS' CREDIT RATINGS, FINANCIAL CONDITION AND RESULTS.
Actual or anticipated changes in Lehman Brothers Holdings' credit ratings,
financial condition or results may affect the market value of the notes.
- - ECONOMIC CONDITIONS AND EARNINGS PERFORMANCE OF THOSE COMPANIES WHOSE
COMMON STOCKS ARE IN THE BASKET. General economic conditions and earnings
results of the companies whose common stocks and other equity securities
make up the basket and real or anticipated changes in those conditions or
results may affect the market value of the notes.
You should understand that the impact of one of the factors specified above,
such as an increase in interest rates, may offset some or all of any change in
the trading value of the notes attributable to another factor, such as an
increase in the level of the basket. In general, assuming all relevant factors
are held constant, the effect on the trading value of the notes of a given
change in most of the factors listed above will be less it if occurs later than
if it occurs earlier in the term of the notes.
YOUR RETURN WILL NOT BE ADJUSTED FOR CHANGES IN CURRENCY EXCHANGE RATES.
Although the stocks included in the basket are traded in Japanese yen and the
notes are denominated in U.S. dollars, we will not adjust the amount payable at
maturity for the currency exchange rate in effect at the maturity of the notes.
Any amount in addition to the principal amount of each note payable to you at
maturity is based solely upon the percentage increase in the level of the
basket. Changes in exchange rates, however, may reflect changes in the Japanese
economy which in turn may affect the level of the basket and the value of the
notes.
LEHMAN BROTHERS HOLDINGS CANNOT CONTROL ACTIONS BY THE COMPANIES WHOSE COMMON
STOCKS OR OTHER EQUITY SECURITIES MAKE UP THE BASKET.
Actions by any company whose common stock or other equity security is part of
the basket may have an adverse effect on the price of their common stock or
other equity security, the basket and the notes. In addition, these companies
are not involved in the offering of the notes and have no obligations with
respect to the notes, including any obligation to take Lehman Brothers Holdings'
or your interests into consideration for any reason. These companies will not
receive any of the proceeds of the offering of the notes made hereby and are not
responsible for, and have not participated in, the determination of the timing
of, prices for, or quantities of, the notes to be issued. These companies are
not involved with the administration, marketing or trading of the notes and have
no obligations with respect to the amount to be paid to you at maturity.
POTENTIAL CONFLICTS OF INTEREST EXIST BECAUSE LEHMAN BROTHERS HOLDINGS CONTROLS
LEHMAN BROTHERS INC., WHICH WILL ACT AS THE CALCULATION AGENT.
Lehman Brothers Inc. will act as the calculation agent, which determines the
amount you will receive on the notes, whether adjustments should be made to the
multipliers and the basket and whether a market disruption event has occurred.
As a result, potential conflicts of interest may exist between Lehman Brothers
Inc. and you. See "Description of the Notes--Payment at stated maturity" on page
S-10, "--Market disruption events" on page S-11 and "The Basket--Adjustments to
the multipliers and the basket" beginning on page S-16.
PURCHASES AND SALES OF THE COMMON STOCKS OR OTHER EQUITY SECURITIES IN THE
BASKET BY LEHMAN BROTHERS HOLDINGS AND ITS AFFILIATES COULD AFFECT THE PRICES OF
THOSE COMMON STOCKS OR OTHER EQUITY SECURITIES OR THE LEVEL OF THE BASKET.
Lehman Brothers Holdings and its affiliates, including Lehman Brothers Inc., may
from time to time buy or sell the common stocks or other equity securities
comprising the basket or derivative instruments related to those common stocks
or other equity securities for their own accounts in connection with their
normal business practices or in connection with hedging of Lehman Brothers
Holdings' obligations under the notes. These transactions could affect the
prices of those common stocks or other equity securities or the level of the
basket. See "Use of Proceeds and Hedging" below.
TAX CONSEQUENCES
For U.S. federal income tax purposes, the notes will be classified as
contingent payment debt instruments. As a result, they will be considered to
be issued with original issue discount, which you will be required to include
in income during your ownership of the notes, subject to some adjustments.
Additionally, you will generally be required to recognize ordinary income
on the gain realized on a sale, upon maturity, or other disposition of the
notes. See "United States Federal Income Tax Consequences" beginning on page
S-17.
S-8
<PAGE>
USE OF PROCEEDS AND HEDGING
An amount equal to approximately one-half of the proceeds to be received by
Lehman Brothers Holdings from the sale of the notes will be used by Lehman
Brothers Holdings or one or more of its subsidiaries before and immediately
following the initial offering of the notes to acquire common stocks that make
up the basket. Lehman Brothers Holdings or one or more of its subsidiaries may
also acquire listed or over-the-counter options contracts in, or other
derivative or synthetic instruments related to, those common stocks to hedge
Lehman Brothers Holdings' obligations under the notes. The balance of the
proceeds will be used for general corporate purposes. See "Use of Proceeds" on
page 3 of the accompanying prospectus.
From time to time after the initial offering and prior to the maturity of the
notes, depending on market conditions, including the market price of the common
stocks and any other equity securities that underlie the basket, Lehman Brothers
Holdings expects that it or one or more of its subsidiaries will increase or
decrease their initial hedging positions using dynamic hedging techniques.
Lehman Brothers Holdings or one or more of its subsidiaries may take long or
short positions in those common stocks or other equity securities or in listed
or over-the-counter options contracts or other derivative or synthetic
instruments related to, those common stocks or other equity securities. In
addition, Lehman Brothers Holdings or one or more of its subsidiaries may
purchase or otherwise acquire a long or short position in notes from time to
time and may, in their sole discretion, hold or resell those notes. Lehman
Brothers 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 Lehman Brothers Holdings or one or more of its subsidiaries
has a long hedge position in the common stocks or other equity securities that
make up the basket, or option contracts or other derivative or synthetic
instruments related to those common stocks or other equity securities, Lehman
Brothers 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 notes or at or about
the time of a change in the common stocks and other equity securities that
underlie the basket. Depending, among other things, on future market conditions,
the aggregate amount and the composition of the positions are likely to vary
over time. Profits or losses from any of those positions cannot be ascertained
until the position is closed out and any offsetting position or positions are
taken into account. Certain activity by Lehman Brothers Holdings or one or more
of its subsidiaries described above can potentially increase or decrease the
price of the common stocks or other equity securities that make up the basket
and, accordingly, increase or decrease the level of the basket. Although Lehman
Brothers Holdings has no reason to believe that any of those activities will
have a material impact on the price of the common stocks or other equity
securities that make up the basket, these activities could have such an effect.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30, ENDED
NOVEMBER 30, --------------------------------------------------------- MAY 31,
1994 1995 1996 1997 1998 1999
---------------- --------------- ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
1.03 1.03 1.06 1.07 1.07 1.11
</TABLE>
In computing the ratios for Lehman Brothers Holdings above, "earnings" consist
of earnings from continuing operations before income taxes and fixed charges;
and "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.
DESCRIPTION OF THE NOTES
GENERAL
You will find information about the notes in two separate documents that
progressively provide more detail: (1) the accompanying prospectus and (2) this
prospectus supplement. Since the terms of the notes may differ from the general
information Lehman Brothers Holdings has provided in the prospectus, in all
cases you should rely on information in this prospectus supplement over
different information in the prospectus. The notes are to be issued as a series
of debt securities under the senior indenture, which is more fully described in
the prospectus. For a
S-9
<PAGE>
description of the rights attaching to different series of debt securities under
the senior indenture, you should refer to the section "Description of Debt
Securities" beginning on page 4 of the accompanying prospectus. The notes are
"Senior Debt" as described in the accompanying prospectus. Citibank, N.A. is
trustee under the senior indenture.
Lehman Brothers Holdings may issue up to $10,350,000 aggregate principal amount
of notes. The notes will be issued in denominations of $250,000 and integral
multiples of $5,000 in excess thereof.
INTEREST
Lehman Brothers Holdings will pay interest semi-annually at a rate of 0.25% per
year to the person in whose name the note is registered at the close of business
on the 15th day of the month prior to the interest payment. Lehman Brothers
Holdings will pay interest on the notes on March 1 and September 1 of each year,
beginning March 1, 2000. Interest on the notes will be calculated on the basis
of a 360-day year of the twelve 30-day months. Additionally, if and to the
extent that the amount received at stated maturity or upon earlier redemption,
repurchase or sale exceeds $1,000 per $1,000 principal amount of notes, this
amount will be treated as a payment of interest rather than a capital gain under
U.S. Treasury regulations.
PAYMENT AT STATED MATURITY
The notes will mature on August 31, 2006 unless postponed because a market
disruption event occurs; see "--Determination of alternative redemption amount"
below. Unless your notes have been previously redeemed by Lehman Brothers
Holdings or you instruct Lehman Brothers Holdings to repurchase the notes, you
will be entitled to receive per $1,000 principal amount of notes, at stated
maturity, the greater of:
- - $1,000, plus accrued but unpaid interest; and
- - the alternative redemption amount, as described below, plus accrued but
unpaid interest.
If the alternative redemption amount per $1,000 principal amount of notes is
less than or equal to $1,000 because the repayment of your principal amount is
protected, you will be entitled to receive $1,000, plus accrued but unpaid
interest, per $1,000 principal amount of notes at stated maturity.
EARLY REDEMPTION OF THE NOTES AT THE OPTION OF LEHMAN BROTHERS HOLDINGS
On or after August 27, 2002, Lehman Brothers Holdings may redeem all or part of
the notes on one or more occasions, at a redemption price per $1,000 principal
amount of notes equal to the greater of:
- - $1,000, plus accrued but unpaid interest; and
- - the alternative redemption amount, plus accrued but unpaid interest.
If the alternative redemption amount per $1,000 principal amount of notes is
less than or equal to $1,000, because the repayment of your principal amount is
protected, you will be entitled to receive $1,000, plus accrued but unpaid
interest per $1,000 principal amount of notes upon redemption.
Citibank, N.A., the trustee for the notes, will give you at least 30 days'
notice of any redemption.
YOUR OPTION TO REQUIRE LEHMAN BROTHERS HOLDINGS TO REPURCHASE THE NOTES PRIOR TO
MATURITY
On or after August 27, 2001, you may instruct Lehman Brothers Holdings to
repurchase all or part of your notes at a price per $1,000 principal amount of
notes equal to the alternative redemption amount, plus accrued but unpaid
interest, by giving Lehman Brothers Holdings notice on any business day at the
corporate trust office of Citibank, N.A., the trustee for the notes. The
repurchase date will be the third business day following the five business day
period which begins on the business day after you have given notice that Lehman
Brothers Holdings must repurchase your notes, unless payment is postponed
because a market disruption event occurs. See "--Determination of alternative
redemption amount" below.
If Lehman Brothers Holdings repurchases your notes, the amount you receive per
$1,000 principal amount of notes may be greater or less than $1,000.
Your election to require Lehman Brothers Holdings to repurchase a note will be
irrevocable. All questions as to the validity, eligibility, including time of
receipt, and acceptance of any note for repurchase will be determined by Lehman
Brothers Holdings, whose determination will be final and binding.
DETERMINATION OF ALTERNATIVE REDEMPTION AMOUNT
The alternative redemption amount per $1,000 principal amount of notes will be
determined by the calculation agent by the following formula:
$1,000 x the level of the basket
---------
110
This formula accounts for the 10% increase in the initial level of the basket
that must occur before you receive any amount above the principal amount of
$1,000 per $1,000 principal amount of notes and the portion of any increase you
will receive if the basket has increased by more than 10%.
The level of the basket at stated maturity or upon redemption or repurchase, as
the case may be, will be determined by the calculation agent and will be based
on the closing prices, in Japanese yen, on the Tokyo Stock Exchange, of the
common stocks and other equity securities in the basket on the third Japanese
business day
S-10
<PAGE>
prior to the stated maturity, the redemption date or the repurchase
date, as the case may be, and any cash included in the basket. However, if the
calculation agent determines that one or more market disruption events have
occurred on such day, with respect to one or more common stocks or other equity
securities in the basket, the calculation agent will determine the closing price
of those affected stocks or securities on the next Japanese business day on
which there is not a market disruption event for it. This situation will cause
the payment you receive to be postponed until three business days after the date
that the affected common stock's or other equity security's closing price is
determined.
If any of the common stocks or other equity securities in the basket are no
longer listed or traded on a recognized national stock exchange or trading
system in Japan at the time the alternative redemption amount is determined,
then the value of those common stocks or other equity securities will be
determined using the average execution price that an affiliate of Lehman
Brothers Holdings receives upon the sale of those common stocks or other equity
securities used to hedge Lehman Brothers Holdings' obligations under the notes.
MARKET DISRUPTION EVENTS
A market disruption event with respect to a common stock or other equity
security in the basket will occur on any day if the calculation agent determines
that:
- - A suspension, absence or material limitation of trading in that common
stock or other equity security has occurred on that day, in each case, for
more than two hours of trading or during the one-half hour period
preceding the close of trading on the primary exchange, trading system or
market for such security in Japan. Limitations on trading during
significant market fluctuations or any applicable rule or regulation
enacted or promulgated may be considered material.
- - A suspension, absence or material limitation has occurred on that day, in
each case, for more than two hours of trading or during the one-half hour
period preceding the close of trading in options contracts related to that
common stock or other equity security, whether by reason of movements in
price exceeding levels permitted by an exchange, trading system or market
on which those options contracts are traded or otherwise.
- - Information is unavailable on that date, through a recognized system of
public dissemination of transaction information, for more than two hours
of trading or during the one-half hour period preceding the close of
trading, of accurate price, volume or related information in respect of
that common stock or other equity security or in respect of options
contracts related to that common stock or other equity security, in each
case traded on the primary exchange, trading system or market.
For purposes of determining whether a market disruption event has occurred:
- - a limitation on the hours or number of days of trading will not constitute
a market disruption event if it results from an announced change in the
regular business hours of the relevant exchange, trading system or market;
- - any suspension in trading in an option contract on common stock or other
equity security in the basket by a major securities exchange, trading
system or market by reason of:
-- a price change violating limits set by such securities market,
-- an imbalance of orders relating to those contracts, or
-- a disparity in bid and ask quotes relating to those contracts,
will constitute a market disruption event notwithstanding that the
suspension or material limitation is less than two hours;
- - a suspension or material limitation on an exchange, trading system or in a
market will include a suspension or material limitation of trading by one
class of investors provided that the suspension continues for more than
two hours of trading or during the last one-half hour period preceding the
close of trading on the relevant exchange, trading system or market but
will not include any time when the relevant exchange, trading system or
market is closed for trading as part of that exchange's, trading system's
or market's regularly scheduled business hours; and
- - "close of trading" means 3:00 P.M., Tokyo time.
Under certain circumstances, the duties of Lehman Brothers Inc. as the
calculation agent in determining the existence of market disruption events could
conflict with the interests of Lehman Brothers Inc. as an affiliate of the
issuer of the notes.
HYPOTHETICAL RETURNS
The table on the following page illustrates, for a range of hypothetical ending
levels of the basket three days prior to the stated maturity date:
- - the hypothetical level of the basket per $1,000 principal amount of notes;
- - the hypothetical alternative redemption amount per $1,000 principal amount
of notes;
- - the percentage change from the principal amount to the hypothetical
alternative redemption amount per $1,000 principal amount of notes;
S-11
<PAGE>
- - the hypothetical total amount payable per $1,000 principal amount of
notes;
- - the hypothetical total rate of return per $1,000 principal amont of notes
without interest;
- - the hypothetical pre-tax annualized rate of return per $1,000 principal
amount of notes without interest;
- - the hypothetical total rate of return per $1,000 principal amount of notes
including interest; and
- - the hypothetical pre-tax annualized rate of return per $1,000 principal
amount of notes including interest.
<TABLE>
<CAPTION>
PERCENTAGE TOTAL ANNUALIZED
CHANGE OF AMOUNT TOTAL RATE PRE-TAX
HYPOTHETICAL HYPOTHETICAL ALTERNATIVE PAYABLE AT OF RATE OF ANNUALIZED
ENDING ALTERNATIVE REDEMPTION STATED RETURN PER RETURN TOTAL RATE OF PRE-TAX RATE
LEVEL OF THE REDEMPTION AMOUNT OVER MATURITY $1,000 PER $1,000 RETURN PER OF RETURN PER
BASKET AMOUNT PER THE PRINCIPAL PER PRINCIPAL PRINCIPAL $1,000 $1,000
PER $1,000 $1,000 AMOUNT PER $1,000 AMOUNT AMOUNT PRINCIPAL PRINCIPAL
PRINCIPAL PRINCIPAL $1,000 PRINCIPAL PRINCIPAL WITHOUT WITHOUT AMOUNT WITH AMOUNT WITH
AMOUNT AMOUNT AMOUNT AMOUNT INTEREST INTEREST INTEREST INTEREST
- --------------- ----------------- ----------------- ------------- ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $ 455 -55% $1000 0.00% 0.00% 1.75% 0.25%
60 545 -45 1000 0.00 0.00 1.75 0.25
70 636 -36 1000 0.00 0.00 1.75 0.25
80 727 -27 1000 0.00 0.00 1.75 0.25
90 818 -18 1000 0.00 0.00 1.75 0.25
100 909 -9 1000 0.00 0.00 1.75 0.25
110 1000 0 1000 0.00 0.00 1.75 0.25
120 1091 9 1091 9.09 1.25 10.84 1.50
130 1182 18 1182 18.18 2.42 19.93 2.67
140 1273 27 1273 27.27 3.51 29.02 3.76
150 1364 36 1364 36.36 4.53 38.11 4.78
160 1455 45 1455 45.45 5.50 47.20 5.75
170 1545 55 1545 54.55 6.42 56.30 6.67
180 1636 64 1636 63.64 7.29 65.39 7.54
190 1727 73 1727 72.73 8.12 74.48 8.37
200 1818 82 1818 81.82 8.92 83.57 9.17
210 1909 91 1909 90.91 9.68 92.66 9.93
220 2000 100 2000 100.00 10.41 101.75 10.66
230 2091 109 2091 109.09 11.11 110.84 11.36
240 2182 118 2182 118.18 11.79 119.93 12.04
250 2273 127 2273 127.27 12.44 129.02 12.69
260 2364 136 2364 136.36 13.08 138.11 13.33
270 2455 145 2455 145.45 13.69 147.20 13.94
280 2545 155 2545 154.55 14.28 156.30 14.53
290 2636 164 2636 163.64 14.85 165.39 15.10
300 2727 173 2727 172.73 15.41 174.48 15.66
</TABLE>
The above figures are for purposes of illustration only. The actual amount
received by investors and the resulting total and pre-tax rate of return will
depend entirely on the level of the basket and the alternative redemption amount
determined by the calculation agent. In particular, the actual level of the
basket could be lower or higher than those reflected in the table.
You should compare the features of the notes to other available investments
before deciding to purchase the notes. Due to the uncertainty as to whether the
alternative redemption amount will be greater than $1,000 per note or the notes
will be redeemed prior to their stated maturity date, the return on investment
with respect to the notes may be higher or lower than the return available on
other securities issued by Lehman Brothers Holdings or by others and available
through Lehman Brothers Inc. You should reach an investment decision only after
carefully considering the suitability of the notes in light of your particular
circumstances.
CALCULATION AGENT
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, will act as
calculation agent for the notes.
The calculation agent will determine the amount you receive at the stated
maturity of the notes or upon their earlier redemption or repurchase by Lehman
Brothers Holdings. In each case the calculation agent will determine the
alternative redemption amount and, in the case of the stated maturity or
redemption of the notes, whether you will receive the alternative redemption
amount or $1,000 per $1,000 principal amount of notes.
In addition, the calculation agent will determine:
- - if adjustments are required to the multipliers or the basket under various
circumstances; see "The Basket--Adjustments to the multipliers and the
basket" beginning on page S-16; and
S-12
<PAGE>
- - whether a market disruption event has occurred; see "--Market disruption
events" on page S-11.
- - For determining the value of a common stock or other equity security that
has ceased to be listed or quoted on a recognized national stock exchange
or trading system in Japan, the calculation agent will use the average
execution price that an affiliate of Lehman Brothers Holdings receives
upon a sale of that common stock or other equity security used to hedge
Lehman Brothers Holdings' obligations under the notes.
- - For determining the value of other property, an equity security that is
not traded or listed on an exchange, trading system or market or a
non-equity security if an event occurs as described in "The
Basket--Adjustments to the multipliers and the basket" beginning on page
S-16, the calculation agent will determine, as soon as reasonably
practicable after the date the property or security is received, the fair
market value of that property or security based on the average execution
price that an affiliate of Lehman Brothers Holdings receives upon a sale
of that property or security used to hedge Lehman Brothers Holdings'
obligations under the notes.
- - For determining the value of any common stock or other equity security in
the basket, the "close of business" or "at closing" means 3:00 P.M., Tokyo
time.
All determinations made by the calculation agent will be at the sole discretion
of the calculation agent and, in the absence of manifest error, will be
conclusive for all purposes and binding on Lehman Brothers Holdings and you. The
calculation agent will have no liability for its determinations.
EVENTS OF DEFAULT AND ACCELERATION
If an event of default with respect to any notes has occurred and is continuing,
the amount payable to you upon any acceleration permitted under the senior
indenture will be equal to, per $1,000 principal amount of notes, the greater of
$1,000 or the alternative redemption amount calculated as though the date of
acceleration was the stated maturity. If a bankruptcy proceeding is commenced in
respect of Lehman Brothers Holdings, the claims of the holder of a note may be
limited, under Section 502(b)(2) of Title 11 of the United States Code, as
though the commencement of the proceeding was the stated maturity.
S-13
<PAGE>
THE BASKET
THE FIVE COMMON STOCKS COMPRISING THE BASKET
The five common stocks in the basket, their industry group, their primary
exchange, their stock symbol, their approximate market value, the initial
multiplier for each common stock and the percentage of the initial basket that
each common stock comprises are as follows:
<TABLE>
<CAPTION>
Percentage
Issuer of the Primary Stock Market Value as of Initial of Initial
common stock Industry group exchange Symbol August 27, 1999 Multiplier Basket
------------- -------------- ---------- ------ ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fujitsu Limited............ Computers--integrated Tokyo SE 6702 JPY6,365,941,500 0.00607240 20.10%
systems
NTT Mobile
Communications
Network, Inc............... Cellular Tokyo SE 9437 JPY17,045,280,000 0.00001135 20.20
telecommunications
Sumitomo Electric
Industries................. Wire & cable products Tokyo SE 5802 JPY1,101,663,800 0.01284163 19.63
Fuji Bank LTD.............. Money center banks Tokyo SE 8317 JPY4,095,525,300 0.01672399 20.04
Softbank Corporation....... Distribution/wholesale Tokyo SE 9984 JPY3,791,755,500 0.00056742 20.03
</TABLE>
FUJITSU LIMITED produces semiconductors, computers and communications equipment.
NTT MOBILE COMMUNICATIONS NETWORK, INC. provides various telecommunication
services including cellular phones, car phones, pagers, other telephone (such as
for ships and airplanes) and packet communication services. The company also
sells cellular phone, car phone, and pager equipment. NTT Mobile Communications
is now as well known as NTT DoCoMo in Japan.
SUMITOMO ELECTRIC INDUSTRIES produces electric wires, cables and communication
related machinery and equipment. The company specializes in optical fibers,
telecommunications, semiconductors and chemical compounds. Sumitomo Electric
Industries is also involved in diverse operations such as power metallurgy and
alloys.
FUJI BANK LTD provides commercial and institutional banking services to clients
in Japan and worldwide. The company's services include investment banking,
retail banking, business information services and capital market operations.
SOFTBANK CORPORATION is a wholesale seller of personal computer software. The
company has made capital investments in U.S. software development firms such as
Novell and Cisco Systems. Softbank also publishes personal computer-related
materials, such as "Oh!PC" magazine
HISTORICAL INFORMATION ABOUT THE STOCKS IN THE BASKET
The following table sets forth the high and low prices for each of the common
stocks in the basket as reported on the Tokyo Stock Exchange, during 1995, 1996,
1997, 1998 and during 1999 (through August 27, 1999), and the closing price on
December 31, 1995, 1996, 1997 and 1998 and on August 27, 1999 (except in both
cases for NTT Mobile Communications which contains prices since October 22,
1998, the date its stock was first publicly traded). All values in the table are
set forth in Japanese yen. These prices are not indications of future
performance. There is no assurance that the prices of these common stocks will
increase enough so that the alternative redemption amount will be greater than
$1,000. The historical prices below have been adjusted to reflect certain
corporate events that affect their prices, including scrips issues, rights
issues, stock splits, reverse stock splits, stock dividends, spin-offs and
extraordinary dividends.
S-14
<PAGE>
<TABLE>
<CAPTION>
HIGH PRICE LOW PRICE CLOSING PRICE
DURING PERIOD DURING PERIOD AT PERIOD END
-------------------- ------------------- ----------------------
<S> <C> <C> <C>
FUJITSU LIMITED
1995............................................... JPY 1260 JPY 748 JPY 1150
1996............................................... 1210 944 1080
1997............................................... 1760 1090 1400
1998............................................... 1602 1086 1505
1999 (through August 27, 1999)..................... 3573 1421 3310
NTT MOBILE COMMUNICATIONS NETWORK, INC.
1998 (beginning on October 22, 1998)............... JPY 972000 JPY 840000 JPY 930000
1999 (through August 27, 1999)..................... 1850000 870000 1780000
SUMITOMO ELECTRIC INDUSTRIES
1995............................................... JPY 1400 JPY 944 JPY 1240
1996............................................... 1650 1280 1620
1997............................................... 2000 1570 1780
1998............................................... 1940 1175 1271
1999 (through August 27, 1999)..................... 1600 1205 1470
FUJI BANK LTD
1995............................................... JPY 2390 JPY 1650 JPY 2280
1996............................................... 2450 1660 1690
1997............................................... 1790 458 528
1998............................................... 1110 259 416
1999 (through August 27, 1999)..................... 1243 398 1190
SOFTBANK CORPORATION JPY 10322 JPY 2022 JPY 8359
1996............................................... 12088 5908 6300
1997............................................... 8923 2000 3400
1998............................................... 7290 3050 6800
1999 (through August 27, 1999)..................... 37000 6670 34900
</TABLE>
CALCULATION OF THE BASKET
The basket will represent a weighted portfolio of the five common stocks in the
basket. The level of the basket will increase or decrease by the performance of
the common stocks and other equity securities that make up the basket from time
to time. The level of the basket will also include any cash in the basket.
The basket will be monitored daily for various types of corporate actions that
may require an adjustment to the basket. See "--Adjustments to the multipliers
and the basket" beginning on page S-16.
Lehman Brothers Holdings or its affiliates, including Lehman Brothers Inc., may
from time to time engage in business with one or more of the issuers of the
common stocks or other equity securities in the basket, or with persons seeking
to acquire these issuers. The services provided may include advisory services to
the issuers or other persons, including merger and acquisition advisory
services. In the course of its business, Lehman Brothers Holdings or its
affiliates, including Lehman Brothers Inc., may acquire non-public information
with respect to these issuers. In addition, one or more affiliates of Lehman
Brothers Holdings may publish research reports with respect to these issuers.
The actions may directly adversely affect the market prices of the common stock
or other equity securities in the basket.
NOTICE OF LEVEL OF THE BASKET
You can also call Lehman Brothers Inc. at 212-526-0900 to obtain the level of
the basket and the number of shares of each of the common stocks and other
equity securities in the basket per note.
THE MULTIPLIERS FOR THE COMMON STOCKS THAT COMPRISE THE BASKET
The initial multiplier for each common stock in the basket will be the number of
shares, or fraction of a share, of each common stock required to be included in
the calculation of the basket so that each common stock represents approximately
20% of the basket on a Japanese
S-15
<PAGE>
yen weighted basis. The price used to determine the multiplier for each common
stock was determined based on the average execution price for each common stock
that an affiliate of Lehman Brothers Holdings paid to hedge Lehman Brothers
Holdings' obligations under the notes during trading hours in Japan on August
27, 1999. The multipliers for each security will remain constant unless adjusted
for the extraordinary corporate events described below. Each multiplier will be
rounded at the calculation agent's discretion. The initial multipliers for each
common stock in the basket are set forth in the table on page S-14.
ADJUSTMENTS TO THE MULTIPLIERS AND THE BASKET
Adjustments to a multiplier and the basket will be made in the following
circumstances:
- - If a common stock is subject to a stock split or reverse stock split, then
once the split has become effective, the multiplier relating to the common
stock will be adjusted. The multiplier will be adjusted to equal the
product of the number of shares outstanding after the split with respect
to each share immediately prior to effectiveness of the split and the
prior multiplier.
- - If a common stock is subject to an extraordinary stock dividend or
extraordinary stock distribution that is given equally to all holders of
shares, then once the common stock is trading ex-dividend, the multiplier
will be increased by the product of the number of shares issued with
respect to one share and the prior multiplier.
- - If the issuer of a common stock is being liquidated or dissolved or is
subject to a proceeding under any applicable bankruptcy, insolvency or
other similar law, the common stock will continue to be included in the
basket so long as the primary exchange, trading system or market is
reporting a market price for the common stock. If a market price is no
longer available for a common stock in the basket, then the value of that
common stock will equal zero for so long as no market price is available,
and no attempt will be made to find a replacement stock or increase the
level of the basket to compensate for the deletion of the common stock.
- - If the issuer of a common stock, has been subject to a merger or
consolidation and is not the surviving entity and holders of the common
stock are entitled to receive cash, securities, other property or a
combination thereof in exchange for the common stock, then the following
will be included in the basket:
-- To the extent cash is received, the basket will include the amount
of the cash consideration at the time holders are entitled to
receive the cash consideration, plus accrued interest. Interest will
accrue beginning the first London business day after the day that
holders receive the cash consideration until the stated maturity
date. Interest will accrue at a rate equal to Japanese yen LIBOR
with a term corresponding to the interest accrual period stated in
the preceding sentence.
-- To the extent that equity securities that are traded or listed on an
exchange, trading system or market are received, once the exchange
for the new securities has become effective, the former common stock
will be removed from the basket and the new securities will be added
to the basket. The multiplier for the new securities will equal the
product of the last value of the multiplier of the original
underlying common stock and the number of securities of the new
security exchanged with respect to one share of the original common
stock.
-- To the extent that equity securities that are not traded or listed
on an exchange, trading system or market or non-equity securities
or other property (other than cash) is received, the calculation
agent will determine the fair market value of the securities or
other property received and the basket will include an amount of
cash equal to the product of the multiplier and the fair market
value. The basket will also include accrued interest on that amount.
Interest will accrue beginning the first London business day after
the day that an affiliate of Lehman Brothers Holdings sells the
securities or other property used to hedge Lehman Brothers Holdings'
obligations under the notes until the stated maturity date. Interest
will accrue at a rate equal to Japanese yen LIBOR with a term
corresponding to the interest accrual period stated in the preceding
sentence.
- - If all of the common stock of an issuer in the basket is converted into or
exchanged for the same or a different number of shares of any class or
classes of common stock other than the common stock in the basket, whether
by capital reorganization, recapitalization or reclassification, then,
once the conversion has become effective, the former common stock will be
removed from the basket and the new common stock will be added to the
basket. The multiplier for each new common stock added to the basket will
equal the product of the last value of the multiplier of the original
common stock and the number of shares of the new common stock issued with
respect to one share of the original common stock.
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- - If the issuer of a common stock in the basket issues to all of its
shareholders common stock or another equity security that is traded or
listed on an exchange, trading system or market of an issuer other than
itself, then the new common stock or other equity security will be added
to the basket. The multiplier for the new common stock or other equity
security will equal the product of the last value of the multiplier with
respect to the original common stock and the number of shares of the new
common stock or other equity security issued with respect to one share of
the original common stock.
- - If a common stock in the basket is subject to an extraordinary dividend or
an extraordinary distribution, including upon liquidation or dissolution,
of cash, equity securities that are not traded or listed on an exchange,
trading system or market, non-equity securities or other property of any
kind which is received equally by all holders of its common stock, then
the basket will include the following:
-- To the extent cash is entitled to be received, the basket will
include on each day after the time that the common stock trades
ex-dividend until the date the cash consideration is entitled to be
received, the present value of the cash to be received, discounted
at a rate equal to Japanese yen LIBOR, with a term beginning that
day and ending on the date that the cash is entitled to be received.
When the cash consideration is received, the basket will include the
amount of the cash consideration, plus accrued interest. Interest
will accrue beginning the first London business day after the day
that holders receive the cash consideration until the stated
maturity date. Interest will accrue at a rate equal to Japanese yen
LIBOR with a term corresponding to the interest accrual period
stated in the preceding sentence.
-- To the extent that equity securities that are not traded or listed
on an exchange, trading system or market or non-equity securities
or other property (other than cash) is received, the calculation
agent will determine the fair market value of the securities or
other property received and the basket will include an amount of
cash equal to the product of the multiplier and the fair market
value. The basket will also include accrued interest on that amount.
Interest will accrue beginning the first London business day after
the day that an affiliate of Lehman Brothers Holdings sells the
securities or other property used to hedge Lehman Brothers Holdings'
obligations under the notes until the stated maturity date. Interest
will accrue at a rate equal to Japanese yen LIBOR with a term
corresponding to the interest accrual period stated in the preceding
sentence.
- - If similar corporate events occur with respect to the issuer of an equity
security other than common stock that is included in the basket,
adjustments similar to the above will be made for that equity security.
The payment of an ordinary cash dividend from current income or retained
earnings will not result in an adjustment to the multiplier or entitle you to
any cash payments.
No adjustments of any multiplier of a common stock will be required unless the
adjustment would require a change of at least .1% (.001) in the multiplier then
in effect. The multiplier resulting from any of the adjustments specified above
will be rounded at the calculation agent's discretion.
Except with respect to the responsibility of the calculation agent to make
certain calculations under certain circumstances as described in this prospectus
supplement, none of Lehman Brothers Holdings, the calculation agent or the
underwriter accepts any responsibility for the calculation, maintenance or
publication of the basket.
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, our special United States tax
counsel, the following is an accurate summary of the material United States
federal income tax consequences of the purchase, ownership, and disposition of
notes as of the date of this prospectus supplement. Except where noted, this
summary deals only with a note held as a capital asset by a United States holder
who purchases the note at its initial offering price, and does not deal with
special situations. For example, this summary does not address:
- - tax consequences to holders who may be subject to special tax treatment,
such as dealers in securities or currencies, traders in securities that
elect to use the mark-to-market method of accounting for their securities,
financial institutions, regulated investment companies, real estate
investment trusts, tax-exempt entities or life insurance companies;
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- - tax consequences to persons holding notes as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle;
- - tax consequences to non-United States holders;
- - tax consequences to holders of notes whose "functional currency" is not
the U.S. dollar;
- - alternative minimum tax consequences, if any; or
- - any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue Code
(the "Code"), and regulations, rulings and judicial decisions as of the date of
this prospectus supplement. Those authorities may be changed, perhaps
retroactively, so as to result in United States federal income tax consequences
different from those discussed below.
If you are considering the purchase of notes, you should consult your own tax
advisors concerning the federal income tax consequences in light of your
particular situation and any consequences arising under the laws of any other
taxing jurisdiction.
For purposes of this discussion a United States holder is the beneficial owner
of a note that is:
- - a citizen or resident of the United States;
- - a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
- - an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- - a trust (x) that is subject to the supervision of a court within the
United States and the control of one or more United States persons or (y)
that has a valid election in effect under applicable Treasury Regulations
to be treated as a United States person.
ACCRUAL OF INTEREST
The Treasury Regulations that apply to contingent payment debt obligations will
apply to the notes. All payments on the notes will be taken into account under
these Treasury Regulations. As discussed more fully below, the effect of these
Treasury Regulations will be to:
- - require you, regardless of your usual method of tax accounting, to use the
accrual method with respect to the notes;
- - result in the accrual of interest income by you in excess of stated
interest payments actually received by you; and
- - generally result in ordinary rather than capital treatment of any gain,
and to some extent loss, on the sale, exchange, repurchase or redemption
of the notes.
Under the contingent payment debt rules, you will be required to accrue interest
in income each year, regardless of your usual method of tax accounting, similar
to the inclusion of original issue discount, based on the comparable yield of
the notes. In order to determine your income, these rules require Lehman
Brothers Holdings to determine, as of the issue date, the comparable yield for
the notes. The comparable yield of the notes will generally be the rate at which
we would issue a fixed rate debt instrument with terms and conditions similar to
the notes.
Lehman Brothers Holdings is required to provide the comparable yield to you and,
solely for tax purposes, is also required to provide a projected payment
schedule that includes the actual interest payments on the notes and estimates
the amount and timing of contingent payments on the notes. We have determined
that the comparable yield is an annual rate of 7.50 %. Based on our
determination of the comparable yield, the projected payment schedule per $1,000
principal amount of notes is $1.25 semiannually and $1,653.07 due at maturity
(which includes the final interest payment).
THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE ARE NOT PROVIDED FOR ANY
PURPOSE OTHER THAN THE DETERMINATION OF YOUR INTEREST ACCRUALS AND ADJUSTMENTS
THEREOF IN RESPECT OF THE NOTES AND DO NOT CONSTITUTE A REPRESENTATION REGARDING
THE ACTUAL AMOUNTS OF THE PAYMENTS ON A NOTE.
The amount of interest income on a note for each accrual period is determined by
multiplying the comparable yield of the note, adjusted for the length of the
accrual period, by the note's adjusted issue price at the beginning of the
accrual period, determined in accordance with the rules set forth in the
contingent payment debt rules. The amount of interest income so determined is
then allocated on a ratable basis to each day in the accrual period that you
held the note. Lehman Brothers Holdings is required to provide information
returns stating the amount of interest income accrued on notes held of record by
persons other than corporations and other exempt owners.
If the actual contingent payment made on the notes at maturity differs from the
projected contingent payment, an adjustment will be made for the difference. A
positive adjustment, for the amount by which an actual contingent payment
exceeds a projected contingent payment, will be treated as additional interest
income. A negative adjustment will:
- - first, reduce the amount of interest required to be accrued in the current
year; and
- - second, any negative adjustment that exceeds the amount of interest
accrued in the current year will
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be treated as ordinary loss to the extent of your total prior interest
inclusions with respect to the note.
You are generally bound by the above comparable yield and projected payment
schedule. However, if you believe that Lehman Brothers Holdings' projected
payment schedule is unreasonable, you may set your own projected payment
schedule so long as you explicitly disclose the use of that schedule and the
reason for its use. Unless otherwise prescribed by the Commissioner of the
Internal Revenue Service, this disclosure must be made in a statement attached
to your timely filed federal income tax return for the taxable year in which a
note is acquired.
SALE, EXCHANGE OR OTHER DISPOSITION OF NOTES
Gain on the sale, exchange, repurchase or redemption of a note generally will
be treated as ordinary income. Loss from the disposition of a note will be
treated as ordinary loss to the extent of your prior net interest inclusions
with respect to the note. Any loss in excess of this amount will be treated
as capital loss.
Special rules apply in determining the tax basis of a note. Your basis in a note
is generally increased by interest you previously accrued on the note and
reduced by the projected amount of any payments previously scheduled to be made.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information reporting requirements will generally apply to all payments of
interest, including original issue discount, and principal on a note and to the
proceeds from the sale of a note made to you, unless you are an exempt recipient
such as a corporation. A 31% backup withholding tax will apply to those payments
if you fail to provide a taxpayer identification number, a certification of
exempt status, or if you fail to report in full interest income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against your U.S. federal income tax liability provided the
required information is furnished to the Internal Revenue Service.
BOOK-ENTRY ISSUANCE
The notes will be represented by one or more global securities that will be
deposited with and registered in the name of DTC or its nominee. This means that
Lehman Brothers Holdings will not issue certificates to you for the notes. Each
global security will be issued to DTC which will keep a computerized record of
its participants (for example, a broker) whose clients have purchased the notes.
Each participant will then keep a record of its clients. Unless it is exchanged
in whole or in part for a certificated security, a global security may not be
transferred. However, DTC, its nominees and their successors may transfer a
global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers of the
global security will be made only through, records maintained by DTC and its
participants. DTC holds securities that its direct participants deposit with
DTC. DTC also records the settlements among direct participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for direct participants' accounts. This eliminates the need
to exchange certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC's book-entry system is also used by other organizations such
as securities brokers and dealers, banks and trust companies that work through a
direct participant.
When you purchase notes through the DTC system, the purchases must be made by or
through a direct participant, who will receive credit for the notes on DTC's
records. Since you actually own the notes, you are the beneficial owner. Your
ownership interest will only be recorded on the direct or indirect participants'
records. DTC has no knowledge of your individual ownership of the notes. DTC's
records only show the identity of the direct participants and the amount of the
notes held by or through them. You will not receive a written confirmation of
your purchase or sale or any periodic account statement directly from DTC. You
should instead receive these from your direct or indirect participant. As a
result, the direct or indirect participants are responsible for keeping accurate
account of the holdings of their customers like you.
The trustee for the notes will wire payments on the notes to DTC's nominee.
Lehman Brothers Holdings and the trustee will treat DTC's nominee as the owner
of each global security for all purposes. Accordingly, Lehman Brothers Holdings,
the trustee and any paying agent will have no direct responsibility or liability
to pay amounts due on the global security to you or any other beneficial owners
in the global security. Any redemption notices will be sent by Lehman Brothers
Holdings directly to DTC, who will in turn inform the direct participants or the
indirect participants, who will then contact you as a beneficial holder. If less
than all of the notes are being redeemed, DTC will proportionally allot the
amount of the interest of each direct participant to be redeemed.
It is DTC's current practice, upon receipt of any payment of interest,
distributions or liquidation amount, to proportionally credit direct
participants' accounts on the payment date based on their holdings. In addition,
it is DTC's current practice to pass through any consenting or voting rights to
the participants by using an omnibus
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proxy. Those participants in turn will make payments to and solicit votes from
you, the ultimate owner of notes based on customary practices. Payments to you
will be the responsibility of the participants and not of DTC, the trustee or
Lehman Brothers Holdings.
Notes represented by a global security will be exchangeable for certificated
securities with the same terms in authorized denominations only if:
- - DTC is unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under applicable law and a successor is not
appointed by Lehman Brothers Holdings within 90 days; or
- - Lehman Brothers Holdings decides to discontinue use of the book-entry
system.
If the global security is exchanged for certified securities, the trustee will
keep the registration books for the notes at its corporate office and follow
customary practices and procedures.
DTC has provided Lehman Brothers Holdings with the following information: DTC is
a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the United States Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934. DTC is owned by a number of its direct participants and by the New York
Stock Exchange, the American Stock Exchange and the National Association of
Securities Dealers, Inc. The rules that apply to DTC and its participants are on
file with the SEC.
DTC's management is aware that some computer applications, systems and the like
for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems." DTC
has informed its participants and other members of the financial community that
it has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions, including principal and interest
payments, to security holders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent upon
other parties, including but not limited to issuers and their agents, as well as
third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information of the provision of
services, including telecommunications and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial community that it is contacting, and will continue to contact, third-
party vendors from whom DTC acquires services to: impress upon them the
importance of service being Year 2000 compliant; and determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing contingency plans as
it deems appropriate.
CEDELBANK AND EUROCLEAR
Links have been established among DTC, Cedelbank and Euroclear (two European
book-entry depositories similar to DTC), to facilitate the initial issuance of
the notes and cross-market transfers of the notes associated with secondary
market trading.
Although DTC, Cedelbank and Euroclear have agreed to the procedures provided
below in order to facilitate transfers, they are under no obligation to perform
those procedures and those procedures may be modified or discontinued at any
time.
Cedelbank and Euroclear will record the ownership interests of their
participants in much the same way as DTC, and DTC will record the aggregate
ownership of each U.S. agent of Cedelbank and Euroclear, as participants in DTC.
When notes are to be transferred from the account of a DTC participant to the
account of a Cedelbank participant or a Euroclear participant, the purchaser
must send instructions to Cedelbank or Euroclear through a participant at least
one business day prior to settlement. Cedelbank or Euroclear, as the case may
be, will instruct its U.S. agent to receive the notes against payment. After
settlement, Cedelbank or Euroclear will credit its participant's account. Credit
for the notes will appear on the next day, European time.
Because the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending notes to the relevant
U.S. agent acting for the benefit of Cedelbank or Euroclear participants. The
sale proceeds will be available to the DTC seller on the settlement date. Thus,
to the DTC participant, a cross-market transaction will settle no differently
than a trade between two DTC participants.
When a Cedelbank or Euroclear participant wishes to transfer notes to a DTC
participant, the seller must send instructions to Cedelbank or Euroclear through
a participant at least one business day prior to settlement. In these cases,
Cedelbank or Euroclear will instruct its U.S. agent to transfer notes against
payment. The payment will then be reflected in the account of the Cedelbank or
Euroclear participant the following day, with the proceeds
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back-valued to the value date; which day would be the preceding day, when
settlement occurs in New York. If settlement is not completed on the intended
value date (I.E., the trade falls), proceeds credited to the Cedelbank or
Euroclear participant's account would instead be valued as of the actual
settlement date.
UNDERWRITING
Lehman Brothers Holdings has agreed to sell to Lehman Brothers Inc., the
underwriters, all of the notes.
The underwriter has advised Lehman Brothers Holdings that it proposes to
initially offer the notes to the public at the public offering price set forth
on the cover page of this prospectus supplement; it may also offer notes to
certain dealers at the same price less a concession not in excess of 0.5% of the
principal amount of the notes. After the initial public offering of the notes is
completed, the public offering price and concessions may be changed.
In connection with the offering, the rules of the SEC permit the underwriter to
engage in various transactions that stabilize the price of the notes. These
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the notes. If the underwriter creates a short
position in the notes in connection with the offering (that is, if it sells a
larger number of the notes than is set forth on the cover page of this
prospectus supplement), the underwriter may reduce that short position by
purchasing notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. Neither
Lehman Brothers 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 notes. In addition, neither Lehman
Brothers Holdings nor the underwriter makes any representation that the
underwriter will in fact engage in transactions described in this paragraph, or
that those transactions, once begun, will not be discontinued without notice.
Lehman Brothers Holdings will pay certain expenses, expected to be approximately
$10,000, associated with the offer and sale of the notes.
Lehman Brothers Holdings has granted to the underwriter an option to purchase up
to $1,350,000 additional principal amount of notes solely to cover
over-allotments. Any or all of this option may be exercised at any time until 30
days after the date of this prospectus supplement. To the extent that the option
is exercised, the underwriter will be committed, subject to certain conditions,
to purchase the additional notes. If this option is exercised in full, the total
public offering price, underwriting discount and proceeds to Lehman Brothers
Holdings would be $10,350,000, $0 and $10,350,000, respectively.
The underwriter may not confirm sales to any account over which it exercises
discretionary authority without the prior written approval of the customer.
Lehman Brothers Holdings has agreed to indemnify the underwriter against some
liabilities, including liabilities under the Securities Act of 1933.
The underwriting arrangements for this offering comply with the requirements of
Rule 2720 of the NASD regarding an NASD member firm underwriting securities of
its affiliate.
EXPERTS
The consolidated financial statements and financial statement schedule of Lehman
Brothers Holdings as of November 30, 1998 and 1997, and for each of the years in
the three-year period ended November 30, 1998, have been audited by Ernst &
Young LLP, independent certified public accountants, as set forth in their
report on the consolidated financial statements. The consolidated financial
statements and accountant's report are incorporated by reference in Lehman
Brothers Holdings' annual report on Form 10-K for the year ended November 30,
1998, and incorporated by reference in this prospectus supplement. The
consolidated financial statements of Lehman Brothers Holdings referred to above
are incorporated by reference in this prospectus supplement in reliance upon the
report given on the authority of Ernst & Young LLP as experts in accounting and
auditing.
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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 US $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).
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.
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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 NINE MONTHS
YEAR ENDED ENDED YEAR ENDED 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.
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DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either Senior Debt (as defined below)
or Subordinated Debt (as defined below) of Holdings. The Debt Securities
constituting Senior Debt will be issued under an indenture, dated as of
September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented
and amended by Supplemental Indentures dated as of November 25, 1987, as of
November 27, 1990, as of September 13, 1991, as of October 4, 1993 and as of
October 1, 1995 (the "Senior Indenture"), and the Debt Securities constituting
Subordinated Debt will be issued under an indenture between Holdings and 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 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
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<PAGE>
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) 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
5
<PAGE>
Debt Securities of the series to be represented by such Global Security or
Securities. If so provided with respect to a series of Debt Securities, Debt
Securities of such series will be issuable solely as Bearer Securities with
coupons attached or as both Registered Securities and Bearer Securities.
(Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold) no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the applicable Indenture, to the effect that such Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is owned by or on behalf of a United States
person, that such United States person (i) acquired and holds the Bearer
Security through a foreign branch of a United States financial institution, (ii)
is a foreign branch of a United States financial institution purchasing for its
own account or resale (and in either case, (i) or (ii), such financial
institution agrees to comply with the requirements of Section 165(j)(3)(A), (B)
or (C) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder) or (iii) is a financial institution purchasing for
resale during the restricted period only to non-United States persons outside
the United States (Sections 303, 304). See "Global Securities--Bearer Debt
Securities" and "Limitations on Issuance of Bearer Securities."
Registered Securities of any series (other than a Global Security) will be
exchangeable for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. In
addition, if Debt Securities of any series are issuable as both Registered
Securities and as Bearer Securities, at the option of the Holder upon request
confirmed in writing, and subject to the terms of the applicable Indenture,
Bearer Securities (with all unmatured coupons, except as provided below, and all
matured coupons in default) of such series will be exchangeable into Registered
Securities of the same series of any authorized denominations and of a like
aggregate principal amount and tenor. Unless otherwise indicated in an
applicable Prospectus Supplement, any Bearer Security surrendered in exchange
for a Registered Security between a Regular Record Date or a Special Record Date
and the relevant date for payment of interest shall be surrendered without the
coupon relating to such date for payment of interest and interest will not be
payable in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the terms of the applicable Indenture. (Section 305). Except as
provided in an applicable Prospectus Supplement, Bearer Securities will not be
issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by Holdings for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental 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).
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<PAGE>
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Bearer Securities will
be payable, subject to any applicable laws and regulations, at the offices of
such Paying Agents outside the United States as Holdings may designate from time
to time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. (Sections
307 and 1002). Unless otherwise indicated in an applicable Prospectus
Supplement, payment of interest on Bearer Securities on any Interest Payment
Date will be made only against surrender of the coupon relating to such Interest
Payment Date. (Section 1001). No payment of interest on a Bearer Security will
be made unless on the earlier of the date of the first such payment by Holdings
or the delivery by Holdings of the Bearer Security in definitive form (including
interests in a permanent Global Security) (the "Certification Date"), a written
certificate in the form and to the effect described under "Denominations,
Registration and Transfer" is provided to Holdings. No payment with respect to
any Bearer Security will be made at any office or agency of Holdings in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States.
Notwithstanding the foregoing, payment of principal of (and premium, if any) and
interest on Bearer Securities denominated and payable in U.S. dollars will be
made at the office of Holdings' Paying Agent in the Borough of Manhattan, The
City of New York if, and only if, payment of the full amount thereof in U.S.
dollars at all offices or agencies outside the United States is illegal or
effectively precluded by exchange controls or other similar restrictions.
(Section 1002).
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Registered Securities
(other than a Global Security) will be made at the office of such Paying Agent
or Paying Agents as Holdings may designate from time to time, except that at the
option of Holdings payment of any interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Security Register or (ii) by wire transfer to an account maintained by the
Person entitled thereto as specified in the Security Register. (Sections 305,
307, 1002). Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any instalment of interest on Registered Securities will be made to
the Person in whose name such Registered Security is registered at the close of
business on the Regular Record Date for such interest payment. (Section 307).
Unless otherwise indicated in an applicable Prospectus Supplement, the
principal office of each Trustee under the applicable Indenture in The City of
New York will be designated as Holdings' sole Paying Agent for payments with
respect to Debt Securities which are issuable solely as Registered Securities
and as Holdings' Paying Agent in the Borough of Manhattan, The City of New York,
for payments with respect to Debt Securities (subject to the limitations
described above in the case of Bearer Securities) which may be issuable as
Bearer Securities. Any Paying Agents outside the United States and any other
Paying Agents in the United States initially designated by Holdings for the Debt
Securities will be named in an applicable Prospectus Supplement. Holdings may at
any time designate additional Paying Agents or rescind the designation of any
Paying Agents or approve a change in the office through which any Paying Agent
acts, except that, if Debt Securities of a series are issuable only as
Registered Securities, Holdings will be required to maintain a Paying Agent in
each Place of Payment for such series, and if Debt Securities of a series may be
issuable as Bearer Securities, Holdings will be required to maintain (i) a
Paying Agent in the Borough of Manhattan, The City of New York for payments with
respect to any Registered Securities of the series (and for payments with
respect to Bearer Securities of the series in the circumstances described above,
but not otherwise), and (ii) a Paying Agent in a Place of Payment located
outside the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment; provided that
if the Debt Securities of such series are listed on The Luxembourg Stock
Exchange (the "Stock Exchange") or any other stock exchange located outside the
United States and such stock exchange shall so require, Holdings will maintain a
Paying Agent in Luxembourg or any other required city located outside the United
States, as the case may be, for the Debt Securities of such series. (Section
1002).
All moneys paid by Holdings to a Paying Agent for the payment of principal
of (and premium, if any) or interest on any Debt Security which remain unclaimed
at the end of two years after such principal, premium or interest shall have
become due and payable will be repaid to Holdings and the Holder of such Debt
Security or any coupon will thereafter look only to Holdings for payment
thereof. (Section 1003).
LIMITATION ON LIENS
So long as any Debt Securities remain outstanding, unless an applicable
Prospectus Supplement relating thereto provides otherwise, Holdings will not,
and will not permit any Designated Subsidiary (as defined below), directly or
indirectly, to create, issue, assume, incur or guarantee any indebtedness for
money borrowed which is secured by a mortgage, pledge, lien, security interest
or other encumbrance of any nature on any of the present or future common stock
of a Designated Subsidiary unless the Debt Securities and, if Holdings so
elects, any other indebtedness of Holdings ranking at least PARI PASSU with the
Debt
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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).
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),
8
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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).
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).
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Each Indenture contains provisions for convening meetings of the
Holders of Debt Securities of a series if Debt Securities of that series are
issuable as Bearer Securities. A meeting may be called at any time by the
applicable Trustee, and also, upon request, by Holdings or Holders of at
least 10% in principal amount of the Outstanding Debt Securities of such
series, in any such case upon notice given in accordance with "Notices"
below. (Section 1302). Except as limited by the proviso in the second
preceding paragraph, any resolution presented at a meeting or adjourned
meeting at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; PROVIDED, HOWEVER, that, except as limited by the
proviso in the second preceding paragraph, any resolution with respect to any
consent or waiver which may be given by the Holders of not less than 66 2/3%
in principal amount of the Outstanding Debt Securities of a series may be
adopted at a meeting or an adjourned meeting at which a quorum is present
only by the affirmative vote of 66 2/3% in principal amount of the
Outstanding Debt Securities of that series; and PROVIDED, FURTHER, that,
except as limited by the proviso in the second preceding paragraph, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action which may be made, given or taken by
the Holders of a specified percentage, which is less than a majority, in
principal amount of Outstanding Debt Securities of a series may be adopted at
a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of that series. Any
resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of Debt Securities of that series
and the related coupons. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the Outstanding Debt
Securities of a series; PROVIDED, HOWEVER, that if any action is to be taken
at such meeting with respect to a consent or waiver which may be given by the
Holders of not less than 66 2/3% in principal amount of the Outstanding Debt
Securities of a series, the persons holding or representing 66 2/3% in
principal amount of the Outstanding Debt Securities of such series will
constitute a quorum (Section 1304).
CONSOLIDATION, MERGER AND SALE OF ASSETS
Holdings may, without the consent of any Holders of Outstanding Debt
Securities, consolidate or merge with or into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate or merge with or into, or transfer or lease its assets substantially
as an entirety to, Holdings, PROVIDED that (i) the Person (if other than
Holdings) formed by such consolidation or into which Holdings is merged or which
acquires or leases the assets of Holdings substantially as an entirety is
organized under the laws of any United States jurisdiction and assumes Holdings'
obligations on the Debt Securities and under the Indenture, (ii) after giving
effect to the transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have happened
and be continuing, and (iii) certain other conditions are met. (Section 801).
NOTICES
Except as may otherwise be set forth in an applicable Prospectus
Supplement relating to a series of Debt Securities, notices to Holders of Bearer
Securities will be given by publication in a daily newspaper in the English
language of general circulation in The City of New York and in London, and so
long as such Bearer Securities are listed on the Stock Exchange and the Stock
Exchange shall so require, in a daily newspaper of general circulation in
Luxembourg or, if not practical, elsewhere in Western Europe. Such publication
is expected to be made in THE WALL STREET JOURNAL, the FINANCIAL TIMES and the
LUXEMBURGER WORT. Notices to Holders of Registered Securities will be given by
mail to the addresses of such Holders as they appear in the Security Register.
(Sections 101 and 106).
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
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of the Debt Security and coupons or evidence of the destruction, loss or
theft thereof satisfactory to Holdings and the applicable Trustee; in the
case of any coupon which becomes destroyed, stolen or lost, such coupon will
be replaced by issuance of a new Debt Security in exchange for the Debt
Security to which such coupon appertains. In the case of a destroyed, lost or
stolen Debt Security or coupon an indemnity satisfactory to the applicable
Trustee and Holdings may be required at the expense of the Holder of such
Debt Security or coupon before a replacement Debt Security will be issued.
(Section 306).
CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between,
on the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the Debt Securities to which an
applicable Prospectus Supplement accompanying this Prospectus relates are
described in such Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Denominations, Registration and Transfer"), or delivered in definitive
form in connection with a sale during the restricted period, in the United
States or to United States persons other than to (a) the United States office of
(i) an international organization (as defined in Section 7701 (a)(18) of the
Code), (ii) a foreign central bank (as defined in Section 895 of the Code), or
(iii) any underwriter, agent, or dealer offering or selling Bearer Securities
during the restricted period (a "Distributor") pursuant to a written contract
with the issuer or with another Distributor, that purchases Bearer Securities
for resale or for its own account and agrees to comply with the requirements of
Section 165 (j)(3)(A), (B), or (C) of the Code, or (b) the foreign branch of a
United States financial institution purchasing for its own account or for
resale, which institution agrees to comply with the requirements of Section 165
(j)(3)(A), (B), or (C) of the Code. In addition, a sale of a Bearer Security may
be made during the restricted period to a United States person who acquired and
holds the Bearer Security on the Certification Date through a foreign branch of
a United States financial institution that agrees to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Code. Any Distributor
(including an affiliate of a Distributor) offering or selling Bearer Securities
during the restricted period must agree not to offer or sell Bearer Securities
in the United States or to United States persons (except as discussed above) and
must employ procedures reasonably designed to ensure that its employees or
agents directly engaged in selling Bearer Securities are aware of these
restrictions.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Section 165(j) and 1287(a) of the
Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations
under United States tax laws. See the applicable Prospectus Supplement for a
summary of material U.S. federal income tax consequences to United States
persons investing in Bearer Securities.
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States and an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source, and "United States" means the United States of America (including the
States and the District of Columbia) and its possessions including Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands. The term "Non-United States Holder" means any Holder which is
not an United States person.
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
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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 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 (Section 2.1). Debt Warrants may be
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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".
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
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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
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 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".
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INTEREST RATE WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Index Warrants or, separately, Interest Rate Warrants (a) in the
form of Interest Rate Put Warrants, entitling the owners thereof to receive from
Holdings the Interest Rate Cash Settlement Value (as shall be defined in the
Prospectus Supplement) in cash, which amount will be determined by reference to
the amount, if any, by which the Spot Amount (as shall be defined in the
Prospectus Supplement) is less than the Strike Amount (as shall be defined in
the Prospectus Supplement) on the applicable valuation date following exercise,
(b) in the form of Interest Rate Call Warrants, entitling the owners thereof to
receive from Holdings the Interest Rate Cash Settlement Value in cash, which
amount will be determined by reference to the amount, if any, by which the Spot
Amount on the applicable valuation date following exercise exceeds the Strike
Amount or (c) in such other form as shall be specified in the related Prospectus
Supplement. The Prospectus Supplement for an issue of Interest Rate Warrants
will set forth the formula pursuant to which the Interest Rate Cash Settlement
Value will be determined, including any multipliers, if applicable. The Strike
Amount may either be a fixed yield, price or rate of a Debt Instrument, a Rate
or any combination of Debt Instruments and/or Rates or a yield, price or rate
that varies during the term of the Interest Rate Warrants in accordance with a
schedule or formula. The Debt Instrument will be one or more instruments
specified in the applicable Prospectus Supplement issued either by the United
States government or by a foreign government. The Rate will be one or more
interest rates or interest rate swap rates established from time to time by one
or more financial institutions specified in the applicable Prospectus
Supplement.
The Prospectus Supplement will describe the terms of Interest Rate
Warrants offered thereby, the Interest Rate Warrant Agreement relating to such
Interest Rate Warrants and the Interest Rate Warrant Certificate representing
such Interest Rate Warrants, including the following: (1) the title of such
Interest Rate Warrants, (2) the aggregate amount of such Interest Rate Warrants;
(3) the initial offering price of such Interest Rate Warrants; (4) the exercise
price, if any; (5) the currency or currency unit in which the initial offering
price, the exercise price, if any, and the Interest Rate Cash Settlement Value
of such Interest Rate Warrants is payable; (6) the Debt Instrument (which may be
one or more debt instruments issued either by the United States government or by
a foreign government), the Rate (which may be one or more interest rates or
interest rate swap rates established from time to time by one or more specified
financial institutions) or the other yield, price or rate utilized for such
Interest Rate Warrants, and certain information regarding such Debt Instrument
or Rate; (7) whether such Interest Rate Warrants shall be Interest Rate Put
Warrants, Interest Rate Call Warrants or otherwise; (8) the Strike Amount, the
method of determining the Spot Amount and the method of expressing movements in
the yield or closing price of the Debt Instrument or in the level of the Rate as
a cash amount in the currency in which the Interest Rate Cash Settlement Value
of such Warrants is payable; (9) the formula for determining the Interest Rate
Cash Settlement Value, if applicable, of each Interest Rate Warrant; (10)
whether and under what circumstances a minimum and/or maximum expiration value
is applicable upon the expiration or exercise of such Interest Rate Warrants;
(11) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (12) the date on which the right to exercise such
Interest Rate Warrants shall commence and the date (the "Interest Rate Warrant
Expiration Date) on which such right shall expire; (13) any minimum number of
Interest Rate Warrants which must be exercised at any one time, other than upon
automatic exercise; (14) the maximum number, if any, of such Interest Rate
Warrants that may, subject to election by Holdings, be exercised by all owners
(or by any person or entity) on any day; (15) any provisions for the automatic
exercise of such Interest Rate Warrants other than at expiration; (16) whether
and under what circumstances such Interest Rate Warrants may be cancelled by
Holdings prior to their expiration date; (17) any provisions permitting a Holder
to condition any notice of exercise on the absence of certain specified changes
in the Spot Amount after the date 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".
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CERTAIN ITEMS APPLICABLE TO ALL WARRANTS
MODIFICATIONS
Each Warrant Agreement and the terms of each issue of Warrants may be
amended by Holdings and the applicable Warrant Agent, without the consent of the
beneficial owners or the registered holders, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained therein, or in any other manner which Holdings
may deem necessary or desirable and which will not adversely affect the
interests of the beneficial owners of the then outstanding unexercised Warrants
in any material respect (Section 6.1).
Holdings and each Warrant Agent also may modify or amend the applicable
Warrant Agreement and the terms of the related Warrants, with the consent of the
beneficial owners of not less than a majority in number of the then outstanding
unexercised Warrants affected, provided that no such modification or amendment
that reduces the amount receivable upon exercise, cancellation or expiration,
shortens the period of time during which the Warrants may be exercised or
otherwise materially and adversely affects the exercise rights of the beneficial
owners of the Warrants or reduces the percentage number of outstanding Warrants
the consent of whose beneficial owners is required for modification or amendment
of the applicable Warrant Agreement or the terms of the Warrants may be made
without the consent of the beneficial owners affected thereby (Section 6.1).
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
If at any time there is a merger or consolidation involving Holdings or a
sale, transfer, conveyance or other disposition of all or substantially all of
the assets of Holdings, then in any such event the successor or assuming
corporation shall succeed to and be substituted for Holdings, with the same
effect as if it had been named in the applicable Warrant Agreement and in the
applicable Warrants as Holdings. Holdings shall thereupon be relieved of any
further obligation under such Warrant Agreement or under such Warrants, and, in
the event of any such merger, consolidation, sale, transfer, conveyance or other
disposition, Holdings as the predecessor corporation may thereupon or at any
time thereafter be dissolved, wound up or liquidated (Section 6.2 of the Debt
Warrant Agreement and Section 3.2 of each other Warrant Agreement).
ENFORCEABILITY OF RIGHTS BY BENEFICIAL OWNER; GOVERNING LAW
Each Warrant Agent will act solely as an agent of Holdings in connection
with the issuance and exercise of the applicable Warrants and will not assume
any obligation or relationship of agency or trust for or with any owner of a
beneficial interest in any Warrant or with the registered holder thereof
(Section 5.2). A Warrant Agent shall have no duty or responsibility in case of
any default by Holdings in the performance of its obligations under the
applicable Warrant Agreement or Warrant Certificate including, without
limitation, any duty or responsibility to initiate any proceedings at law or
otherwise or to make any demand upon Holdings (Section 5.2). Beneficial owners
may, without the consent of the applicable Warrant Agent, enforce by 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.
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CERTAIN ITEMS APPLICABLE TO CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE
WARRANTS
EXERCISE OF WARRANTS
Except as may otherwise be provided in the applicable Prospectus
Supplement relating thereto, (a) each Currency Warrant, Index Warrant and
Interest Rate Warrant will entitle the owner, upon payment of the exercise
price, if any, to receive the applicable Cash Settlement Value of such Warrant,
on the applicable Exercise Date, in each case as such terms will further be
defined in the applicable Prospectus Supplement relating thereto (Section 2.2)
and (b) if not exercised prior to 1:30 p.m., New York City time, on the Business
Day preceding the applicable Warrant Expiration Date, the Warrants will be
deemed automatically exercised on such Warrant Expiration Date (Section 2.3). As
described below, Currency Warrants, Index Warrants and Interest Rate Warrants
may also be deemed to be automatically exercised if they are delisted.
Procedures for exercise of the Currency Warrants, Index Warrants and Interest
Rate Warrants will be set out in the applicable Prospectus Supplement.
MARKET DISRUPTION AND FORCE MAJEURE EVENTS
If so specified in the applicable Prospectus Supplement, following the
occurrence of a Market Disruption Event or Force Majeure Event (as each term
shall be defined therein), the Cash Settlement 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.
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The specific terms of the depository arrangement with respect to any
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depository arrangements.
Unless otherwise specified in an applicable Prospectus Supplement,
Securities which are to be represented by a Global Security in registered form
to be deposited with or on behalf of a Depository will be registered in the name
of such Depository or its nominee. Upon the issuance of a Global Security in
registered form, the Depository for such Global Security will credit the
respective principal amounts, in the case of Debt Securities, and the respective
number of warrants, in the case of Warrants represented by such Global Security
to the accounts of institutions that have accounts with such Depository or its
nominee ("participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Securities or by Holdings, if such Securities are
offered and sold directly by Holdings. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depository for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Securities represented by such Global Security for all purposes under the
applicable Indenture, in the case of Debt Securities, or under the applicable
Warrant Agreement, in the case of Warrants, governing such Securities. Except as
set forth below, owners of beneficial interests in such Global Security will not
be entitled to have Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Securities of such series in definitive form and will not be
considered the owners or holders thereof under the applicable Indenture, in the
case of Debt Securities, or under the applicable Warrant Agreement, in the case
of Warrants.
Payments in respect of Securities registered in the name of or held by a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner or the holder of the Global Security. None
of Holdings, the underwriters, the applicable Trustee or Warrant Agent, any
Paying Agent or any Security Registrar for such Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Holdings expects that the Depository for a permanent Global Security in
registered form, upon receipt of any payment in respect of a permanent Global
Security, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in such Global
Security as shown on the records of such Depository. Holdings also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
A Global Security in registered form may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such Depository
or by a nominee of such Depository to such Depository or another nominee of such
Depository or by such Depository or any such nominee to a successor of such
Depository or a nominee of such successor. If a Depository for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as Depository and a successor Depository is not appointed by Holdings
within 90 days, Holdings will issue Securities in definitive registered form in
exchange for the Global Security representing such Securities. In addition,
Holdings may at any time and in its sole discretion determine not to have any
Securities in registered form represented by one or more Global Securities and,
in such event, will issue Securities in definitive form in exchange for all of
the Global Securities representing such Securities. Further, if Holdings so
specifies with respect to the Securities of a series, an owner of a beneficial
interest in a Global Security 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)
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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."
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.
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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 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."
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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.
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.
21
<PAGE>
$9,000,000
LEHMAN BROTHERS HOLDINGS INC.
Notes Due August 31, 2006
Performance Linked to a Basket of Japanese Stocks
-------------------------------
Prospectus Supplement
August 31, 1999
(Including Prospectus dated
February 17, 1998)
-------------------------------
LEHMAN BROTHERS
