<PAGE>
FILED PURSUANT TO RULE 424(B)2
REGISTRATION NUMBER 033-53651
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 17, 1998)
$12,760,000
LEHMAN BROTHERS HOLDINGS INC.
10 UNCOMMON VALUES INDEX BASES
BASKET ADJUSTING STRUCTURED EQUITY SECURITIES NOTES, SERIES B, DUE 2004
------------------
GENERAL:
- - Senior unsecured debt securities of Lehman Brothers Holdings.
- - 10 Uncommon Values index: Ten equal dollar-weighted common stocks selected
each year by Lehman Brothers Inc.'s Investment Policy Committee with the
assistance of Lehman Brothers Inc.'s Equity Research Department that appear to
be unusually attractive and not yet recognized as such by the market.
- - Denominations: $1,000 and integral multiples thereof.
- - Stated maturity date: July 6, 2004, subject to postponement if a market
disruption event occurs.
- - Application has been made to list the notes on the American Stock Exchange
under the trading symbol "UNL.B."
PAYMENTS:
- - No periodic interest payments.
- - At stated maturity, Lehman Brothers Holdings will pay to you, per note, the
greater of:
(1) $1,000, which is the principal amount of each note; and
(2) the alternative redemption amount.
The alternative redemption amount is equal to the level of the 10 Uncommon
Values index at stated maturity, multiplied by a conversion ratio determined
by dividing $1,000, the principal amount of each note, by 122.4309, which
represents 120% of 102.0258, which was the level of the index at which an
affiliate of Lehman Brothers Holdings hedged its obligations under the notes
on July 19, 1999. You can perform this calculation using the following
formula:
<TABLE>
<S> <C> <C>
$1,000 X the level of the 10
---------------------- Uncommon Values index
122.4309
</TABLE>
As a result, you will only receive the alternative redemption amount if, on
the stated maturity date, the level of the index has increased by more than
20% from 102.0258.
- - After July 7, 2002, Lehman Brothers Holdings may redeem the 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 July 7, 2001, you may require Lehman Brothers Holdings to repurchase
your notes at a price equal to the alternative redemption amount. You will
receive payment on the third business day following the 20 business day period
which begins on the business day after you have given notice.
INVESTING IN THE NOTES INVOLVES RISKS. RISK FACTORS BEGIN ON PAGE S-7.
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% $ 12,760,000
Underwriting discount........................................................................ 0% $ 0
Proceeds to Lehman Brothers Holdings......................................................... 100% $ 12,760,000
</TABLE>
Lehman Brothers Holdings has granted the underwriter a 30-day option to purchase
up to an additional $1,914,000 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 July 22, 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
July 19, 1999
"10 Uncommon Values" is a registered trademark of, and "BASES" is a service mark
of, Lehman Brothers Inc.
<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-7
Use of Proceeds and Hedging................................................................................ S-10
Ratio of Earnings to Fixed Charges......................................................................... S-11
Description of the Notes................................................................................... S-11
The Index.................................................................................................. S-17
United States Federal Income Tax Consequences.............................................................. S-25
Book-Entry Issuance........................................................................................ S-28
Underwriting............................................................................................... S-30
Experts.................................................................................................... S-31
PROSPECTUS
Available Information...................................................................................... 2
Documents Incorporated by Reference........................................................................ 2
The Company................................................................................................ 3
Use of Proceeds............................................................................................ 3
Ratio of Earnings to Fixed Charges......................................................................... 3
Description of Debt Securities............................................................................. 4
Description of Warrants.................................................................................... 14
Global Securities.......................................................................................... 21
United States Taxation..................................................................................... 24
Capital Requirements....................................................................................... 24
Plan of Distribution....................................................................................... 24
ERISA Matters.............................................................................................. 26
Legal Opinions............................................................................................. 26
Independent Accountants.................................................................................... 26
</TABLE>
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-7
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 10 Uncommon Values index. The notes will rank
equally with all other unsecured debt of Lehman Brothers Holdings except
subordinated debt, and will mature on July 6, 2004 unless postponed because a
market disruption event occurs. See "Description of the Notes--Determination of
alternative redemption amount" beginning on page S-12.
WHAT IS THE 10 UNCOMMON VALUES INDEX?
The 10 Uncommon Values index is made up of ten equal dollar-weighted common
stocks selected each year by Lehman Brothers Inc.'s Investment Policy Committee
with the assistance of Lehman Brothers Inc.'s Equity Research Department. Prior
to selecting the common stocks underlying the index, analysts in the Equity
Research Department evaluate companies that meet certain criteria, and submit to
the Investment Policy Committee, consisting of senior members of the Equity
Research Department, those companies that they believe exhibit the best and most
exemplary qualities. From the Equity Research Department's submissions, the
Investment Policy Committee will select the ten stocks that appear to be
unusually attractive and not yet recognized as such by the market. The ten
common stocks that will initially make up the 10 Uncommon Values index for the
twelve-month period beginning July 1, 1999 are listed on page S-22.
WHAT PAYMENTS WILL I RECEIVE ON THE NOTES?
You will not receive any interest payments on the notes. You will receive a
single payment at stated maturity of the notes, or sooner if Lehman Brothers
Holdings redeems your notes or you instruct Lehman Brothers Holdings to
repurchase your 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 10 Uncommon Values index. At stated maturity, you will receive a
payment on each note equal to the greater of:
- - $1,000, which is the principal amount of each note; and
- - the alternative redemption amount.
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 July 7, 2002 at a redemption price per note equal to the
greater of:
- - $1,000, which is the principal amount of each note; and
- - the alternative redemption amount.
As a result, if Lehman Brothers Holdings redeems your notes, you will not
receive less than the principal amount.
S-3
<PAGE>
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 July 7, 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, 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 20
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-12.
If Lehman Brothers Holdings repurchases your notes, the amount you receive may
be greater or less than the principal amount of $1,000 per note.
HOW WILL THE ALTERNATIVE REDEMPTION AMOUNT BE CALCULATED?
The alternative redemption amount per note will be calculated by the following
formula:
<TABLE>
<S> <C> <C>
1,000 X the level of the 10
---------------------- Uncommon Values index
122.4309
</TABLE>
This formula accounts for the 20% increase above the level of the index at which
an affiliate of Lehman Brothers Holdings hedged its obligations under the notes
on July 19, 1999 that must occur before you receive any amount above the
principal amount of $1,000 per note and the portion of any increase that you
will receive if the index has increased by more than 20%.
The level of the 10 Uncommon Values index at stated maturity or upon redemption
or repurchase will be generally based on the average closing prices of the
common stocks and other equity securities underlying the index during the 20
business days ending on the third business day prior to the stated maturity, the
redemption date or the repurchase date, as the case may be. The level of the 10
Uncommon Values index will also include any cash included in the index 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-12 for details.
ALTERNATIVE REDEMPTION AMOUNT--EXAMPLES
Here are two examples of hypothetical alternative redemption amount
calculations:
EXAMPLE 1: THE LEVEL OF THE 10 UNCOMMON VALUES INDEX IS 110.
Alternative redemption amount per note =
$1,000 X 110 = $898.47
122.4309
As a result, at stated maturity or upon redemption, you will receive the
principal amount of $1,000 per note because the principal amount is greater than
$898.47. If you require Lehman Brothers Holdings to repurchase your notes, you
will only receive $898.47.
EXAMPLE 2: THE LEVEL OF THE 10 UNCOMMON VALUES INDEX IS 150.
Alternative redemption amount per note =
$1,000 X 150 =$1,225.18
122.4309
As a result, at stated maturity or upon redemption, you will receive $1,225.18
per note because that amount is greater than the principal amount per note of
$1,000. If you require Lehman Brothers Holdings to repurchase your notes, you
will also receive $1,225.18.
HOW HAS THE 10 UNCOMMON VALUES PERFORMED HISTORICALLY?
Lehman Brothers Holdings has provided a table, on page S-19, showing the
performance of the 10 Uncommon Values from 1949 through 1998. Lehman Brothers
Holdings has provided this historical information to help you evaluate the
behavior of the 10 Uncommon Values 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
S-4
<PAGE>
necessarily indicative of how the index and notes will perform in the future.
WHAT CHANGES WILL OCCUR IN THE INDEX?
On or about July 1 of each year, the common stocks and other equity securities
that underlie the index will be replaced when Lehman Brothers Inc. chooses the
ten new common stocks that will make up the 10 Uncommon Values index for the
next twelve-month period. In addition, changes will be made to the index if the
issuers whose common stocks underlie the index 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 index and the index 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 index. See "The Index--Adjustments to the multipliers and the
index" beginning on page S-23.
HOW WILL I BE ABLE TO FIND THE COMMON STOCKS AND OTHER EQUITY SECURITIES
INCLUDED IN THE INDEX AND THE LEVEL OF THE INDEX?
You can call Lehman Brothers Inc. at 212-526-0900 to obtain this information and
the number of shares of each of the common stocks and other equity securities
underlying the index per note. You may also obtain a listing of the common
stocks and other equity securities included in the index from Lehman Brothers
Inc.'s website at http://www.lehman.com. You may also obtain the level of the 10
Uncommon Values index from the Bloomberg-Registered Trademark- service under the
symbol "UVL." The ten common stocks that will initially make up the 10 Uncommon
Values index for the twelve-month period beginning July 1, 1999 are listed on
page S-22.
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-7.
WHAT ABOUT TAXES?
The notes will be subject to U.S. Treasury regulations concerning 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-25.
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 "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. Each year, Lehman Brothers
Inc.'s Investment Policy Committee, with the assistance of Lehman Brothers
Inc.'s Equity Research Department, will select the common stocks that make up
the 10 Uncommon Values index. 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 will determine the
common stocks included in the index and act as the calculation agent" on page
S-9 and "Description of the Notes-- Calculation agent" beginning on page S-15.
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
S-5
<PAGE>
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.
WILL THE NOTES BE LISTED ON A STOCK EXCHANGE?
Lehman Brothers Holdings has applied to list the notes on the American Stock
Exchange. You should be aware that the listing of the notes on the American
Stock Exchange will not necessarily ensure that a liquid trading market will be
available for the notes.
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-6
<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 10 Uncommon Values
index 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, 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. This may be true even
if the level of the index exceeds 100 at some time during the life of the
notes because the index must increase by more than 20% above the level of the
index at which an affiliate of Lehman Brothers Holdings hedged its obligations
under the notes on July 19, 1999 before the alternative redemption amount
becomes greater than $1,000.
- - NO PERIODIC INTEREST WILL BE PAID ON THE NOTES. No periodic payments of
interest will be made on the notes. However, because the notes will be
classified as contingent payment debt instruments, they will be considered to
be issued with original issue discount. As a result, you will be required to
include the original issue discount in income during your ownership of the
notes, subject to some adjustments. See "United States Federal Income Tax
Consequences" beginning on page S-25.
YOUR RETURN ON THE NOTES COULD BE LESS THAN IF YOU OWNED THE COMMON STOCKS OR
OTHER EQUITY SECURITIES UNDERLYING THE INDEX OR OTHER INDEXED SECURITIES.
- - YOU WILL NOT RECEIVE ANY APPRECIATION UNLESS THE INDEX INCREASES BY MORE THAN
20%. Because you will not receive any appreciation until the index increases
by more than 20% above the level of the index at which an affiliate of Lehman
Brothers Holdings hedged its obligations under the notes on July 19, 1999,
your return on the notes could be less than the return obtainable if you had
owned the common stocks or other equity securities underlying the index or an
indexed instrument that is directly linked to those common stocks or other
equity securities. Even if the index increases by more than 20%, you will
realize only a portion of the increase above 20%.
- - YOUR RETURN WILL NOT REFLECT DIVIDENDS ON THE COMMON STOCKS OR OTHER EQUITY
SECURITIES UNDERLYING THE INDEX. 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 underlying the index 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 underlying the index
without taking into consideration the
S-7
<PAGE>
value of dividends paid on those common stocks or other equity securities.
HISTORICAL 10 UNCOMMON VALUES RETURNS SHOULD NOT BE TAKEN AS AN INDICATION OF
THE FUTURE PERFORMANCE OF THE INDEX DURING THE TERM OF THE NOTES.
The trading prices of the common stocks and other equity securities underlying
the index and the cash included in the index will determine the level of the
index. As a result, it is impossible to predict whether the level of the index
will fall or rise. Trading prices of the common stocks and other equity
securities underlying the index 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 the underlying common stocks
and other equity securities themselves. Also, individuals on the Investment
Policy Committee and in the Equity Research Department of Lehman Brothers Inc.
who participate in the selection of the common stocks that underlie the 10
Uncommon Values have changed from time to time since the introduction of the 10
Uncommon Values and may also change during the term of the notes.
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 index 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 index is less than, equal to, or not sufficiently above
122.4309, which is 120% of 102.0258, which was the level of the index at which
an affiliate of Lehman Brothers Holdings hedged its obligations under the notes
on July 19, 1999. An increase of 20% above 102.0258 is the increase that must
occur before you participate in the index'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 index
level exceeds 120% of 102.0258. If you decide to sell your notes when the
level of the index does not exceed this level, you may receive substantially
less than the amount that would be payable at stated maturity based on that
index level because of expectations that the index will continue to fluctuate
until the alternative redemption amount is determined. If you decide to sell
your notes when the level of the index is below 120% of 102.0258, you can
expect to receive less than the principal amount of the note. Political,
economic and other developments that affect the stocks underlying the index
may also affect the level of the index and, thus, the value of the notes.
- - INTEREST RATES. Because the notes repay at least their principal amount at
stated maturity, the trading value of the notes will be affected by changes in
interest rates. In general, if U.S. interest rates increase, the trading value
of the notes may be adversely affected, and if U.S. interest rates decrease,
the trading value of the notes may be favorably affected.
- - VOLATILITY OF THE INDEX. Volatility is the term used to describe the size and
frequency of market fluctuations. If the volatility of the index 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 underlying the index may be affected by mergers and acquisitions,
which can contribute to volatility of the index. Additionally, as a result of
a merger or acquisition, one or more common stocks or other equity securities
underlying the index may be replaced in the index with a surviving or
acquiring entity's securities. The surviving or acquiring entity's
S-8
<PAGE>
securities may not have the same characteristics as the common stock
originally included in the index.
- - 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 underlying common stocks or other
equity securities underlying the index increase, the value of the notes may be
adversely affected, since the index 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 UNDERLYING COMPANIES. General
economic conditions and earnings results of the companies whose common stocks
and other equity securities underlie the index 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 index level. 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.
LEHMAN BROTHERS HOLDINGS CANNOT CONTROL ACTIONS BY THE COMPANIES WHOSE COMMON
STOCKS OR OTHER EQUITY SECURITIES MAKE UP THE 10 UNCOMMON VALUES INDEX.
Actions by any company whose common stock or other equity security is part of
the index may have an adverse effect on the price of their common stock or other
equity security, the index 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 DETERMINE THE COMMON STOCKS INCLUDED IN THE
INDEX AND ACT AS THE CALCULATION AGENT.
Lehman Brothers Holdings controls Lehman Brothers Inc., whose Investment Policy
Committee, with the assistance of Lehman Brother Inc.'s Equity Research
Department, will select the common stocks included on the index each year.
Lehman Brothers Inc. will, among other things, also 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 index 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" beginning on page S-11, "--Market disruption
events" beginning on page S-13 and "The Index--Adjustments to the multipliers
and the index" beginning on page S-23.
THE COMMON STOCKS THAT WILL MAKE UP THE INDEX WILL CHANGE EVERY YEAR AND COULD
BE CONCENTRATED IN ONE OR MORE INDUSTRIES.
The common stocks that make up the index will change every year. It is possible
that two or more of the common stocks or other equity securities that make up
the index in any year could be issued by companies whose principal business
activities are in the same industry and therefore, the index could be deemed to
be concentrated in that industry. If the index is
S-9
<PAGE>
concentrated in any industry, it will be more susceptible to developments
affecting that industry and may be subject to greater risk of loss. For example,
two of the ten common stocks underlying the index announced on July 1, 1999 are
of issuers in either the semiconductor or semiconductor equipment industries.
Industry concentration of the index in a particular year could be different in
later years.
PURCHASES AND SALES OF THE COMMON STOCKS OR OTHER EQUITY SECURITIES UNDERLYING
THE INDEX BY LEHMAN BROTHERS HOLDINGS AND ITS AFFILIATES COULD AFFECT THE PRICES
OF THOSE COMMON STOCKS OR OTHER EQUITY SECURITIES OR THE LEVEL OF THE INDEX.
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
underlying the index 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 index. 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
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-25.
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 10 Uncommon Values index. 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 index, 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 index, 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
S-10
<PAGE>
stocks and other equity securities that underlie the index. 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 index and, accordingly,
increase or decrease the level of the index. 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 index, 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 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 $14,674,000 aggregate principal amount
of notes. The notes will be issued in denominations of $1,000 and integral
multiples thereof.
INTEREST
No stated interest is payable on the notes or the principal amount thereof.
However, if and to the extent that the amount received at stated maturity or
upon earlier redemption, repurchase or sale exceeds $1,000, 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 July 6, 2004 unless postponed because a market
disruption event occurs; see "--Determination of alternative redemption amount"
beginning on page S-12. 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 note, at stated maturity, the
greater of:
- - $1,000, which is the principal amount of each note; and
- - the alternative redemption amount, as described below.
S-11
<PAGE>
If the alternative redemption amount is less than or equal to $1,000 per note,
because the repayment of your principal amount is protected, you will be
entitled to receive $1,000 per note at stated maturity.
EARLY REDEMPTION OF THE NOTES AT THE OPTION OF LEHMAN BROTHERS HOLDINGS
On or after July 7, 2002, Lehman Brothers Holdings may redeem all or part of the
notes on one or more occasions, at a redemption price per note equal to the
greater of:
- - $1,000, which is the principal amount of the each note; and
- - the alternative redemption amount.
If the alternative redemption amount is less than or equal to $1,000 per note,
because the repayment of your principal amount is protected, you will be
entitled to receive $1,000 per note 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 July 7, 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 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 20
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" beginning on page S-12.
If Lehman Brothers Holdings repurchases your notes, the amount you receive per
note may be greater or less than the principal amount of $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 for each note will be determined by the
calculation agent by the following formula:
<TABLE>
<S> <C> <C>
1,000 X the level of the 10
---------------------- Uncommon Values index
122.4309
</TABLE>
This formula accounts for the 20% increase above the level of the index at which
an affiliate of Lehman Brothers Holdings hedged its obligations under the notes
on July 19, 1999 that must occur before you receive any amount above the
principal amount of $1,000 per note and the portion of any increase you will
receive if the index has increased by more than 20%.
S-12
<PAGE>
The level of the 10 Uncommon Values index at stated maturity or upon redemption
or repurchase, as the case may be, will be determined by the calculation agent
and will based on the average closing prices of the common stocks and other
equity securities underlying the index during the 20 business day period ending
on the third business day prior to the stated maturity, the redemption date or
the repurchase date, as the case may be, and any cash included in the index.
However, if the calculation agent determines that one or more market disruption
events have occurred during that 20 business day period, but not for every day
during that period, with respect to one or more common stocks or other equity
securities underlying the index, the calculation agent will determine the
average closing price of those affected stocks or securities using the business
days between the beginning of that period and the third business day prior to
the payment date on which there was no market disruption event. If a market
disruption event occurs on each day during that 20 business day period for a
particular common stock or other equity security underlying the index, then the
level of the index will include its closing price on the next 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
above 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 underlying the index are
listed or traded on a bulletin board at the time the alternative redemption
amount is determined, 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. "Closing prices" means the closing prices on the
relevant exchange, trading system or market at 4:00 P.M., New York City time.
MARKET DISRUPTION EVENTS
A market disruption event with respect to a common stock or other equity
security underlying the index 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 organized U.S. exchange or trading system on which that
security is traded or, in the case of a common stock or other equity security
not listed or quoted in the United States, on the primary exchange, trading
system or market for such security. Limitations on trading during significant
market fluctuations imposed pursuant to New York Stock Exchange Rule 80B or
any applicable rule or regulation enacted or promulgated by the New York Stock
Exchange, any other exchange, trading system, or market, any other self
regulatory organization or the SEC of similar scope or as a replacement for
Rule 80B, may be considered material. For purposes of this prospectus
supplement, "trading system" includes bulletin board services. Notwithstanding
the first sentence of this paragraph, a market disruption event for a security
traded on a bulletin board means a suspension, absence or material limitation
of trading of that security for more than two hours or during the one hour
period preceding 4:00 P.M., New York City time.
- - 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
S-13
<PAGE>
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 any major U.S. exchange or
trading system or, in the case of securities of a non-U.S. issuer, traded on
the primary non-U.S. 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 an underlying common stock
or other equity security 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 4:00 P.M., New York City 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.
Based on the information currently available to Lehman Brothers Holdings, on
October 27, 1997, the New York Stock Exchange suspended all trading during the
one-half hour period preceding the close of trading pursuant to New York Stock
Exchange Rule 80B. On April 3, 1992, no trading took place on the Chicago
Mercantile Exchange, as a flood that severely affected the operations of many of
the CME's member institutions caused the CME to suspend trading for the entire
day. If either of these suspensions of trading occurs during the term of the
notes, that event could constitute a market disruption event. The existence or
non-existence of such circumstances, however, is not necessarily indicative of
the likelihood of those circumstances arising or not arising in the future.
HYPOTHETICAL RETURNS
The table on the following page illustrates, for a range of hypothetical ending
levels of the 10 Uncommon Values index on the stated maturity date of July 6,
2004:
- - the hypothetical level of the 10 Uncommon Values index per note;
- - the hypothetical alternative redemption amount per note;
- - the percentage change from the principal amount to the hypothetical
alternative redemption amount per note;
- - the hypothetical total amount payable per note;
- - the hypothetical total rate of return on the notes; and
- - the hypothetical pre-tax annualized rate of return on the notes.
S-14
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE OF
HYPOTHETICAL ALTERNATIVE ANNUALIZED
ENDING HYPOTHETICAL REDEMPTION TOTAL AMOUNT PRE-TAX
LEVEL OF THE ALTERNATIVE AMOUNT OVER PAYABLE AT RATE OF
10 UNCOMMON REDEMPTION THE PRINCIPAL STATED TOTAL RATE OF RETURN
VALUES INDEX AMOUNT PER AMOUNT PER MATURITY PER RETURN ON ON THE
PER NOTE NOTE NOTE NOTE THE NOTES NOTES
- ------------------- ----------------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
50............ 408 -59% 1000 0% 0.00%
60............ 490 -51% 1000 0% 0.00%
70............ 572 -43% 1000 0% 0.00%
80............ 653 -35% 1000 0% 0.00%
90............ 735 -26% 1000 0% 0.00%
100........... 817 -18% 1000 0% 0.00%
110........... 898 -10% 1000 0% 0.00%
120........... 980 -2% 1000 0% 0.00%
130........... 1062 6% 1062 6% 1.21%
140........... 1144 14% 1144 14% 2.72%
150........... 1225 23% 1225 23% 4.15%
160........... 1307 31% 1307 31% 5.50%
170........... 1389 39% 1389 39% 6.79%
180........... 1470 47% 1470 47% 8.01%
190........... 1552 55% 1552 55% 9.19%
200........... 1634 63% 1634 63% 10.31%
210........... 1715 72% 1715 72% 11.39%
220........... 1797 80% 1797 80% 12.44%
230........... 1879 88% 1879 88% 13.44%
240........... 1960 96% 1960 96% 14.41%
250........... 2042 104% 2042 104% 15.35%
260........... 2124 112% 2124 112% 16.26%
270........... 2205 121% 2205 121% 17.14%
280........... 2287 129% 2287 129% 17.99%
290........... 2369 137% 2369 137% 18.82%
300........... 2450 145% 2450 145% 19.63%
</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 10 Uncommon Values index and the alternative
redemption amount determined by the calculation agent. In particular, the actual
level of the 10 Uncommon Values index 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
S-15
<PAGE>
redemption amount or the $1,000 principal amount of each note.
In addition, the calculation agent will determine:
- - the closing level of the index at the end of each twelve-month period; see
"The Index-- Calculation of the 10 Uncommon Values index" beginning on page
S-20;
- - if adjustments are required to the multipliers or the index under various
circumstances; see "The Index--Adjustments to the multipliers and the index"
beginning on page S-23; and
- - whether a market disruption event has occurred; see "--Market disruption
events" beginning on page S-13.
Furthermore, if the American Stock Exchange is unable to obtain certain
information necessary for its daily calculation and dissemination of the level
of the index, the calculation agent will provide the necessary information. See
"The Index--Calculation of the 10 Uncommon Values index" beginning on page S-20.
For these purposes, the calculation agent will use the following procedures:
- - For determining the value of an underlying foreign common stock or other
equity security underlying the index, the calculation agent will, once a day,
value the underlying security using the most recent sales price available from
the primary exchange, trading system or market in the home market quoted as of
4:00 P.M., New York City time, for the foreign common stock or other equity
security;
- - For determining the applicable foreign exchange conversion rate for any
foreign common stock or other equity security underlying the index, the
calculation agent will use the appropriate official W.M. Reuters spot closing
rates, if available, to convert non-U.S. traded securities prices from the
respective countries' currencies to U.S. dollars. If there are several quotes,
the first quoted rate in that minute will be used to calculate the index. In
the event there is no such exchange rate for a country's currency at 11:00
A.M., New York City time, securities will be valued at the last available
dollar cross-rate quote before 11:00 A.M., New York City time.
- - For determining the value of a common stock or other equity security that is
listed or quoted on a bulletin board service, the calculation agent will,
-- when calculating the alternative redemption amount or the closing level of
the index for the end of each twelve-month period when Lehman Brothers Inc.
selects the new common stocks that will underlie the index, 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; and
-- when calculating the value of the index each day, the calculation agent
will use the average of the midpoint of the bid and ask prices provided by
three market makers in that common stock or other equity security. The
calculation agent will normally obtain the bid and ask prices promptly upon
the opening of trading on that day.
- - 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 Index--Adjustments to the
multipliers and the index" beginning on page S-23, 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
underlying the index, the "close of business" or "at closing" means 4:00 P.M.,
New York City 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.
S-16
<PAGE>
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 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.
THE INDEX
Each year since 1949, the Investment Policy Committee of Lehman Brothers Inc.,
with the assistance of its Equity Research Department (or of a predecessor
firm), has selected a portfolio of "10 Uncommon Values" in common stocks. The
Equity Research Department currently follows approximately 1,000 companies.
Months before the Investment Policy Committee makes the final determination for
the annual 10 Uncommon Values portfolio, Lehman Brothers Inc.'s equity analysts
evaluate companies that meet certain criteria, and submit to the Investment
Policy Committee those companies that they believe exhibit the best and most
exemplary qualities. As in the past, the Investment Policy Committee, consisting
of senior members of the Equity Research Department, will select from the
analysts' submissions the ten stocks that appear to be unusually attractive and
not yet recognized as such by the market. The selection is not limited to small,
high growth companies.
Prior to the release to the public of the common stocks that will underlie the
10 Uncommon Values index for the next twelve months, no one will know the
identities of the underlying common stocks other than (1) the Investment Policy
Committee of Lehman Brothers Inc., (2) certain analysts in the Equity Research
Department who are not on the Investment Policy Committee but who cover the
component-companies and who are responsible for preparing marketing materials
and (3) Lehman Brothers Inc.'s compliance department. The compliance department
will monitor and review the personal trading activities of the Lehman Brothers
Inc. employees who know the identities of the component-companies prior to their
release to the public. In addition, certain employees of the American Stock
Exchange will know the identities of the component-companies prior to their
release. In order to prepare for the listing of the notes and the dissemination
of the index levels, including the preparation of the exchange's systems,
employees of the American Stock Exchange must know the identities of the
component-companies.
PERFORMANCE RECORD OF THE 10 UNCOMMON VALUES PORTFOLIOS GENERALLY
Lehman Brothers Inc. has calculated, for each year in the period 1949-1998,
results of investment in the 10 Uncommon Values portfolios assuming:
- - purchase of approximately equal dollar amounts of each of the 10 Uncommon
Values common stocks selections in a given year at the closing sale prices
immediately prior to the announcement of the choices;
- - all ten common stocks are held for approximately twelve months, generally
ending on June 30; and
- - the portfolio is sold at the closing sale prices on the trading day prior to
the announcement of the new 10 Uncommon Values common stocks selections.
These calculations do not include accumulation or reinvestment of dividends and
do not take into account capital gains taxes and brokerage commissions. The
calculation of the historical performance figures differs from the method for
both the calculation of the closing prices that will be used to determine the
alternative redemption amount and the calculation of the index that will be
disseminated by the American Stock Exchange. The historical performance of the
10 Uncommon Values was determined using the closing sale prices of the common
stocks
S-17
<PAGE>
underlying the 10 Uncommon Values on the trading day prior to the announcement
of the new common stocks that would underlie the 10 Uncommon Values for the next
twelve months. In contrast, the alternative redemption amount will generally be
determined using the average of the closing prices of the common stocks and
other equity securities underlying the index during the 20 business day period
ending on the third business day prior to the payment date and any cash included
in the index. The American Stock Exchange will calculate the index by using the
closing price of the common stocks and other equity securities underlying the
index and any cash included in the index (that is, there will be no 20-day
averaging).
Between 1949 and 1998, of the 500 common stocks recommended, 342 advanced, 155
declined and 3 remained unchanged in the year of the recommendation. During this
period, the 10 Uncommon Values portfolio has outperformed the S&P 500 in 37 of
50 years. The level of the 10 Uncommon Values portfolio has declined in 11 of 50
years. The chart on the next page sets forth for each year in the period
1949-1998:
- - the percentage change in the S&P 500;
- - the percentage change in the 10 Uncommon Values; and
- - The number of 10 Uncommon Values stocks in each year that advanced, declined
or remained unchanged.
S-18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGE 10 UNCOMMON VALUES STOCKS
-------------------------------- -----------------------------------------
YEAR S&P 500 10 UNCOMMON VALUES ADVANCE DECLINE UNCHANGED
- --------- ----------- ------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1949 23.03% 46.49% 10 0 0
1950 17.78 40.85 10 0 0
1951 17.44 14.54 8 2 0
1952 -3.63 -4.67 4 6 0
1953 21.00 33.64 10 0 0
1954 40.47 51.49 10 0 0
1955 14.48 -1.78 5 5 0
1956 0.62 11.80 7 3 0
1957 -4.99 -4.65 3 7 0
1958 29.13 62.49 10 0 0
1959 -1.79 -7.48 3 7 0
1960 13.44 34.40 10 0 0
1961 -12.54 -9.51 2 8 0
1962 24.36 45.05 10 0 0
1963 15.15 25.69 10 0 0
1964 2.68 5.12 6 4 0
1965 2.17 18.89 7 2 1
1966 7.07 17.72 7 3 0
1967 9.60 22.97 9 1 0
1968 -2.26 28.00 10 0 0
1969 -24.51 -38.47 2 8 0
1970 33.37 52.48 9 1 0
1971 9.34 10.08 5 5 0
1972 -2.69 -23.73 2 8 0
1973 -17.51 -11.91 3 7 0
1974 10.69 30.82 8 2 0
1975 9.55 11.22 8 1 1
1976 -3.64 3.41 5 5 0
1977 -4.93 19.62 6 4 0
1978 7.73 5.00 6 4 0
1979 11.01 22.23 6 4 0
1980 14.85 24.72 8 1 1
1981 -16.46 -9.85 3 7 0
1982 53.37 124.90 9 1 0
1983 -8.88 -15.33 1 9 0
1984 25.24 39.62 10 0 0
1985 30.75 29.13 6 4 0
1986 21.19 3.06 6 4 0
1987 -10.03 -8.15 2 8 0
1988 16.26 13.99 6 4 0
1989 12.59 15.98 6 4 0
1990 3.67 7.02 8 2 0
1991 9.96 9.41 8 2 0
1992 10.39 35.37 9 1 0
1993 -1.39 22.33 8 2 0
1994 22.62 13.01 8 2 0
1995 23.11 31.41 9 1 0
1996 31.99 36.54 8 2 0
1997 28.10 48.60 7 3 0
1998 21.07 51.16 9 1 0
--- --- ---
342 155 3
--- --- ---
--- --- ---
</TABLE>
S-19
<PAGE>
The results of ownership of notes will not be the same as the results of
ownership of the underlying common stocks and from investment results which may
be calculated by Lehman Brothers Inc. using the assumptions above.
This past record does not guarantee that this record will continue in the
future. The performance information and the charts above represent past
performance of the 10 Uncommon Values portfolios and not the performance of the
notes. The notes have no performance history.
In selecting the 10 Uncommon Values common stocks, Lehman Brothers Holdings does
not express any belief as to the potential of those common stocks for capital
appreciation over a period longer than one year. There is, of course, no
assurance that the notes will appreciate in value or, in fact, that they will
have any value. See "Risk Factors" beginning on page S-7.
CALCULATION OF THE 10 UNCOMMON VALUES INDEX
The 10 Uncommon Values index will represent an equal dollar-weighted portfolio
of the common stocks of the ten companies underlying the 10 Uncommon Values for
each twelve-month period. The level of the index will increase or decrease by
the performance of the common stocks and other equity securities that make up
the 10 Uncommon Values index from time to time. The level of the index will also
include the cash in the index.
The American Stock Exchange will calculate and disseminate the level of the
index every 15 seconds via the Consolidated Tape Association Network B. It will
use, to the extent possible, the most recent sale prices of the underlying
common stocks and other equity securities reported by the primary exchanges,
trading systems or markets on which the common stocks and other equity
securities are listed or traded. At the beginning of each day that the index is
calculated, the initial level of the index will be the same as the closing index
level from the previous day that the index level is calculated. As opening
trades in the underlying common stocks and other equity securities are reported
by the primary exchanges, trading systems or markets, these trades will be
reflected in the published index, to the extent possible.
To the extent a foreign security underlies the index, the American Stock
Exchange will value the underlying security at least once each day. If the
American Stock Exchange is not able to value a foreign security more than once
each day, it will use the most recent sales price from the primary exchange,
trading system or market in that security's home market quoted at 4:00 P.M., New
York City time. The official W.M. Reuters spot closing rates will be used to
convert non-U.S. traded securities prices from the respective countries'
currencies to U.S. dollars, if available. If there are several quotes, the first
quoted rate in that minute will be used to calculate the index. If there is no
such exchange rate for a country's currency at 11:00 A.M., New York City time,
securities will be valued at the last available U.S. dollar cross-rate quote
before 11:00 A.M., New York City time. To the extent that the American Stock
Exchange is unable to obtain such information, the calculation agent will
provide such information, using the above sources, to the American Stock
Exchange.
Furthermore, to the extent the American Stock Exchange is unable to obtain other
information as to values essential to the American Stock Exchange's calculation
and dissemination of the index or the above information is unable to be
obtained, the calculation agent will provide that information to the American
Stock Exchange. See "Description of the Notes--Calculation agent" beginning on
page S-15 for a description of the methods the calculation agent will use to
determine these values. This calculation process will continue throughout each
day that the index is calculated.
After the close of trading on each day that the index is calculated, the index
will continue to be updated to reflect the effects of any corrections,
cancellations or late reported sales until the time at which the New York Stock
Exchange disseminates its closing summary reports showing closing prices. The
closing summaries for the primary exchanges, trading system or markets will
generally be considered the definitive source of closing price data when
available. For purposes of determining the index levels, "close
S-20
<PAGE>
of trading" or "closing" means 4:00 P.M., New York City time.
The index will be monitored daily for various types of corporate actions that
may require an adjustment to the index. See "--Adjustments to the multipliers
and the index" beginning on page S-23.
Lehman Brothers Holdings expects that the announcement of the ten common stocks
that will make up the 10 Uncommon Values index will be made on or about July 1
of each year during the term of the notes. The calculation agent will determine
the closing level of the index for each twelve-month period ending on or about
June 30th based on the primary exchange's, trading system's or trading market's
closing prices of the common stocks and other equity securities underlying the
index together with any cash included in the index, in each case on the trading
day prior to the announcement of the new common stocks that will make up the 10
Uncommon Values index. The level of the index so determined will then be assumed
to be used to buy, on the next trading day, equal dollar amounts of the ten
common stocks that will underlie the 10 Uncommon Values index for the next
twelve-month period using the average execution price for those common stocks
that an affiliate of Lehman Brothers Holdings pays to hedge Lehman Brothers
Holdings' obligations under the notes. As a result, on the day that the new
common stocks that will underlie the index are announced, the level of the index
will not change until the affiliate of Lehman Brothers Holdings completes its
purchases of these new common stocks. The calculations will not include
accumulation or reinvestment of dividends and will not take into account capital
gains taxes and brokerage commissions.
For example, assume that after the first twelve months, on the day prior to the
day on which Lehman Brothers Inc. announces the new common stocks that make up
the 10 Uncommon Values index, the closing level of the index was 125. When
Lehman Brothers Inc. selects the ten new common stocks that will make up the
index for the upcoming year, the index will start at 125 and be split as equally
as possible on an equal-dollar basis among the ten new common stocks.
If, for purposes of determining the closing level of the index, a market
disruption event for any underlying common stock or other equity security occurs
on the day on which the closing sales prices are to be determined, then the
price of that common stock or other equity security will be initially determined
using the closing price on the previous business day on which there was not a
market disruption event. The closing price that was initially determined will
then be adjusted, once a market disruption event ceases to exist, to equal the
average execution price an affiliate of Lehman Brothers Holdings receives upon
the sale of that common stock or other equity security used to hedge Lehman
Brothers Holdings' obligations under the notes. Corresponding adjustments will
then be made to the multipliers for the new common stocks underlying the index.
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
underlying common stocks, other equity securities or, in the case of American
Depositary Receipts, the underlying foreign shares, 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 underlying
common stock or other equity securities.
S-21
<PAGE>
THE TEN COMMON STOCKS THAT WILL INITIALLY MAKE UP THE 10 UNCOMMON VALUES INDEX
FOR THE TWELVE-MONTH PERIOD BEGINNING ON JULY 1, 1999
The following is a list of the ten common stocks that will initially make up the
10 Uncommon Values index for the twelve-month period beginning on July 1, 1999
and their jurisdiction of incorporation, industry group, principal trading
market and stock symbol.
<TABLE>
<CAPTION>
PRINCIPAL TRADING
ISSUER INDUSTRY GROUP(1) MARKET STOCK SYMBOL
- -------------------------------------- ----------------------------------- ----------------- -----------------
<S> <C> <C> <C>
America Online, Inc................... Internet media and services NYSE AOL
AT&T Corp............................. Telecommunications services NYSE T
Firstar Corporation................... Regional banks NYSE FSR
Ford Motor Company.................... Automobiles NYSE F
General Instrument Corporation........ Telecommunications equipment NYSE GIC
Intel Corporation..................... Semiconductors NASDAQ INTC
KLA-Tencor Corporation................ Semiconductor equipment NASDAQ KLAC
Eli Lilly and Company................. Pharmaceuticals NYSE LLY
Microsoft Corporation................. Technology NASDAQ MSFT
Tyco International Ltd................ Multi-industry NYSE TYC
</TABLE>
- ------------------------
(1) As designated by Lehman Brothers Inc.'s Equity Research Department.
NOTICE OF LEVEL OF AND COMMON STOCKS UNDERLYING THE 10 UNCOMMON VALUES INDEX
The level of the index at the close of trading on July 19, 1999 was 101.88.
By July 15 of each year beginning in 2000, Lehman Brothers Holdings will send
notice to DTC of the following:
- - the level of the index as of July 1 of that year;
- - the ten new common stocks that will make up the 10 Uncommon Values index for
the next twelve months beginning on or about July 1 of that year; and
- - the number of shares, including fractions of a share, of each of the ten
common stocks underlying the index. In this prospectus, that number of shares
is also sometimes called a "multiplier".
Lehman Brothers Holdings will request DTC to send a copy of that notice to each
of its participants, who are expected to forward a copy to the beneficial
owners.
You can also call Lehman Brothers Inc. at 212-526-0900 to obtain this
information and the number of shares of each of the common stocks and other
equity securities underlying the index per note. You may also obtain a listing
of the common stocks and other equity securities included in the index from
Lehman Brothers Inc.'s website at http://www.lehman.com. You may also obtain the
level of the 10 Uncommon Values index from the Bloomberg-Registered Trademark-
service under the symbol "UVL."
THE MULTIPLIERS FOR THE UNDERLYING COMMON STOCKS
The initial multiplier for each common stock underlying the index will be the
number of shares, or fraction of a share, of each common stock required to be
included in the calculation of the index so that each common stock represents
10% of the index on an equal dollar-weighted basis. The price used to determine
the multiplier for each underlying common stock will be the average execution
price for each common stock that an affiliate of Lehman Brothers Holdings pays
to hedge Lehman Brothers Holdings' obligations under the notes on the date that
Lehman Brothers Inc. announces the ten new common stocks that will make up the
index for the upcoming year. This date will be on or about July 1 of each year.
The multipliers for each security will remain constant for the next twelve
months unless adjusted for the extraordinary corporate events described below.
S-22
<PAGE>
Each multiplier will be rounded at the calculation agent's discretion.
ADJUSTMENTS TO THE MULTIPLIERS AND THE INDEX
Adjustments to a multiplier and the index will be made in the following
circumstances:
- - If an underlying common stock is subject to a stock split or reverse stock
split, or similar adjustment in the case of ADRs, 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 the common
stock is an ADR, then the number of ADRs outstanding will be used.
- - If an underlying 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 an underlying 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 index
so long as the primary exchange, trading system or market is reporting a
market price for the common stock. If a market price, including a price on a
bulletin board service, is no longer available for an underlying common stock,
then the value of the underlying 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 index to compensate for the
deletion of the underlying common stock.
- - If the issuer of an underlying common stock, or if an underlying common stock
is an ADR, the foreign issuer of the underlying foreign share, has been
subject to a merger or consolidation and is not the surviving entity and
holders of the underlying common stock are entitled to receive cash,
securities, other property or a combination thereof in exchange for the
underlying common stock, then the following will be included in the index:
-- To the extent cash is received, the index 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 day that the new common stocks are chosen for the
index. Interest will accrue at a rate equal to 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 underlying common stock
will be removed from the index and the new securities will be added to the
index. The multiplier for the new underlying 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 underlying security
exchanged with respect to one share of the original underlying 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 index will include an amount of cash equal to the product
of the multiplier and the fair market value. The index 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
S-23
<PAGE>
Brothers Holdings' obligations under the notes until the day that the new
common stocks are chosen for the index. Interest will accrue at a rate
equal to LIBOR with a term corresponding to the interest accrual period
stated in the preceding sentence.
- - If all of the underlying common stock of an issuer 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 underlying common stock, whether by capital
reorganization, recapitalization or reclassification, then, once the
conversion has become effective, the former underlying common stock will be
removed from the index and the new common stock will be added to the index.
The multiplier for each new underlying common stock will equal the product of
the last value of the multiplier of the original underlying common stock and
the number of shares of the new underlying common stock issued with respect to
one share of the original underlying common stock.
- - If the issuer of an underlying common stock 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 index as a new
underlying common stock or other equity security. The multiplier for the new
underlying 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 underlying common stock or other equity security
issued with respect to one share of the original underlying common stock.
- - If an ADR is no longer listed or admitted to trading on a United States
securities exchange registered under the Securities Exchange Act or is no
longer a NASDAQ NMS security, then the foreign share underlying the ADR will
be deemed to be a new underlying common stock. The initial multiplier for that
new underlying common stock will equal the last value of the multiplier for
the ADR multiplied by the number of underlying foreign shares represented by a
single ADR.
- - If an underlying common stock 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 index will
include the following:
-- To the extent cash is entitled to be received, the index 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 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 index 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 day that the new
common stocks are chosen for the index. Interest will accrue at a rate
equal to 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 index will include an amount of cash equal to the product
of the multiplier and the fair market value. The index 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
S-24
<PAGE>
Brothers Holdings' obligations under the notes until the day that the new
common stocks are chosen for the index. Interest will accrue at a rate
equal to 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 index, 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 an underlying 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.
The notes are not sponsored, endorsed, sold or promoted by the American Stock
Exchange. No inference should be drawn from the information contained in this
prospectus supplement that the American Stock Exchange makes any representation
or warranty, implied or express, to Lehman Brothers Holdings, you or any member
of the public regarding the advisability of investing in securities generally or
in the notes in particular or the ability of the index to track general stock
market performance. The American Stock Exchange is not responsible for, and has
not participated in the determination of the timing of, prices for, or
quantities of, the notes to be issued or in the determination or calculation of
the amount you receive upon maturity, redemption or repurchase. The American
Stock Exchange has no obligation or liability in connection with the
administration, marketing or trading of the notes.
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 index. The American Stock Exchange disclaims all
responsibility for any inaccuracies in the data on which the index is based, or
any mistakes or errors or omissions in the calculation or dissemination of the
index or for the manner in which the index is applied in determining the amount
you receive upon maturity, redemption or repurchase.
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, special United States tax counsel
to Lehman Brothers Holdings, 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 notes held as
capital assets by a United States holder 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, financial institutions, tax-exempt
entities or life insurance companies;
- - tax consequences to persons holding notes as part of a hedging, integrated,
constructive sale or conversion transaction or a straddle;
- - 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
of 1986, as amended, 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
S-25
<PAGE>
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.
UNITED STATES HOLDERS
The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a United States holder of notes.
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 (1) that is subject to the supervision of a court within the United
States and the control of one or more United States persons or (2) 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 even though you will receive
no cash until sale, maturity or other disposition of the notes; 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 include
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 estimates the amount and timing of contingent payments on the
notes. Lehman Brothers Holdings has determined that the comparable yield is a
rate of 7.1%, compounded semi-annually. Based on its determination of the
comparable yield, the projected payment schedule for a note, assuming a par
amount of $1,000, is $1,417.42 due at maturity.
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 amount of the payment on a note.
The amount of interest income on a note for each accrual period is then
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.
S-26
<PAGE>
If the actual contingent payment made on the notes differs from the projected
contingent payment, adjustments will be made for the difference. A positive
adjustment, for the amount by which an actual 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 adjustments that exceed the amount of interest accrued in
the current year will be treated as ordinary loss to the extent of your total
interest inclusions in prior taxable years.
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, and the reason for, that
schedule. Unless otherwise prescribed by the Commissioner of the Internal
Revenue Service, that 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. Any loss
in excess of that 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.
NON-UNITED STATES HOLDERS
The following discussion is a summary of United States federal tax consequences
that will apply to you if you are a Non-United States holder of notes.
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment with respect
to a note provided that:
- - you do not actually, or constructively, own 10% or more of the total combined
voting power of all classes of our voting stock within the meaning of the Code
and the Treasury Regulations;
- - you are not a controlled foreign corporation that is related to Lehman
Brothers Holdings through stock ownership;
- - you are not a bank whose receipt of interest on a note is described in Section
881(c)(3)(A) of the Code; and
- - (1) you provide your name and address on an IRS Form W-8, and certify, under
penalty of perjury, that you are not a United States holder or (2) a financial
institution holding a note on your behalf certifies, under penalty of perjury,
that it has received an IRS Form W-8 from the beneficial owner and provides us
with a copy.
If you cannot satisfy the requirements described above, payments of principal
and interest, including original issue discount, made to you will be subject to
the 30% U.S. federal withholding tax, unless you provide us with a properly
executed (1) IRS Form 1001 claiming an exemption from, or reduction in,
withholding under the benefit of a tax treaty or (2) IRS Form 4224 stating that
interest paid on a note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States.
The 30% U.S. federal withholding tax will not apply to any gain or income that
you realize on the sale, exchange or other disposition of a note.
U.S. FEDERAL ESTATE TAX
Your estate will not be subject to U.S. federal estate tax on notes of a series
beneficially owned by you at the time of your death, provided that (1) you do
not own 10% or more of the total combined voting power of all classes of Lehman
Brothers Holdings' voting stock, within the meaning of the Code and the Treasury
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Regulations, and (2) interest on that note would not have been, if received at
the time of your death, effectively connected with the conduct by you of a trade
or business in the United States.
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest on
the notes is effectively connected with the conduct of that trade or business,
although exempt from the 30% withholding tax, you will be subject to U.S.
federal income tax on that interest on a net income basis in the same manner as
if you were a United States holder. In addition, if you are a foreign
corporation, you may be subject to a branch profits tax equal to 30%, or lower
applicable treaty rate, of your earnings and profits for the taxable year,
subject to adjustments that are effectively connected with the conduct by you of
a trade or business in the United States. For this purpose, interest on the
notes will be included in earnings and profits.
Any gain or income realized on the disposition of a note generally will not be
subject to U.S. federal income tax unless (1) that gain or income is effectively
connected with the conduct of a trade or business in the United States by you,
or (2) you are an individual who is present in the United States for 183 days or
more in the taxable year of that disposition, and other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a United States holder of notes, 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.
If you are a Non-United States holder of notes, you will not be required to pay
backup withholding and provide information reporting regarding payments we make
to you provided that we do not have actual knowledge that you are a United
States holder and we have received from you the statement described above under
"Non-United States Holders--U.S. Federal Withholding Tax." In addition, you will
not be required to pay backup withholding and provide information reporting
regarding the proceeds of the sale of a note within the United States or
conducted through certain U.S.-related financial intermediaries, if the payor
receives the statement described above and does not have actual knowledge that
you are a United States holder, or you otherwise establish an exemption.
Treasury Regulations were recently issued that generally modify the information
reporting and backup withholding rules applicable to some payments made after
December 31, 2000. In general, the new Treasury Regulations would not
significantly alter the present rules discussed above, except in special
situations.
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
S-28
<PAGE>
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 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 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
S-29
<PAGE>
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 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
Subject to the terms and conditions set forth in the form of underwriting
agreement which was filed as an exhibit to the Securities and Exchange
Commission registration statement
S-30
<PAGE>
under which the notes are being offered and sold, Lehman Brothers Holdings has
agreed to sell to Lehman Brothers Inc. 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
$20,000, associated with the offer and sale of the notes.
Lehman Brothers Holdings has granted to the underwriter an option to purchase up
to $1,914,000 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 the underwriting agreement. 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 $14,674,000, $0 and $14,674,000, respectively.
The underwriter may not confirm sales to any account over which it exercise
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.
S-31
<PAGE>
PROSPECTUS
LEHMAN BROTHERS HOLDINGS INC.
DEBT SECURITIES, DEBT WARRANTS, CURRENCY WARRANTS,
INDEX WARRANTS AND INTEREST RATE WARRANTS
----------------
Lehman Brothers Holdings Inc. ("Holdings") may offer from time to time (i)
unsecured debt securities (the "Debt Securities") consisting of debentures,
notes and/or other evidences of indebtedness, (ii) warrants to purchase Debt
Securities ("Debt Warrants"), (iii) warrants entitling the holders thereof to
receive from Holdings, upon exercise, the cash value of the right to purchase
("Currency Call Warrants") and to sell ("Currency Put Warrants" and, together
with the Currency Call Warrants, the "Currency Warrants") a certain amount of
one currency or currency unit for a certain amount of a different currency or
currency unit, all as shall be designated by Holdings at the time of offering,
(iv) warrants entitling the holders thereof to receive from Holdings, upon
exercise, an amount in cash determined by reference to decreases ("Index Put
Warrants") or increases ("Index Call Warrants") in the level of a specified
index (an "Index") which may be based on one or more U.S. or foreign stocks,
bonds or other securities, one or more U.S. or foreign interest rates, one or
more currencies or currency units, or any combination of the foregoing, or
determined by reference to the differential between any two Indices ("Index
Spread Warrants" and, together with the Index Put Warrants and the Index Call
Warrants, the "Index Warrants") and (v) warrants entitling the holders thereof
to receive from Holdings, upon exercise, an amount in cash determined by
reference to decreases ("Interest Rate Put Warrants") or increases ("Interest
Rate Call Warrants" and, together with the Interest Rate Put Warrants, the
"Interest Rate Warrants") in the yield or closing price of one or more specified
debt instruments issued either by the United States government or by a foreign
government (the "Debt Instrument"), in the interest rate or interest rate swap
rate established from time to time by one or more specified financial
institutions (the "Rate") or in any specified combination of Debt Instruments
and/or Rates, for aggregate proceeds of up to U.S.$497,131,485, or the
equivalent thereof in one or more foreign currencies or foreign currency units
(such amount being the aggregate proceeds to Holdings from all Debt Securities,
Debt Warrants, Currency Warrants, Index Warrants and Interest Rate Warrants
(collectively, the "Securities") issued and the exercise price of any Debt
Securities issuable upon the exercise of any Debt Warrants). The Securities may
be offered either together or separately and in one or more series in amounts,
at prices and on terms to be determined at the time of the offering. Unless
otherwise specified in an applicable Prospectus Supplement, the Securities will
be sold for, and the Debt Warrants, Currency Warrants, Index Warrants or
Interest Rate Warrants (collectively, the "Warrants") will be exercisable in,
United States dollars, and the principal of and interest, if any, on the Debt
Securities and the cash payments, if any, in respect of the Currency Warrants,
the Index Warrants and the Interest Rate Warrants will be payable in United
States dollars. If this Prospectus is being delivered in connection with the
offering and sale of Debt Securities, the specific designation, priority,
aggregate principal amount, the currency or currency unit for which the Debt
Securities may be purchased, the currency or currency unit in which the
principal and interest, if any, is payable, the rate (or method of calculation)
and time of payment of interest, if any, authorized denominations, maturity, any
redemption terms, any listing on a securities exchange and the initial public
offering price, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto and any other
terms in connection with such offering and sale are set forth in an applicable
Prospectus Supplement. If this Prospectus is being delivered in connection with
the offering and sale of Warrants, the specific designation, aggregate number of
warrants, the currency or currency unit for which the warrants may be purchased,
the currency or currency unit in which the cash settlement value or the exercise
price, if applicable, is payable, the method of calculation of the cash
settlement value, if applicable, the date on which such warrants become
exercisable and the expiration date, provisions, if any, for the automatic
exercise and/or cancellation prior to the expiration date, the initial public
offering price, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto and any other
terms in connection with such offering and sale will be set forth in an
applicable Prospectus Supplement.
The Debt Securities and the Debt Warrants may be issued in registered form
or bearer form with, in the case of Debt Securities, coupons attached. The
Currency Warrants, Index Warrants and Interest Rate Warrants will be issued in
registered form only. In addition, all or a portion of the Securities of a
series may be issued in global form. Debt Securities in bearer form will be
offered only outside the United States to non-United States persons and to
offices located outside the United States of certain United States financial
institutions. See "Description of Debt Securities--Limitations on Issuance of
Bearer Securities."
Discussions of certain United States federal income taxation consequences to
holders of Securities and certain of the risks associated with an investment in
Securities will be set forth in the applicable Prospectus Supplement.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
The Securities will be sold either through underwriters, dealers or agents,
or directly by Holdings. The applicable Prospectus Supplement sets forth the
names of any underwriters or agents (which may include Lehman Brothers Inc., a
subsidiary of Holdings ("Lehman Brothers")) involved in the sale of the
Securities in respect of which this Prospectus is being delivered, the proposed
amounts, if any, to be purchased by underwriters and the compensation, if any,
of such underwriters or agents.
--------------------------
This Prospectus together with the applicable Prospectus Supplement may also
be used by Lehman Brothers, in connection with offers and sales of Securities
related to market making transactions, by and through Lehman Brothers, at
negotiated prices related to prevailing market prices at the time of sale or
otherwise. Lehman Brothers may act as principal or agent in such transactions.
--------------------------
February 17, 1998
<PAGE>
AVAILABLE INFORMATION
Holdings is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "SEC"). Such reports and information may be inspected and copied
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the SEC:
New York Regional Office, 7 World Trade Center, New York, New York 10048; and
Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison
Street, Chicago, Illinois 60661-2511; and copies of such material can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates. The SEC also maintains a Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. Holdings' Common
Stock is listed on the New York Stock Exchange, Inc. (the "Exchange") and the
Pacific Stock Exchange. Holdings' 8 3/4% Notes Due 2002 and 8.30% Quarterly
Income Capital Securities Due 2035 are listed on the Exchange and Holdings' $55
Million Serial Zero Coupon Senior Notes Due May 16, 1998, Global
Telecommunications Stock Upside Note Securities-SM- Due 2000 and the AMEX Hong
Kong 30 Index Call Warrants Expiring 1998 and Select Technology Index Call
Warrants Expiring 1998 are listed on the American Stock Exchange, Inc. and
reports and other information concerning Holdings may also be inspected at the
offices of the Exchange at 20 Broad Street, New York, New York 10005 and at the
offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New
York 10006.
Holdings has filed with the SEC a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by Holdings with the SEC pursuant
to the Exchange Act are hereby incorporated by reference in this Prospectus:
(1) Holdings' Annual Report on Form 10-K for the year ended November 30,
1996.
(2) Holdings' Quarterly Report on Form 10-Q for the fiscal quarters
ended February 28, 1997, May 31, 1997, and August 31, 1997.
(3) Holdings' Current Reports on Form 8-K dated January 8, 1997, March
26, 1997, June 26, 1997, September 4, 1997, September 30, 1997, and January
7, 1998.
Each document filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered by an applicable
Prospectus Supplement shall be deemed to be incorporated by reference into this
Prospectus from the date of filing of such document. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus to the extent that a statement contained herein,
in an applicable Prospectus Supplement or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
Holdings will provide without charge to each person, including any
beneficial owner of any Security, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Mary J. Capko,
the Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial
Center, 8th Floor, New York, New York 10285 (telephone (212) 526-0660).
2
<PAGE>
THE COMPANY
Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries
hereinafter referred to as the "Company" unless the context otherwise requires)
is one of the leading global investment banks serving institutional, corporate,
government and high net worth individual clients and customers. The Company's
worldwide headquarters in New York and regional headquarters in London and Tokyo
are complemented by offices in additional locations in the United States,
Europe, the Middle East, Latin and South America and the Asia Pacific region.
The Company's business includes capital raising for clients through
securities underwriting and direct placements; corporate finance and strategic
advisory services; merchant banking; securities sales and trading; institutional
asset management; research; and the trading of foreign exchange, derivative
products and certain commodities. The Company acts as a market maker in all
major equity and fixed income products in both the domestic and international
markets. Lehman Brothers is a member of all principal securities and commodities
exchanges in the United States, as well as the National Association of
Securities Dealers, Inc. ("NASD"), and holds memberships or associate
memberships on several principal international securities and commodities
exchanges, including the London, Paris, Tokyo, Hong Kong, Frankfurt and Milan
stock exchanges.
Holdings was incorporated in Delaware on December 29, 1983. Holdings'
principal executive offices are located at 3 World Financial Center, New York,
New York 10285 (telephone (212) 526-7000).
USE OF PROCEEDS
Except as otherwise may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, Holdings intends to apply the net proceeds from
the sale of the Securities for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for each of the two years in the period ended December 31, 1993, the
eleven months ended November 30, 1994, the two years ended November 30, 1996 and
for the nine months ended August 31, 1997:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, NOVEMBER 30, NOVEMBER 30, AUGUST 31,
- ---------------------- ----------------- -------------------- ---------------------
1992 1993 1994 1995 1996 1997
----- --------- ----------------- --------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
* 1.00 1.03 1.03 1.06 1.07
</TABLE>
- ------------------------
* Earnings were inadequate to cover fixed charges and would have had to
increase approximately $247 million in 1992 in order to cover the
deficiency.
In computing the ratio of earnings to fixed charges, "earnings" consist of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consist principally of interest expense and one-third of office
rentals and one-fifth of equipment rentals, which are deemed to be
representative of the interest factor.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either Senior Debt (as defined below) or
Subordinated Debt (as defined below) of Holdings. The Debt Securities
constituting Senior Debt will be issued under an indenture, dated as of
September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented
and amended by Supplemental Indentures dated as of November 25, 1987, as of
November 27, 1990, as of September 13, 1991, as of October 4, 1993 and as of
October 1, 1995 (the "Senior Indenture"), and the Debt Securities constituting
Subordinated Debt will be issued under an indenture between Holdings and The
Chase Manhattan Bank, as successor to Chemical Bank, Trustee, as amended and
supplemented by the Supplemental Indenture dated as of February 1, 1996 (the
"Subordinated Indenture"). The Senior Indenture and the Subordinated Indenture
are hereinafter collectively referred to as the "Indentures" and, individually,
as an "Indenture". Each Indenture will incorporate by reference certain Standard
Multiple-Series Indenture Provisions, filed with the SEC on July 30, 1987 and as
amended and refiled with the SEC on November 16, 1987. This Prospectus contains
descriptions of all material provisions of the Indentures. The summary of such
provisions of the Indentures does not purport to be complete; copies of such
Indentures are filed as exhibits to the Registration Statement of which this
Prospectus is a part. All articles and sections of the applicable Indenture, and
all capitalized terms set forth below, have the meanings specified in the
applicable Indenture.
GENERAL
Neither Indenture limits the amount of debentures, notes or other evidences
of indebtedness which may be issued thereunder. Each Indenture provides that
Debt Securities may be issued from time to time in one or more series. Since
Holdings, as a holding company, does not have any significant assets other than
the equity securities of its subsidiaries, its cash flow and consequent ability
to service its debt, including the Debt Securities, are dependent upon the
earnings of its subsidiaries and the distribution of those earnings to Holdings,
or upon loans or other payments of funds by those subsidiaries to Holdings.
Holdings' subsidiaries, including Lehman Brothers, are separate and distinct
legal entities and will have no obligation, contingent or otherwise, to pay any
interest or principal on the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. Dividends, loans and
other payments by Lehman Brothers are restricted by net capital and other rules
of various regulatory bodies. See "Capital Requirements." The payment of
dividends by Holdings' subsidiaries is contingent upon the earnings of those
subsidiaries and is subject to various business considerations in addition to
net capital requirements and contractual restrictions.
Since the Debt Securities will be obligations of a holding company, the
ability of holders of the Debt Securities to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms and other information with respect to the Debt Securities being offered
thereby: (1) the title of such Debt Securities and whether such Debt Securities
will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) whether the Debt Securities are to
be issuable as Registered Securities or Bearer Securities or both, and if Bearer
Securities are issued, whether Bearer Securities may be exchanged for Registered
Securities and the circumstances and places for such exchange, if permitted; (4)
whether the Debt Securities are to be issued in whole or in part in the form of
one or more temporary or permanent global Debt Securities ("Global Securities")
in registered or bearer form and, if so, the identity of the depositary, if any,
for such Global Security or Securities; (5) the date or dates (or manner of
determining the same) on which such Debt Securities will mature; (6) the rate or
rates (or manner of determining the same) at which such Debt Securities will
bear interest, if any, and the date or dates from which such interest will
accrue; (7) the dates (or manner of determining the same) on which such interest
will be payable and the Regular Record Dates for such Interest Payment Dates for
Debt Securities which are Registered Securities, and the extent to which, or the
manner in which, any interest payable on a
4
<PAGE>
temporary or permanent global Debt Security on an Interest Payment Date will be
paid if other than in the manner described under "Global Securities" below; (8)
any mandatory or optional sinking fund or analogous provisions; (9) each office
or agency where, subject to the terms of the applicable Indenture as described
below under "Payment and Paying Agents", the principal of and premium, if any,
and interest, if any, on the Debt Securities will be payable and each office or
agency where, subject to the terms of the applicable Indenture as described
below under "Denominations, Registration and Transfer," the Debt Securities may
be presented for registration of transfer or exchange; (10) the date, if any,
after which, and the price or prices in the currency or currency unit in which,
such Debt Securities are payable pursuant to any optional or mandatory
redemption provision; (11) any provisions for payment of additional amounts for
taxes and any provision for redemption, in the event the Company must comply
with reporting requirements in respect of a Debt Security or must pay such
additional amounts in respect of any Debt Security; (12) the terms and
conditions, if any, upon which the Debt Securities of such series may be
repayable prior to maturity at the option of the holder thereof (which option
may be conditional) and the price or prices in the currency or currency unit in
which such Debt Securities are payable; (13) the denominations in which any Debt
Securities which are Registered Securities will be issuable if other than
denominations of $1,000 and any integral multiple thereof, and the denomination
or denominations in which any Debt Securities which are Bearer Securities will
be issuable if other than the denomination of $5,000; (14) the currency,
currencies or currency units for which such Debt Securities may be purchased and
the currency, currencies or currency units in which the principal of and
interest, if any, on such Debt Securities may be payable; (15) any index used to
determine the amount of payments of principal of and premium, if any, and
interest, if any, on such Debt Securities; (16) the terms and conditions, if
any, pursuant to which such Debt Securities may be converted or exchanged for
other securities of Holdings or any other person; (17) the terms and conditions,
if any, pursuant to which the principal of and premium if any, and interest, if
any, on such Debt Securities are payable at the election of Holdings or the
holder thereof, in securities or other property; and (18) other terms of the
Debt Securities. (Section 301).
If any of the Debt Securities are sold for foreign currencies or foreign
currency units or if the principal of or interest, if any, on any series of Debt
Securities is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Debt Securities and such currencies or currency
units will be set forth in an applicable Prospectus Supplement relating thereto.
One or more series of Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Federal income tax
consequences and special considerations applicable to any such series will be in
an applicable Prospectus Supplement.
SENIOR DEBT
The Debt Securities constituting part of the senior debt of Holdings (the
"Senior Debt") will rank equally with all other unsecured debt of Holdings
except Subordinated Debt.
SUBORDINATED DEBT
The Debt Securities constituting part of the subordinated debt of Holdings
(the "Subordinated Debt") will be subordinate and junior in the right of
payment, to the extent and in the manner set forth in the Subordinated
Indenture, to all present or future Senior Debt. "Senior Debt" is defined to
mean (a) any indebtedness for money borrowed or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness under capitalized leases,
(c) any indebtedness representing the deferred and unpaid purchase price of any
property or business, and (d) all deferrals, renewals, extensions and refundings
of any such indebtedness or obligation; except that the following does not
constitute Senior Debt: (i) indebtedness evidenced by the Subordinated Debt,
(ii) indebtedness which is expressly made equal in right of payment with the
Subordinated Debt or subordinate and subject in right of payment to the
Subordinated Debt, (iii)
5
<PAGE>
indebtedness for goods or materials purchased in the ordinary course of business
or for services obtained in the ordinary course of business or indebtedness
consisting of trade payables or (iv) indebtedness which is subordinated to any
obligation of Holdings of the type specified in clauses (a) through (d) above.
The effect of clause (iv) is that Holdings may not issue, assume or guaranty any
indebtedness for money borrowed which is junior to the Senior Debt and senior to
the Subordinated Debt. (Subordinated Indenture Section 1401).
Upon the failure to pay the principal or premium, if any, on Senior Debt
when due or upon the maturity of any Senior Debt by lapse of time, acceleration
or otherwise, all principal thereof, interest thereon, if any, and other amounts
due in connection therewith shall first be paid in full, before any payment is
made on account of the principal, premium, if any, or interest, if any, on the
Subordinated Debt or to acquire any of the Subordinated Debt or on account of
the redemption, sinking fund or analogous provisions in the Subordinated
Indenture. (Subordinated Indenture Section 1402). Upon any distribution of
assets of Holdings pursuant to any dissolution, winding up, liquidation or
reorganization of Holdings, payment of the principal, premium, if any, and
interest, if any, on the Subordinated Debt will be subordinated, to the extent
and in the manner set forth in the Subordinated Indenture, to the prior payment
in full of all Senior Debt. (Subordinated Indenture Section 1403). By reason of
such subordination, in the event of insolvency, creditors of Holdings who are
holders of Senior Debt may recover more ratably than the holders of Subordinated
Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise provided with respect to a series of Debt Securities, the
Debt Securities will be issuable as Registered Securities without coupons and in
denominations of $1,000 or any integral multiple thereof. Debt Securities of a
series may be issuable in whole or in part in the form of one or more Global
Securities, as described below under "Global Securities." One or more Global
Securities will be issued in a denomination or aggregate denominations equal to
the aggregate principal amount of Debt Securities of the series to be
represented by such Global Security or Securities. If so provided with respect
to a series of Debt Securities, Debt Securities of such series will be issuable
solely as Bearer Securities with coupons attached or as both Registered
Securities and Bearer Securities. (Section 201).
In connection with the sale during the "restricted period" as defined in
Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations
(generally, the first 40 days after the closing date and, with respect to unsold
allotments, until sold) no Bearer Security shall be mailed or otherwise
delivered to any location in the United States (as defined under "Limitations on
Issuance of Bearer Securities"). A Bearer Security in definitive form (including
interests in a permanent Global Security) may be delivered only if the Person
entitled to receive such Bearer Security furnishes written certification, in the
form required by the applicable Indenture, to the effect that such Bearer
Security is not owned by or on behalf of a United States person (as defined
under "Limitations on Issuance of Bearer Securities"), or, if a beneficial
interest in such Bearer Security is owned by or on behalf of a United States
person, that such United States person (i) acquired and holds the Bearer
Security through a foreign branch of a United States financial institution, (ii)
is a foreign branch of a United States financial institution purchasing for its
own account or resale (and in either case, (i) or (ii), such financial
institution agrees to comply with the requirements of Section 165(j)(3)(A), (B)
or (C) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder) or (iii) is a financial institution purchasing for
resale during the restricted period only to non-United States persons outside
the United States (Sections 303, 304). See "Global Securities-- Bearer Debt
Securities" and "Limitations on Issuance of Bearer Securities."
Registered Securities of any series (other than a Global Security) will be
exchangeable for other Registered Securities of the same series and of a like
aggregate principal amount and tenor of different authorized denominations. In
addition, if Debt Securities of any series are issuable as both Registered
Securities and as Bearer Securities, at the option of the Holder upon request
confirmed in writing, and subject to the terms of the applicable Indenture,
Bearer Securities (with all unmatured coupons, except as
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provided below, and all matured coupons in default) of such series will be
exchangeable into Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor. Unless
otherwise indicated in an applicable Prospectus Supplement, any Bearer Security
surrendered in exchange for a Registered Security between a Regular Record Date
or a Special Record Date and the relevant date for payment of interest shall be
surrendered without the coupon relating to such date for payment of interest and
interest will not be payable in respect of the Registered Security issued in
exchange for such Bearer Security, but will be payable only to the Holder of
such coupon when due in accordance with the terms of the applicable Indenture.
(Section 305). Except as provided in an applicable Prospectus Supplement, Bearer
Securities will not be issued in exchange for Registered Securities.
Debt Securities may be presented for exchange as provided above, and
Registered Securities (other than a Global Security) may be presented for
registration of transfer (with the form of transfer endorsed thereon duly
executed), at the office of the Security Registrar or at the office of any
transfer agent designated by Holdings for such purpose with respect to any
series of Debt Securities and referred to in an applicable Prospectus
Supplement, without service charge and upon payment of any taxes and other
governmental charges as described in each Indenture. Such transfer or exchange
will be effected upon the Security Registrar or such transfer agent, as the case
may be, being satisfied with the documents of title and identity of the person
making the request. Holdings has appointed each Trustee as Security Registrar
under the applicable Indenture. (Section 305). If a Prospectus Supplement refers
to any transfer agents (in addition to the Security Registrar) initially
designated by Holdings with respect to any series of Debt Securities, Holdings
may at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts, except that,
if Debt Securities of a series are issuable only as Registered Securities,
Holdings will be required to maintain a transfer agent in each Place of Payment
for such series and, if Debt Securities of a series are issuable as Bearer
Securities, Holdings will be required to maintain (in addition to the Security
Registrar) a transfer agent in a Place of Payment for such series located
outside the United States. Holdings may at any time designate additional
transfer agents with respect to any series of Debt Securities. (Section 1002).
In the event of any redemption in part, Holdings shall not be required to
(i) issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on (A) if Debt Securities of the series are issuable only as
Registered Securities, the day of mailing of the relevant notice of redemption
and (B) if Debt Securities of the series are issuable as Bearer Securities, the
day of the first publication of the relevant notice of redemption or, if Debt
Securities of the series are also issuable as Registered Securities and there is
no publication, the mailing of the relevant notice of redemption; (ii) register
the transfer of or exchange any Registered Security, or portion thereof, called
for redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption,
except to exchange such Bearer Security for a Registered Security of that series
and like tenor which is immediately surrendered for redemption. (Section 305).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Bearer Securities will
be payable, subject to any applicable laws and regulations, at the offices of
such Paying Agents outside the United States as Holdings may designate from time
to time, at the option of the Holder, by check or by transfer to an account
maintained by the payee with a bank located outside the United States. (Sections
307 and 1002). Unless otherwise indicated in an applicable Prospectus
Supplement, payment of interest on Bearer Securities on any Interest Payment
Date will be made only against surrender of the coupon relating to such Interest
Payment Date. (Section 1001). No payment of interest on a Bearer Security will
be made unless on the earlier of the date of the first such
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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
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money borrowed which is secured by a mortgage, pledge, lien, security interest
or other encumbrance of any nature on any of the present or future common stock
of a Designated Subsidiary unless the Debt Securities and, if Holdings so
elects, any other indebtedness of Holdings ranking at least PARI PASSU with the
Debt Securities, shall be secured equally and ratably with (or prior to) such
other secured indebtedness for money borrowed so long as it is outstanding.
(Section 1005).
The term "Designated Subsidiary" means any present or future consolidated
subsidiary of Holdings, the consolidated net worth of which constitutes at least
5% of the consolidated net worth of Holdings. As of August 31, 1997, Holdings'
Designated Subsidiaries were Lehman Brothers, Lehman Brothers Holdings PLC,
Lehman Brothers UK Holdings Limited, Lehman Brothers U.K. Holdings (Delaware)
Inc., Lehman Brothers International (Europe), Lehman Brothers Financial Products
Inc., Lehman Brothers Special Financing Inc., Lehman Brothers Commercial Paper
Inc. and Lehman Brothers Finance S.A. (Geneva).
EVENTS OF DEFAULT
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, the following are Events of Default
under the Indenture with respect to Debt Securities of such series: (a) failure
to pay principal of or premium, if any, on any Debt Security of that series when
due; (b) failure to pay interest, if any, on any Debt Security of that series
and any related coupons when due, continued for 30 days; (c) failure to deposit
any sinking fund payment or analogous obligation, when due, continued for 30
days, in respect of any Debt Security of that series; (d) failure to perform any
other covenant of Holdings in the Indenture (other than a covenant included in
the applicable Indenture solely for the benefit of a series of Debt Securities
other than that series), continued for 90 days after written notice as provided
in the Indenture; (e) certain events in bankruptcy, insolvency or reorganization
in respect of Holdings; and (f) any other Event of Default provided with respect
to Debt Securities of that series. (Section 501). An Event of Default with
respect to a particular series of Debt Securities does not necessarily
constitute an Event of Default with respect to any other series of Debt
Securities issued under the same or another Indenture. The Trustee may withhold
notice to the Holders of any series of Debt Securities of any default with
respect to such series (except in the payment of principal, premium or interest,
if any) if it considers such withholding to be in the interests of such Holders.
(Section 602).
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, unless the principal of all of the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the Holders of at least 25% in principal amount of the
outstanding Debt Securities of that series may declare the principal amount (or,
if the Debt Securities of that series are Original Issue Discount Securities,
such portion of the principal amount as may be specified in the terms of the
series) of all the Debt Securities of that series to be due and payable
immediately. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
based on acceleration has been obtained and entered, the Holders of a majority
in principal amount of the outstanding Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration. (Section 502). For
information as to waiver of defaults, see "Meetings, Modification and Waiver."
Each Indenture provides that the Trustee will be under no obligation,
subject to the duty of the Trustee during default to act with the required
standard of care, to exercise any of its rights or powers under such Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Section 603). Subject to such
provisions for indemnification of the Trustee, the Holders of a majority in
principal amount of the outstanding Debt Securities of any series will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Debt Securities of that series. (Section 512).
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Holdings will be required to furnish to each Trustee annually a statement as
to the performance by Holdings of certain of its obligations under the
applicable Indenture and as to any default in such performance. (Section 1006).
SATISFACTION AND DISCHARGE
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, each Indenture provides that Holdings
shall be discharged from its obligations under the Debt Securities of such
series (with certain exceptions) at any time prior to the Stated Maturity or
redemption thereof when (a) Holdings has irrevocably deposited with the
applicable Trustee, in trust, (i) sufficient funds in the currency or currency
unit in which the Debt Securities of such series are payable to pay the
principal of (and premium, if any), and interest, if any, to Stated Maturity (or
redemption) on, the Debt Securities of such series, or (ii) such amount of
direct obligations of, or obligations the principal of and interest, if any, on
which are fully guaranteed by, the government which issued the currency in which
the Debt Securities of such series are payable, and which are not subject to
prepayment, redemption or call, as will, together with the predetermined and
certain income to accrue thereon without consideration of any reinvestment
thereof, be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series, or (iii) such combination of such funds and securities as
described in (i) and (ii), respectively, as will, together with the
predetermined and certain income to accrue on any such securities as described
in (ii), be sufficient to pay when due the principal of (and premium, if any),
and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities
of such series and (b) Holdings has paid all other sums payable with respect to
the Debt Securities of such series and (c) certain other conditions are met.
Upon such discharge, the Holders of the Debt Securities of such series shall no
longer be entitled to the benefits of the Indenture, except for certain rights,
including registration of transfer and exchange of the Debt Securities of such
series and replacement of lost, stolen or mutilated Debt Securities, and shall
look only to such deposited funds or obligations for payment. (Sections 401 and
403).
DEFEASANCE OF CERTAIN OBLIGATIONS
If the terms of the Debt Securities of any series so provide, Holdings may
omit to comply with the restrictive covenants in Section 801 ("Company May
Consolidate, Etc., Only on Certain Terms"), Section 1005 ("Limitations on Liens
on Common Stock of Designated Subsidiaries") and any other specified covenant
and any such omission with respect to such Sections shall not be an Event of
Default with respect to the Debt Securities of such series, if (a) Holdings has
irrevocably deposited with the applicable Trustee, in trust, (i) sufficient
funds in the currency or currency unit in which the Debt Securities of such
series are payable to pay the principal of (and premium, if any), and interest,
if any, to Stated Maturity (or redemption) on, the Debt Securities of such
series, or (ii) such amount of direct obligations of, or obligations the
principal of and interest, if any, on which are fully guaranteed by, the
government which issued the currency in which the Debt Securities of such series
are payable and which are not subject to prepayment, redemption or call, as
will, together with the predetermined and certain income to accrue thereon
without consideration of any reinvestment thereof, be sufficient to pay when due
the principal of (and premium, if any), and interest, if any, to Stated Maturity
(or redemption) on, the Debt Securities of such series or, (iii) such
combination of such funds and securities as described in (i) and (ii),
respectively, as will, together with the predetermined and certain income to
accrue on any such securities as described in (ii), be sufficient to pay when
due the principal of (and premium, if any), and interest, if any, to Stated
Maturity (or redemption) on, the Debt Securities of such series and (b) certain
other conditions are met. The obligations of Holdings under the Indenture with
respect to the Debt Securities of such series, other than with respect to the
covenants referred to above shall remain in full force and effect. (Section
1009).
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MEETINGS, MODIFICATION AND WAIVER
Modifications and amendments of either Indenture may be made by Holdings and
the applicable Trustee with the consent of the Holders of not less than 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
under such Indenture affected by such modification or amendment; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any instalment of principal of or interest, if
any, on, any Debt Security, (b) reduce the principal amount of, or the premium,
if any, or interest, if any, on, any Debt Security, (c) change any obligation of
Holdings to pay additional amounts, (d) reduce the amount of principal of an
Original Issue Discount Security payable upon acceleration of the Maturity
thereof, (e) adversely affect the right of repayment or repurchase, if any, at
the option of the Holder, (f) reduce the amount, or postpone the date fixed for,
any payment under any sinking fund or analogous provision, (g) change the
currency or currency unit of payment of principal of or premium, if any, or
interest, if any, on any Debt Security, (h) change or eliminate the right, if
any, to elect payment in a coin or currency or currency unit other than that in
which Debt Securities which are Registered Securities are denominated or stated
to be payable, (i) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security, (j) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
the Holders of which is required for modification or amendment of the applicable
Indenture or for waiver of compliance with certain provisions of the applicable
Indenture or for waiver of certain defaults, (k) reduce the requirements
contained in either Indenture for quorum or voting, or (l) change any obligation
of Holdings to maintain an office or agency in the places and for the purposes
required in the applicable Indenture. (Section 902).
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by Holdings with certain restrictive provisions of the applicable
Indenture. (Section 1007). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series may on behalf of the
Holders of all Debt Securities of that series and any coupons appertaining
thereto waive any past default under the applicable Indenture with respect to
that series, except a default in the payment of the principal of or premium, if
any, or interest, if any, on any Debt Security of that series or in the payment
of any sinking fund instalment or analogous obligation or in respect of a
provision which under the applicable Indenture cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security of that
series affected. (Section 513).
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series if Debt Securities of that series are issuable as
Bearer Securities. A meeting may be called at any time by the applicable
Trustee, and also, upon request, by Holdings or Holders of at least 10% in
principal amount of the Outstanding Debt Securities of such series, in any such
case upon notice given in accordance with "Notices" below. (Section 1302).
Except as limited by the proviso in the second preceding paragraph, any
resolution presented at a meeting or adjourned meeting at which a quorum is
present may be adopted by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Debt Securities of that series; PROVIDED,
HOWEVER, that, except as limited by the proviso in the second preceding
paragraph, any resolution with respect to any consent or waiver which may be
given by the Holders of not less than 66 2/3% in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or an
adjourned meeting at which a quorum is present only by the affirmative vote of
66 2/3% in principal amount of the Outstanding Debt Securities of that series;
and PROVIDED, FURTHER, that, except as limited by the proviso in the second
preceding paragraph, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of Outstanding Debt Securities of a series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting
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of Holders of Debt Securities of any series duly held in accordance with the
applicable Indenture will be binding on all Holders of Debt Securities of that
series and the related coupons. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; PROVIDED, HOWEVER, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than 66 2/3% in principal amount of the Outstanding Debt Securities of
a series, the persons holding or representing 66 2/3% in principal amount of the
Outstanding Debt Securities of such series will constitute a quorum (Section
1304).
CONSOLIDATION, MERGER AND SALE OF ASSETS
Holdings may, without the consent of any Holders of Outstanding Debt
Securities, consolidate or merge with or into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate or merge with or into, or transfer or lease its assets substantially
as an entirety to, Holdings, PROVIDED that (i) the Person (if other than
Holdings) formed by such consolidation or into which Holdings is merged or which
acquires or leases the assets of Holdings substantially as an entirety is
organized under the laws of any United States jurisdiction and assumes Holdings'
obligations on the Debt Securities and under the Indenture, (ii) after giving
effect to the transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have happened
and be continuing, and (iii) certain other conditions are met. (Section 801).
NOTICES
Except as may otherwise be set forth in an applicable Prospectus Supplement
relating to a series of Debt Securities, notices to Holders of Bearer Securities
will be given by publication in a daily newspaper in the English language of
general circulation in The City of New York and in London, and so long as such
Bearer Securities are listed on the Stock Exchange and the Stock Exchange shall
so require, in a daily newspaper of general circulation in Luxembourg or, if not
practical, elsewhere in Western Europe. Such publication is expected to be made
in THE WALL STREET JOURNAL, the FINANCIAL TIMES and the LUXEMBURGER WORT.
Notices to Holders of Registered Securities will be given by mail to the
addresses of such Holders as they appear in the Security Register. (Sections 101
and 106).
TITLE
Title to any temporary global Debt Security or permanent global Debt
Security in bearer form or any Bearer Securities and any coupons appertaining
thereto will pass by delivery. Holdings, each Trustee and any agent of Holdings
or the applicable Trustee may treat the bearer of any Bearer Security and the
bearer of any coupon and the registered owner of any Registered Security as the
absolute owner thereof (whether or not such Debt Security or coupon shall be
overdue and notwithstanding any notice to the contrary) for the purpose of
making payment and for all other purposes. (Section 308).
REPLACEMENT OF DEBT SECURITIES AND COUPONS
Any mutilated Debt Security or a Debt Security with a mutilated coupon
appertaining thereto will be replaced by Holdings at the expense of the Holder
upon surrender of such Debt Security to the applicable Trustee. Debt Securities
or coupons that become destroyed, stolen or lost will be replaced by Holdings at
the expense of the Holder upon delivery to the applicable Trustee of the Debt
Security and coupons or evidence of the destruction, loss or theft thereof
satisfactory to Holdings and the applicable Trustee; in the case of any coupon
which becomes destroyed, stolen or lost, such coupon will be replaced by
issuance of a new Debt Security in exchange for the Debt Security to which such
coupon appertains. In the case of a destroyed, lost or stolen Debt Security or
coupon an indemnity satisfactory to the applicable Trustee and Holdings may be
required at the expense of the Holder of such Debt Security or coupon before a
replacement Debt Security will be issued. (Section 306).
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CONCERNING THE TRUSTEES
Business and other relationships (including other trusteeships) between, on
the one hand, Holdings and its affiliates and, on the other hand, the Trustee
under the Indenture pursuant to which any of the Debt Securities to which an
applicable Prospectus Supplement accompanying this Prospectus relates are
described in such Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Securities may not be offered or sold during the restricted period (as defined
under "Denominations, Registration and Transfer"), or delivered in definitive
form in connection with a sale during the restricted period, in the United
States or to United States persons other than to (a) the United States office of
(i) an international organization (as defined in Section 7701 (a)(18) of the
Code), (ii) a foreign central bank (as defined in Section 895 of the Code), or
(iii) any underwriter, agent, or dealer offering or selling Bearer Securities
during the restricted period (a "Distributor") pursuant to a written contract
with the issuer or with another Distributor, that purchases Bearer Securities
for resale or for its own account and agrees to comply with the requirements of
Section 165 (j)(3)(A), (B), or (C) of the Code, or (b) the foreign branch of a
United States financial institution purchasing for its own account or for
resale, which institution agrees to comply with the requirements of Section 165
(j)(3)(A), (B), or (C) of the Code. In addition, a sale of a Bearer Security may
be made during the restricted period to a United States person who acquired and
holds the Bearer Security on the Certification Date through a foreign branch of
a United States financial institution that agrees to comply with the
requirements of Section 165(j)(3)(A), (B) or (C) of the Code. Any Distributor
(including an affiliate of a Distributor) offering or selling Bearer Securities
during the restricted period must agree not to offer or sell Bearer Securities
in the United States or to United States persons (except as discussed above) and
must employ procedures reasonably designed to ensure that its employees or
agents directly engaged in selling Bearer Securities are aware of these
restrictions.
Bearer Securities and their interest coupons will bear a legend
substantially to the following effect: "Any United States person who holds this
obligation will be subject to limitations under the United States income tax
laws, including the limitations provided in Section 165(j) and 1287(a) of the
Internal Revenue Code."
Purchasers of Bearer Securities may be affected by certain limitations under
United States tax laws. See the applicable Prospectus Supplement for a summary
of material U.S. federal income tax consequences to United States persons
investing in Bearer Securities.
As used herein, "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States and an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source, and "United States" means the United States of America (including the
States and the District of Columbia) and its possessions including Puerto Rico,
the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands. The term "Non-United States Holder" means any Holder which is
not an United States person.
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DESCRIPTION OF WARRANTS
The Debt Warrants, Currency Warrants, Index Warrants and Interest Rate
Warrants are to be issued under separate warrant agreements (each a "Warrant
Agreement" and respectively a "Debt Warrant Agreement", a "Currency Warrant
Agreement", an "Index Warrant Agreement" and an "Interest Rate Warrant
Agreement") to be entered into between Holdings and one or more banks or trust
companies, as warrant agent (each a "Warrant Agent" and respectively a "Debt
Warrant Agent", a "Currency Warrant Agent", an "Index Warrant Agent" and an
"Interest Rate Warrant Agent"), all as shall be set forth in the Prospectus
Supplement relating to the Warrants being offered thereby. A form of each type
of Warrant Agreement, including a form of warrant certificate representing each
type of Warrant (each a "Warrant Certificate" and respectively a "Debt Warrant
Certificate", a "Currency Warrant Certificate", an "Index Warrant Certificate"
and an "Interest Rate Warrant Certificate"), reflecting the alternative
provisions that may be included in the Warrant Agreements to be entered into
with respect to particular offerings of Warrants, are incorporated by reference
as exhibits to the Registration Statement of which this Prospectus is a part.
The descriptions contained herein of the Warrant Agreements and the Warrant
Certificates and summaries of certain provisions of the Warrant Agreements and
the Warrant Certificates do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
applicable Warrant Agreements and the Warrant Certificates, including the
definitions therein of certain terms not otherwise defined in this Prospectus.
Wherever particular sections of, or terms defined in, the Warrant Agreements are
referred to, such sections or defined terms are incorporated herein by
reference.
The particular terms of each issue of Warrants, as well as any modifications
or additions to the general terms of the applicable Warrant Agreement or Warrant
Certificate, will be described in the Prospectus Supplement relating to such
Warrants. Accordingly, for a description of the terms of a particular issue of
Warrants, reference must be made to the Prospectus Supplement relating thereto
and to the descriptions set forth below.
DEBT WARRANTS
Holdings may issue, together with Debt Securities, Currency Warrants, Index
Warrants or Interest Rate Warrants, or separately, Debt Warrants for the
purchase of Debt Securities. If any of the Debt Warrants are sold for foreign
currencies or foreign currency units or if any series of Debt Warrants is
exercisable in foreign currencies or foreign currency units, the restrictions,
elections, tax consequences, specific terms and other information with respect
to such issue of Debt Warrants and such currencies or currency units will be set
forth in an applicable Prospectus Supplement relating thereto.
If so specified in the applicable Prospectus Supplement, the Debt Warrants
may, in certain circumstances, be cancelled by Holdings prior to their
expiration date and the holders thereof will be entitled to receive only the
applicable Cancellation Amount. The Cancellation Amount may be either a fixed
amount or an amount that varies during the term of the Debt Warrants in
accordance with a schedule or formula.
GENERAL
The Prospectus Supplement will describe the terms of any Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the title of such Debt Warrants; (2) the aggregate amount of such
Debt Warrants; (3) the initial offering price of such Debt Warrants; (4) the
exercise price; (5) the currency or currency unit in which the initial offering
price and/or the exercise price of such Debt Warrants is payable; (6) whether
the Debt Warrants are to be issuable in registered or bearer form or both, and
if in bearer form, whether such Debt Warrants may be exchanged for Debt Warrants
in registered form and the circumstances and places for such exchange, if
permitted; (7) if applicable, the title and terms of related Debt Securities
with which such Debt Warrants are issued, the number of such Debt Warrants
issued with each such Debt Security and the date, if any, on and after which
such Debt Warrants and such Debt
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Securities will be separately transferable; (8) the title, aggregate principal
amount and terms of the Debt Securities purchasable upon exercise of all of such
Debt Warrants; (9) the principal amount of Debt Securities purchasable upon
exercise of each Debt Warrant and the price at which such principal amount of
Debt Securities may be purchased upon such exercise; (10) the date on which the
right to exercise such Debt Warrants shall commence and the date (the "Debt
Warrant Expiration Date") on which such right shall expire; (11) any minimum
number of Debt Warrants which must be exercised at any one time, other than upon
automatic exercise; (12) the maximum number, if any, of such Debt Warrants that
may, subject to election by Holdings, be exercised by all owners (or by any
person or entity) on any day; (13) any provisions for the automatic exercise of
such Debt Warrants; (14) whether and under what circumstances such Debt Warrants
may be cancelled by Holdings prior to expiration; (15) any other procedures and
conditions relating to the exercise of such Debt Warrants; (16) the identity of
the Debt Warrant Agent; (17) any national securities exchange on which such Debt
Warrants will be listed; (18) provisions, if any, for issuing such Debt Warrants
in certificated form; (19) if applicable, a discussion of certain United States
federal income tax, accounting or other special considerations applicable
thereto; and (20) any other terms of the Debt Warrants.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and, if in registered form, may be
presented for registration of transfer and Debt Warrants may be exercised at the
corporate trust office of the Debt Warrant Agent or any other office indicated
in the Prospectus Supplement relating thereto (Section 3.1). Prior to the
exercise of Debt Warrants, holders of Debt Warrants will not be entitled to
payments of principal of (or premium, if any) or interest, if any, on the Debt
Securities purchasable upon such exercise, or to enforce any of the covenants in
the applicable Indenture (Section 4.1).
EXERCISE OF DEBT WARRANTS
Unless otherwise provided in the Prospectus Supplement, each Debt Warrant
will entitle the holder thereof to purchase for cash such principal amount of
Debt Securities at such exercise price as shall in each case be set forth in, or
be determinable as set forth in, the Prospectus Supplement relating to the Debt
Warrants offered thereby (Sections 2.1). Debt Warrants may be exercised at any
time up to the close of business on the Debt Warrant Expiration Date specified
in the Prospectus Supplement relating to the Debt Warrants offered thereby.
After the close of business on the Debt Warrant Expiration Date (or such later
date to which such Debt Warrant Expiration Date may be extended by Holdings),
unexercised Debt Warrants will become void (Section 2.2).
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, Holdings will, as soon as practicable, forward to the
person entitled thereto the Debt Securities purchasable upon such exercise. If
fewer than all of the Debt Warrants represented by such Debt Warrant Certificate
are exercised, a new Debt Warrant Certificate will be issued for the remaining
amount of Debt Warrants (Section 2.3).
OTHER INFORMATION
Other important information concerning Debt Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions",
"--Enforceability of Rights by Beneficial Owner; Governing Law" and "--Unsecured
Obligations of a Holding Company".
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CURRENCY WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Index
Warrants or Interest Rate Warrants, or separately, Currency Warrants (a) in the
form of Currency Put Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value (as shall be defined in the
Prospectus Supplement) of the right to sell a specified amount of one currency
(whether U.S. dollars or a foreign currency or foreign currency unit) (a "Base
Currency") for a specified amount of a different currency (whether U.S. dollars
or a foreign currency or foreign currency unit) (a "Reference Currency"), (b) in
the form of Currency Call Warrants, entitling the owners thereof to receive from
Holdings the Currency Warrant Cash Settlement Value of the right to purchase a
specified amount of a Base Currency for a specified amount of a Reference
Currency, or (c) in such other form as shall be specified in the related
Prospectus Supplement. The Prospectus Supplement for an issue of Currency
Warrants will set forth the formula pursuant to which the Currency Warrant Cash
Settlement Value will be determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of any Currency Warrants
offered thereby, the Currency Warrant Agreement relating to such Currency
Warrants and the Currency Warrant Certificates representing such Currency
Warrants, including the following: (1) the title of such Currency Warrants;
(2) the aggregate amount of such Currency Warrants; (3) the initial offering
price of such Currency Warrants; (4) the exercise price, if any; (5) the
currency or currency unit in which the initial offering price, the exercise
price, if any, and the Currency Warrant Cash Settlement Value of such Currency
Warrants is payable; (6) the Base Currency and the Reference Currency for such
Currency Warrants; (7) whether such Currency Warrants shall be Currency Put
Warrants, Currency Call Warrants or otherwise; (8) the formula for determining
the Currency Warrant Cash Settlement Value, if applicable, of each Currency
Warrant;
(9) whether and under what circumstances a minimum and/or maximum expiration
value is applicable upon the expiration or exercise of such Currency Warrants;
(10) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (11) the date on which the right to exercise such
Currency Warrants shall commence and the date (the "Currency Warrant Expiration
Date") on which such right shall expire; (12) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; (13) the maximum number, if any, of such Currency Warrants that may,
subject to election by Holdings, be exercised by all owners (or by any person or
entity) on any day; (14) any provisions for the automatic exercise of such
Currency Warrants other than at expiration; (15) whether and under what
circumstances such Currency Warrants may be cancelled by Holdings prior to their
expiration date; (16) any other procedures and conditions relating to the
exercise of such Currency Warrants; (17) the identity of the Currency Warrant
Agent; (18) any national securities exchange on which such Currency Warrants
will be listed; (19) provisions, if any, for issuing such Currency Warrants in
certificated form; (20) if such Currency Warrants are not issued in book-entry
form, the place or places at which payments in respect of such Currency Warrants
are to be made by Holdings; (21) if applicable, a discussion of certain United
States federal income tax, accounting or other special considerations applicable
thereto; and (22) any other terms of the Currency Warrants.
Other important information concerning Currency Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions",
"--Enforceability of Rights by Beneficial Owner; Governing Law" and "--Unsecured
Obligations of a Holding Company" and "Certain Items Applicable to Currency
Warrants, Index Warrants and Interest Rate Warrants--Exercise of Warrants",
"--Market Disruption and Force Majeure Events" and "--Settlement Currency" and
"--Listing".
INDEX WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Interest Rate Warrants, or separately, Index Warrants (a) in the
form of Index Put Warrants, entitling the owners thereof to receive from
Holdings the Index Cash Settlement Value (as shall be defined in the Prospectus
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Supplement) in cash, which amount will be determined by reference to the amount,
if any, by which the Fixed Amount (as shall be defined in the Prospectus
Supplement) at the time of exercise exceeds the Index Value (as shall be defined
in the Prospectus Supplement), (b) in the form of Index Call Warrants, entitling
the owners thereof to receive from Holdings the Index Cash Settlement Value in
cash, which amount will be determined by reference to the amount, if any, by
which the Index Value at the time of exercise exceeds the Fixed Amount, (c) in
the form of Index Spread Warrants, entitling the owners thereof to receive from
Holdings the Index Cash Settlement Value in cash, which amount will be
determined by reference to the amount, if any, by which the Reference Index
Value (as shall be defined in the Prospectus Supplement) at the time of exercise
exceeds the Base Index Value (as shall be defined in the Prospectus Supplement)
or (d) in such other form as shall be specified in the related Prospectus
Supplement. The Prospectus Supplement for an issue of Index Warrants will set
forth the formula pursuant to which the Index Cash Settlement Value will be
determined, including any multipliers, if applicable.
The Prospectus Supplement will describe the terms of Index Warrants offered
thereby, the Index Warrant Agreement relating to such Index Warrants and the
Index Warrant Certificate representing such Index Warrants, including the
following: (1) the title of such Index Warrants; (2) the aggregate amount of
such Index Warrants; (3) the initial offering price of such Index Warrants; (4)
the exercise price, if any;
(5) the currency or currency unit in which the initial offering price, the
exercise price, if any, and the Index Cash Settlement Value of such Index
Warrants is payable; (6) the Index or Indices for such Index Warrants, which may
be based on one or more U.S. or foreign stocks, bonds, or other securities, one
or more U.S. or foreign interest rates, one or more currencies or currency
units, or any combination of the foregoing, and may be a preexisting U.S. or
foreign index compiled and published by a third party or an index based on one
or more securities, interest rates or currencies selected by Holdings solely in
connection with the issuance of such Index Warrants, and certain information
regarding such Index or Indices and the underlying securities, interest rates or
currencies (including, to the extent possible, the policies of the publisher of
the Index with respect to additions, deletions and substitutions of such
securities, interest rates or currencies); (7) whether such Index Warrants shall
be Index Put Warrants, Index Call Warrants, Index Spread Warrants or otherwise;
(8) the method of providing for a substitute Index or Indices or otherwise
determining the amount payable in connection with the exercise of such Index
Warrants if any Index changes or ceases to be made available by its publisher;
(9) the formula for determining the Index Cash Settlement Value, if applicable,
of each Index Warrant; (10) whether and under what circumstances a minimum
and/or maximum expiration value is applicable upon the expiration or exercise of
such Index Warrants; (11) the effect or effects, if any, of the occurrence of a
Market Disruption Event or Force Majeure Event; (12) the date on which the right
to exercise such Index Warrants shall commence and the date (the "Index Warrant
Expiration Date") on which such right shall expire; (13) any minimum number of
Index Warrants which must be exercised at any one time, other than upon
automatic exercise; (14) the maximum number, if any, of such Index Warrants that
may, subject to election by Holdings, be exercised by all owners (or by any
person or entity) on any day; (15) any provisions for the automatic exercise of
such Index Warrants other than at expiration; (16) whether and under what
circumstances such Index Warrants may be cancelled by Holdings prior to their
expiration date; (17) any provisions permitting a Holder to condition any notice
of exercise on the absence of certain specified changes in the Index Value, the
Base Index Value or the Reference Index Value after the date of exercise; (18)
any other procedures and conditions relating to the exercise of such Index
Warrants; (19) the identity of the Index Warrant Agent; (20) any national
securities exchange on which such Index Warrants will be listed; (21)
provisions, if any, for issuing such Index Warrants in certificated form; (22)
if such Index Warrants are not issued in book-entry form, the place or places at
which payments in respect of such Index Warrants are to be made by Holdings;
(23) if applicable, a discussion of certain United States federal income tax,
accounting or other special considerations applicable thereto; and (24) any
other terms of such Index Warrants.
Other important information concerning Index Warrants is set forth below
under "Certain Items Applicable to All Warrants--Modifications", "--Merger,
Consolidation, Sale or Other Dispositions",
"--Enforceability of Rights by Beneficial Owner; Governing Law" and "--Unsecured
Obligations of a
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Holding Company" and "Certain Items Applicable to Currency Warrants, Index
Warrants and Interest Rate Warrants--Exercise of Warrants", "--Market Disruption
and Force Majeure Events", "--Settlement Currency" and "--Listing".
INTEREST RATE WARRANTS
Holdings may issue, together with Debt Securities, Debt Warrants, Currency
Warrants or Index Warrants or, separately, Interest Rate Warrants (a) in the
form of Interest Rate Put Warrants, entitling the owners thereof to receive from
Holdings the Interest Rate Cash Settlement Value (as shall be defined in the
Prospectus Supplement) in cash, which amount will be determined by reference to
the amount, if any, by which the Spot Amount (as shall be defined in the
Prospectus Supplement) is less than the Strike Amount (as shall be defined in
the Prospectus Supplement) on the applicable valuation date following exercise,
(b) in the form of Interest Rate Call Warrants, entitling the owners thereof to
receive from Holdings the Interest Rate Cash Settlement Value in cash, which
amount will be determined by reference to the amount, if any, by which the Spot
Amount on the applicable valuation date following exercise exceeds the Strike
Amount or (c) in such other form as shall be specified in the related Prospectus
Supplement. The Prospectus Supplement for an issue of Interest Rate Warrants
will set forth the formula pursuant to which the Interest Rate Cash Settlement
Value will be determined, including any multipliers, if applicable. The Strike
Amount may either be a fixed yield, price or rate of a Debt Instrument, a Rate
or any combination of Debt Instruments and/or Rates or a yield, price or rate
that varies during the term of the Interest Rate Warrants in accordance with a
schedule or formula. The Debt Instrument will be one or more instruments
specified in the applicable Prospectus Supplement issued either by the United
States government or by a foreign government. The Rate will be one or more
interest rates or interest rate swap rates established from time to time by one
or more financial institutions specified in the applicable Prospectus
Supplement.
The Prospectus Supplement will describe the terms of Interest Rate Warrants
offered thereby, the Interest Rate Warrant Agreement relating to such Interest
Rate Warrants and the Interest Rate Warrant Certificate representing such
Interest Rate Warrants, including the following: (1) the title of such Interest
Rate Warrants, (2) the aggregate amount of such Interest Rate Warrants; (3) the
initial offering price of such Interest Rate Warrants; (4) the exercise price,
if any; (5) the currency or currency unit in which the initial offering price,
the exercise price, if any, and the Interest Rate Cash Settlement Value of such
Interest Rate Warrants is payable; (6) the Debt Instrument (which may be one or
more debt instruments issued either by the United States government or by a
foreign government), the Rate (which may be one or more interest rates or
interest rate swap rates established from time to time by one or more specified
financial institutions) or the other yield, price or rate utilized for such
Interest Rate Warrants, and certain information regarding such Debt Instrument
or Rate; (7) whether such Interest Rate Warrants shall be Interest Rate Put
Warrants, Interest Rate Call Warrants or otherwise; (8) the Strike Amount, the
method of determining the Spot Amount and the method of expressing movements in
the yield or closing price of the Debt Instrument or in the level of the Rate as
a cash amount in the currency in which the Interest Rate Cash Settlement Value
of such Warrants is payable; (9) the formula for determining the Interest Rate
Cash Settlement Value, if applicable, of each Interest Rate Warrant; (10)
whether and under what circumstances a minimum and/or maximum expiration value
is applicable upon the expiration or exercise of such Interest Rate Warrants;
(11) the effect or effects, if any, of the occurrence of a Market Disruption
Event or Force Majeure Event; (12) the date on which the right to exercise such
Interest Rate Warrants shall commence and the date (the "Interest Rate Warrant
Expiration Date") on which such right shall expire; (13) any minimum number of
Interest Rate Warrants which must be exercised at any one time, other than upon
automatic exercise; (14) the maximum number, if any, of such Interest Rate
Warrants that may, subject to election by Holdings, be exercised by all owners
(or by any person or entity) on any day; (15) any provisions for the automatic
exercise of such Interest Rate Warrants other than at expiration; (16) whether
and under what circumstances such Interest Rate Warrants may be cancelled by
Holdings prior to their expiration
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date; (17) any provisions permitting a Holder to condition any notice of
exercise on the absence of certain specified changes in the Spot Amount after
the date of exercise; (18) any other procedures and conditions relating to the
exercise of such Interest Rate Warrants; (19) the identity of the Interest Rate
Warrant Agent; (20) any national securities exchange on which such Interest Rate
Warrants will be listed; (21) provisions, if any, for issuing such Interest Rate
Warrants in certificated form; (22) if such Interest Rate Warrants are not
issued in book-entry form, the place or places at which payments in respect of
such Interest Rate Warrants are to be made by Holdings; (23) if applicable, a
discussion of certain United States federal income tax, accounting or other
special considerations applicable thereto; and (24) any other terms of such
Interest Rate Warrants.
Other important information concerning Interest Rate Warrants is set forth
below under "Certain Items Applicable to All Warrants--Modifications",
"--Merger, Consolidation, Sale or Other Dispositions", "--Enforceability of
Rights by Beneficial Owner; Governing Law" and "--Unsecured Obligations of a
Holding Company" and "Certain Items Applicable to Currency Warrants, Index
Warrants and Interest Rate Warrants--Exercise of Warrants", "--Market Disruption
and Force Majeure Events", "--Settlement Currency" and "--Listing".
CERTAIN ITEMS APPLICABLE TO ALL WARRANTS
MODIFICATIONS
Each Warrant Agreement and the terms of each issue of Warrants may be
amended by Holdings and the applicable Warrant Agent, without the consent of the
beneficial owners or the registered holders, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained therein, or in any other manner which Holdings
may deem necessary or desirable and which will not adversely affect the
interests of the beneficial owners of the then outstanding unexercised Warrants
in any material respect (Section 6.1).
Holdings and each Warrant Agent also may modify or amend the applicable
Warrant Agreement and the terms of the related Warrants, with the consent of the
beneficial owners of not less than a majority in number of the then outstanding
unexercised Warrants affected, provided that no such modification or amendment
that reduces the amount receivable upon exercise, cancellation or expiration,
shortens the period of time during which the Warrants may be exercised or
otherwise materially and adversely affects the exercise rights of the beneficial
owners of the Warrants or reduces the percentage number of outstanding Warrants
the consent of whose beneficial owners is required for modification or amendment
of the applicable Warrant Agreement or the terms of the Warrants may be made
without the consent of the beneficial owners affected thereby (Section 6.1).
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
If at any time there is a merger or consolidation involving Holdings or a
sale, transfer, conveyance or other disposition of all or substantially all of
the assets of Holdings, then in any such event the successor or assuming
corporation shall succeed to and be substituted for Holdings, with the same
effect as if it had been named in the applicable Warrant Agreement and in the
applicable Warrants as Holdings. Holdings shall thereupon be relieved of any
further obligation under such Warrant Agreement or under such Warrants, and, in
the event of any such merger, consolidation, sale, transfer, conveyance or other
disposition, Holdings as the predecessor corporation may thereupon or at any
time thereafter be dissolved, wound up or liquidated (Section 6.2 of the Debt
Warrant Agreement and Section 3.2 of each other Warrant Agreement).
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ENFORCEABILITY OF RIGHTS BY BENEFICIAL OWNER; GOVERNING LAW
Each Warrant Agent will act solely as an agent of Holdings in connection
with the issuance and exercise of the applicable Warrants and will not assume
any obligation or relationship of agency or trust for or with any owner of a
beneficial interest in any Warrant or with the registered holder thereof
(Section 5.2). A Warrant Agent shall have no duty or responsibility in case of
any default by Holdings in the performance of its obligations under the
applicable Warrant Agreement or Warrant Certificate including, without
limitation, any duty or responsibility to initiate any proceedings at law or
otherwise or to make any demand upon Holdings (Section 5.2). Beneficial owners
may, without the consent of the applicable Warrant Agent, enforce by appropriate
legal action, on their own behalf, their right to exercise their Warrants, to
receive Debt Securities, in the case of Debt Warrants, and to receive payment,
if any, for their Warrants, in the case of Currency Warrants, Index Warrants or
Interest Rate Warrants (Section 4.2 of the Debt Warrant Agreement and Section
3.1 of each other Warrant Agreement). Except as may otherwise be provided in the
Prospectus Supplement relating thereto, each issue of Warrants and the
applicable Warrant Agreement will be governed by and construed in accordance
with the law of the State of New York (Section 6.5).
UNSECURED OBLIGATIONS OF A HOLDING COMPANY
The Warrants are unsecured obligations of Holdings and, therefore, changes
in the perceived creditworthiness of Holdings may be expected to affect trading
prices in Warrants. Since Holdings, as a holding company, does not have any
significant assets other than the equity securities of its subsidiaries, its
cash flow and consequent ability to satisfy its financial obligations, including
Warrants, are dependent upon the earnings of its subsidiaries and the
distribution of those earnings to Holdings, or upon loans or other payments of
funds by those subsidiaries to Holdings. Holdings' subsidiaries, including
Lehman Brothers, are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any amount in respect of Warrants or
to make any funds available therefor, whether by dividends, loans or other
payments. Dividends, loans and other payments by Lehman Brothers are restricted
by net capital and other rules of various regulatory bodies. See "Capital
Requirements." The payment of dividends by Holdings' subsidiaries is contingent
upon the earnings of those subsidiaries and is subject to various business
considerations in addition to net capital requirements and contractual
restrictions. Additionally, since Warrants will be obligations of a holding
company, the ability of holders of Warrants to benefit from any distribution of
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary is subordinate to the prior claims of present and future creditors of
such subsidiary.
CERTAIN ITEMS APPLICABLE TO CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE
WARRANTS
EXERCISE OF WARRANTS
Except as may otherwise be provided in the applicable Prospectus Supplement
relating thereto, (a) each Currency Warrant, Index Warrant and Interest Rate
Warrant will entitle the owner, upon payment of the exercise price, if any, to
receive the applicable Cash Settlement Value of such Warrant, on the applicable
Exercise Date, in each case as such terms will further be defined in the
applicable Prospectus Supplement relating thereto (Section 2.2) and (b) if not
exercised prior to 1:30 p.m., New York City time, on the Business Day preceding
the applicable Warrant Expiration Date, the Warrants will be deemed
automatically exercised on such Warrant Expiration Date (Section 2.3). As
described below, Currency Warrants, Index Warrants and Interest Rate Warrants
may also be deemed to be automatically exercised if they are delisted.
Procedures for exercise of the Currency Warrants, Index Warrants and Interest
Rate Warrants will be set out in the applicable Prospectus Supplement.
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MARKET DISRUPTION AND FORCE MAJEURE EVENTS
If so specified in the applicable Prospectus Supplement, following the
occurrence of a Market Disruption Event or Force Majeure Event (as each term
shall be defined therein), the Cash Settlement Value of a Currency Warrant, an
Index Warrant or an Interest Rate Warrant may be determined on a different basis
than under normal exercise of a Warrant or the determination of the applicable
Cash Settlement Value. In addition, if so specified in the applicable Prospectus
Supplement, Currency Warrants, Index Warrants and Interest Rate Warrants may, in
certain circumstances, be cancelled by Holdings prior to their expiration date
and the holders thereof will be entitled to receive only the applicable
Cancellation Amount. The Cancellation Amount may be either a fixed amount or an
amount that varies during the term of the Warrants in accordance with a schedule
or formula.
SETTLEMENT CURRENCY
Currency Warrants, Index Warrants and Interest Rate Warrants will be settled
only in U.S. dollars (unless settlement in a foreign currency is specified in
the applicable Prospectus Supplement and is permissible under applicable law)
and accordingly will not require or entitle an owner to sell, deliver, purchase
or take delivery of the currency, security or other instrument underlying such
Warrants. If any of the Currency Warrants, Index Warrants or Interest Rate
Warrants are sold for, or if the exercise price, if any, is payable in, foreign
currencies or foreign currency units or if the amount payable by Holdings in
respect of any series of Currency Warrants, Index Warrants or Interest Rate
Warrants is payable in foreign currencies or foreign currency units, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such issue of Warrants and such currencies or currency units
will be set forth in an applicable Prospectus Supplement relating thereto.
LISTING
Unless otherwise provided in the Prospectus Supplement, each issue of
Currency Warrants, Index Warrants and Interest Rate Warrants will be listed on a
national securities exchange, as specified in the applicable Prospectus
Supplement, subject only to official notice of issuance, as a pre-condition to
the sale of any such Warrants. It may be necessary in certain circumstances for
such national securities exchange to obtain the approval of the SEC in
connection with any such listing. In the event that such Warrants are delisted
from, or permanently suspended from trading on, such exchange, and, at or prior
to such delisting or suspension, such Warrants shall not have been listed on
another national securities exchange, any such Warrants not previously exercised
will be deemed automatically exercised on the date such delisting or permanent
trading suspension becomes effective (Section 2.3). The applicable Cash
Settlement Value to be paid in such event will be as set forth in the applicable
Prospectus Supplement. Holdings will notify holders of such Warrants as soon as
practicable of such delisting or permanent trading suspension. The applicable
Warrant Agreement will contain a covenant of Holdings not to seek delisting of
such Warrants from, or permanent suspension of their trading on, such exchange
(Section 2.4 of the Currency Warrant Agreement and the Interest Rate Warrant
Agreement and Section 2.5 of the Index Warrant Agreement).
GLOBAL SECURITIES
The Securities of a series may be issued in whole or in part in the form of
one or more Global Securities that will be deposited with or on behalf of a
depository (a "Depository") identified in the Prospectus Supplement relating to
such series. Global Securities representing Debt Securities or Debt Warrants may
be issued in either registered or bearer form. Global Securities representing
Currency Warrants, Index Warrants or Interest Rate Warrants will be issued in
registered form only. Global Securities may be issued in either temporary or
permanent form.
The specific terms of the depository arrangement with respect to any
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depository arrangements.
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Unless otherwise specified in an applicable Prospectus Supplement,
Securities which are to be represented by a Global Security in registered form
to be deposited with or on behalf of a Depository will be registered in the name
of such Depository or its nominee. Upon the issuance of a Global Security in
registered form, the Depository for such Global Security will credit the
respective principal amounts, in the case of Debt Securities, and the respective
number of warrants, in the case of Warrants represented by such Global Security
to the accounts of institutions that have accounts with such Depository or its
nominee ("participants"). The accounts to be credited shall be designated by the
underwriters or agents of such Securities or by Holdings, if such Securities are
offered and sold directly by Holdings. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests by
participants in such Global Securities will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security.
So long as the Depository for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Securities represented by such Global Security for all purposes under the
applicable Indenture, in the case of Debt Securities, or under the applicable
Warrant Agreement, in the case of Warrants, governing such Securities. Except as
set forth below, owners of beneficial interests in such Global Security will not
be entitled to have Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Securities of such series in definitive form and will not be
considered the owners or holders thereof under the applicable Indenture, in the
case of Debt Securities, or under the applicable Warrant Agreement, in the case
of Warrants.
Payments in respect of Securities registered in the name of or held by a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner or the holder of the Global Security. None
of Holdings, the underwriters, the applicable Trustee or Warrant Agent, any
Paying Agent or any Security Registrar for such Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Holdings expects that the Depository for a permanent Global Security in
registered form, upon receipt of any payment in respect of a permanent Global
Security, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in such Global
Security as shown on the records of such Depository. Holdings also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
A Global Security in registered form may not be transferred except as a
whole by the Depository for such Global Security to a nominee of such Depository
or by a nominee of such Depository to such Depository or another nominee of such
Depository or by such Depository or any such nominee to a successor of such
Depository or a nominee of such successor. If a Depository for a permanent
Global Security in registered form is at any time unwilling or unable to
continue as Depository and a successor Depository is not appointed by Holdings
within 90 days, Holdings will issue Securities in definitive registered form in
exchange for the Global Security representing such Securities. In addition,
Holdings may at any time and in its sole discretion determine not to have any
Securities in registered form represented by one or more Global Securities and,
in such event, will issue Securities in definitive form in exchange for all of
the Global Securities representing such Securities. Further, if Holdings so
specifies with
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respect to the Securities of a series, an owner of a beneficial interest in a
Global Security representing Securities of such series may, on terms acceptable
to Holdings and the Depository for such Global Security, receive Securities of
such series in definitive form. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery in
definitive form of Securities of the series represented by such Global Security
equal in principal amount, in the case of Debt Securities, or number, in the
case of Warrants, to such beneficial interest and to have such Securities
registered in its name (if the Securities of such series are issuable as
registered securities). Unless otherwise specified by Holdings, Securities of
such series so issued in definitive form will be issued either as registered or
bearer securities (if the Securities of such series are issuable in such form)
and in authorized denominations, in the case of Debt Securities, or in
authorized numbers, in the case of Warrants, as specified in the applicable
Prospectus Supplement. See, however, "Description of Debt
Securities--Limitations on Issuance of Bearer Securities" above for a
description of certain restrictions on the issuance of a Bearer Security in
definitive form in exchange for an interest in a Global Security.
BEARER DEBT SECURITIES
If so specified in an applicable Prospectus Supplement, pending the
availability of a permanent Global Security, all or any portion of the Debt
Securities of a series which may be issuable as bearer securities will initially
be represented by one or more temporary Global Securities, without interest
coupons, to be deposited with a common depositary in London for Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euroclear System
("Euroclear") and Cedel Bank, societe anonyme ("Cedel") for credit to the
designated accounts. The interests of the beneficial owner or owners in such a
temporary Global Security in bearer form will be exchangeable for (i) in whole,
definitive Bearer Securities, (ii) in whole, Senior Debt Securities to be
represented thereafter by one or more permanent Global Securities in bearer
form, without interest coupons, and/or (iii) in whole or in part, definitive
Registered Securities, (the date of such exchange, the "Exchange Date");
provided, however, that if definitive Bearer Securities have previously been
issued in exchange for an interest in a permanent Global Security in bearer form
representing Senior Debt Securities of the same series, then interests in such
Senior Debt Securities (with certain exceptions) shall only thereafter be
exchangeable, in whole, for definitive Bearer Securities, definitive Registered
Securities, or any combination thereof (with certain exceptions) representing
Debt Securities having the same interest rate and Stated Maturity, but only upon
written certification in the form and to the effect described under
"Denominations, Registration and Transfer" unless such certification has been
provided on an earlier interest payment date. The beneficial owner of a Debt
Security represented by a permanent Global Security in bearer form may, on the
applicable Exchange Date and upon 30 days' notice to the applicable Trustee
given through Euroclear or Cedel, exchange its interest in whole for definitive
Bearer Securities or, if specified in an applicable Prospectus Supplement, in
whole or in part, for definitive Registered Securities of any authorized
denomination, provided, however, that if definitive Bearer Securities are issued
in partial exchange for Senior Debt Securities represented by such permanent
Global Security or by a temporary Global Security in bearer form of the same
series, such issuance (with certain exceptions) shall give rise to the exchange
of such permanent Global Security in whole for, at the option of the Holders,
definitive Bearer Securities, definitive Registered Securities, or any
combination thereof. No Bearer Security delivered in exchange for a portion of a
permanent Global Security shall be mailed or otherwise delivered to any location
in the United States in connection with such exchange.
Unless otherwise specified in an applicable Prospectus Supplement, interest
in respect of any portion of such a temporary Global Security in bearer form
payable in respect of an Interest Payment Date occurring prior to the issuance
of a permanent Global Security in bearer form will be paid to each of Euroclear
and Cedel with respect to the portion of the temporary Global Security in bearer
form held for its account. Each of Euroclear and Cedel will undertake in such
circumstances to credit such interest received by it in respect of a temporary
Global Security in bearer form to the respective accounts for which it holds
such temporary Global Security in bearer form as of the relevant Interest
Payment Date, but only upon receipt in each case of written certification, in
the form and to the effect described under "Description of Debt
Securities--Denomination, Registration and Transfer."
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UNITED STATES TAXATION
A summary of the material U.S. federal income tax consequences to U.S.
persons investing in Securities will be set forth in the applicable Prospectus
Supplement. The summary of U.S. federal income tax consequences contained in the
Prospectus Supplement will be presented for informational purposes only,
however, and will not be intended as legal or tax advice to prospective
purchasers. Prospective purchasers of Securities are urged to consult their own
tax advisors prior to any acquisition of Securities.
CAPITAL REQUIREMENTS
As a registered broker-dealer, Lehman Brothers is subject to the SEC's net
capital rule (Rule 15c3-1, the "Net Capital Rule"), promulgated under the
Exchange Act. The Exchange monitors the application of the Net Capital Rule by
Lehman Brothers. Lehman Brothers computes net capital under the alternative
method of the Net Capital Rule which requires the maintenance of minimum net
capital, as defined. A broker-dealer may be required to reduce its business if
its net capital is less than 4% of aggregate debit balances and may also be
prohibited from expanding its business or paying cash dividends if resulting net
capital would be less than 5% of aggregate debit balances. In addition, the Net
Capital Rule does not allow withdrawal of subordinated capital if net capital
would be less than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the Net
Capital Rule equity capital cannot be withdrawn from a broker-dealer without the
prior approval of the SEC when net capital after the withdrawal would be less
than 25% of its securities positions haircuts (which are deductions from capital
of certain specified percentages of the market value of securities to reflect
the possibility of a market decline prior to disposition). In addition, the Net
Capital Rule requires broker-dealers to notify the SEC and the appropriate
self-regulatory organization two business days before a withdrawal of excess net
capital if the withdrawal would exceed the greater of $500,000 or 30% of the
broker-dealer's excess net capital, and two business days after a withdrawal
that exceeds the greater of $500,000 or 20% of excess net capital. Finally, the
Net Capital Rule authorizes the SEC to order a freeze on the transfer of capital
if a broker-dealer plans a withdrawal of more than 30% of its excess net capital
and the SEC believes that such a withdrawal would be detrimental to the
financial integrity of the firm or would jeopardize the broker-dealer's ability
to pay its customers.
Compliance with the Net Capital Rule could limit those operations of Lehman
Brothers that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
could restrict Holdings' ability to withdraw capital from Lehman Brothers which
in turn could limit Holdings' ability to pay dividends, repay debt and redeem or
purchase shares of its outstanding capital stock.
The Company is subject to other domestic and international regulatory
requirements with which it is required to comply.
PLAN OF DISTRIBUTION
Holdings may sell Securities in any one or more of the following ways: (i)
through, or through underwriting syndicates managed by, Lehman Brothers alone or
with one or more other underwriters; (ii) through one or more dealers or agents
(which may include Lehman Brothers); or (iii) directly to one or more
purchasers. The specific managing underwriter or underwriters or agent or agents
with respect to the offer and sale of Securities are set forth on the cover of a
Prospectus Supplement relating to such Securities and the members of the
underwriting syndicate, if any, are named in such Prospectus Supplement. Only
the underwriters or agents so named in a Prospectus Supplement are underwriters
or agents, respectively, in connection with such Securities. The applicable
Prospectus Supplement also describes the discounts and commissions to be allowed
or paid to the underwriters or agents, all other items constituting
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underwriting or agency compensation, the discounts and commissions to be allowed
or paid to dealers, if any, and the exchanges, if any, on which such Securities
will be listed.
Securities acquired by any underwriter will be acquired for its own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of the underwriters to purchase
such Securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all such Securities if any of such
Securities are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time. To the extent, if any, that Securities to be purchased by Lehman Brothers,
as underwriter, are not resold by it or are not resold at the public offering
price set forth in an applicable Prospectus Supplement, the funds derived from
such offering by the Company on a consolidated basis may be reduced.
If so indicated in an applicable Prospectus Supplement, Holdings will
authorize the underwriters named therein to solicit offers to certain
institutional investors to purchase Securities providing for payment and
delivery on a future date specified in an applicable Prospectus Supplement.
There may be limitations on the minimum amount which may be purchased by any
such institutional investor or on the portion of the aggregate proceeds to
Holdings of the particular Securities which may be sold pursuant to such
arrangements. Institutional investors to which such offers may be made, when
authorized, include commercial and savings banks, insurance companies, pension
funds, educational charitable institutions and such other institutions as may be
approved by Holdings. The obligations of any such purchasers pursuant to such
delayed delivery and payment arrangements will not be subject to any conditions
except (i) the purchase by an institution of the particular Securities shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (ii) Holdings shall have
sold to such underwriters all of such Securities less the amount of such
securities covered by such arrangements. Underwriters named therein will not
have any responsibility in respect of the validity of such arrangements or the
performance of Holdings or such institutional investors thereunder.
Each distributor of Bearer Securities will agree that it will not offer or
sell during the restricted period, directly or indirectly, Bearer Securities in
the United States or to United States persons (other than as discussed under
"Description of Debt Securities--Limitations on Issuance of Bearer Securities")
and in connection with the sale of Bearer Securities during the restricted
period, will not deliver definitive Bearer Securities within the United States.
See "Description of Debt Securities--Limitations on Issuance of Bearer
Securities."
Each underwriter or agent will represent and agree that (i) it has not
offered and sold and will not offer or sell, prior to the date six months after
the date of issue in the case of the Debt Securities, any Securities to persons
in the United Kingdom, except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offer of Securities Regulations 1995;
(ii) it has complied with and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the Securities in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue of the
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The underwriters and agents named in an applicable Prospectus Supplement may
be entitled under agreements entered into with Holdings to indemnification by
Holdings against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the
underwriters and agents may be required to make in respect thereof. The
underwriters and agents may engage in transactions with, or perform services
for, Holdings in the ordinary course of business.
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This Prospectus together with an applicable Prospectus Supplement may also
be used by Lehman Brothers in connection with offers and sales of Securities
related to market making transactions by and through Lehman Brothers at
negotiated prices related to prevailing market prices at the time of sale.
Lehman Brothers may act as principal or agent in such transactions. Lehman
Brothers is not obligated to make a market in any Securities and may discontinue
any market-making activities at any time without notice. No assurance can be
given that there will be a secondary market for the Securities.
The underwriting and agency arrangements for any offering of the Securities
will comply with the requirements of Rule 2720 of the NASD regarding an NASD
member firm's participating in distributing its affiliate's securities.
ERISA MATTERS
Each of Holdings and Lehman Brothers may be considered a "party in interest"
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and a "disqualified person" under corresponding provisions of
the Code, with respect to certain employee benefit plans. Certain transactions
between an employee benefit plan and a party in interest or disqualified person
may result in "prohibited transactions" within the meaning of ERISA and the
Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE SECURITIES SHOULD
CONSULT WITH ITS LEGAL COUNSEL.
LEGAL OPINIONS
Unless otherwise indicated in an applicable Prospectus Supplement relating
to offered Securities, the validity of the Securities offered hereby will be
passed upon for Holdings by Karen M. Muller, Esq., Deputy General Counsel of
Holdings and for the underwriters or agents by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), 425 Lexington Avenue, New
York, New York 10017. Simpson Thacher & Bartlett acts as counsel in various
matters for Holdings, Lehman Brothers and certain of their subsidiaries.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedules of the Company for the
year ended November 30, 1996, the year ended November 30, 1995 and for the
eleven months ended November 30, 1994, appearing in the Company's Annual Report
on Form 10-K for the year ended November 30, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and schedules are incorporated herein by reference in reliance upon
the reports of Ernst & Young LLP pertaining to such financial statements given
upon the authority of such firm as experts in accounting and auditing.
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$12,760,000
LEHMAN BROTHERS HOLDINGS INC.
10 UNCOMMON VALUES INDEX BASES
BASKET ADJUSTING STRUCTURED EQUITY SECURITIES
NOTES, SERIES B, DUE 2004
---------------------
PROSPECTUS SUPPLEMENT
JULY 19, 1999
(INCLUDING PROSPECTUS DATED
FEBRUARY 17, 1998)
---------------------
LEHMAN BROTHERS
