<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Filed Pursuant to Rule 424(B)(2)
Registration No. 33-53651
SUBJECT TO COMPLETION, DATED MAY 17, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED FEBRUARY 17, 1998)
1,000,000 WARRANTS
LEHMAN BROTHERS HOLDINGS INC.
10 UNCOMMON VALUES INDEX CALL WARRANTS
EXPIRING JULY 2, 2001
------------------
GENERAL:
- - Unsecured contractual obligations of Lehman Brothers Holdings ranking equally
with its other unsecured contractual obligations and its senior unsecured debt
securities.
- - 10 Uncommon Values index: Ten equal dollar-weighted common stocks selected 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. A list of the initial
underlying stocks will be published in the final prospectus supplement.
- - Minimum initial purchase: 100 warrants.
- - Denominations: 100 warrants and integral multiples thereof.
- - Expiration date: July 2, 2001.
- - Application will be made to list the warrants on the American Stock Exchange
under the symbol "LBW.WS."
EXERCISE:
- - You may exercise the warrants at any time after their date of issuance until
July 2, 2001. If you have not exercised your warrants before 3:00 P.M., New
York City time, on July 2, 2001, your warrants will be automatically
exercised.
- - Cash settlement amount per warrant: The greater of:
(1) Zero; and
(2) Index level on the valuation date - 100
----
4
where 100 equals the initial index level and 4 is the number of warrants per
index unit.
You will only receive a return greater than your investment if, on the
valuation date for your exercise, the level of the index has increased by more
than % from its initial level.
- - You will receive the cash settlement amount per warrant generally on the third
business day after the day the warrants are valued. Generally, depending upon
the time of day you exercise your warrants, the warrants will be valued either
on the first or second day after you exercise your warrants. For an exercise
of warrants on the expiration date and the two business days immediately
preceding the expiration date, the valuation date will be the business day
immediately preceding the expiration date.
- - Minimum exercise: 100 warrants.
INVESTING IN THE WARRANTS 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 WARRANT TOTAL
----------- -----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to Lehman Brothers Holdings........................ $ $
</TABLE>
Lehman Brothers Holdings has granted the underwriters a 30-day option to
purchase up to an additional warrants on the same terms and conditions as set
forth above solely to cover over-allotments, if any.
------------------------
The warrants are expected to be ready for delivery in book-entry form only
through The Depository Trust Company on or about July , 2000
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 FIDELITY CAPITAL MARKETS
a division of National Financial Services Corporation
, 2000
"10 Uncommon Values" is a registered trademark 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-12
Description of the Warrants................................. S-12
The Index................................................... S-20
United States Federal Income Tax Consequences............... S-27
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 warrants. You should
carefully read this prospectus supplement and the accompanying prospectus to
understand fully the terms of the warrants and the tax and other considerations
that are important to you in making a decision about whether to invest in the
warrants. You should pay special attention to the "Risk Factors" section
beginning on page S-7 to determine whether an investment in the warrants 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 WARRANTS?
The warrants are a series of index warrants of Lehman Brothers Holdings whose
value is tied to the performance of the 10 Uncommon Values index. The warrants
are unsecured contractual obligations and will rank equally with all other
unsecured debt of Lehman Brothers Holdings except subordinated debt, and will
expire on July 2, 2001.
WHAT IS THE 10 UNCOMMON VALUES INDEX?
The 10 Uncommon Values index is made up of ten equal dollar-weighted common
stocks which will be selected on or about July 1, 2000 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 comprising the 10
Uncommon Values, 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.
WHAT WILL I RECEIVE UPON EXERCISE OF THE WARRANTS?
Upon exercise, you will receive, for each warrant, the cash settlement amount,
if any. If the cash settlement amount is equal to zero, you will not receive any
payment and you will lose the full amount of your original investment.
HOW WILL THE CASH SETTLEMENT AMOUNT BE CALCULATED?
The cash settlement amount per warrant will equal the greater of:
- - Zero; and
- - Index level on the valuation date - 100
----
4
where 100 equals the initial index level and 4 is the number of warrants per
index unit. The cash settlement amount will be rounded down to the nearest cent.
You will only receive a return greater than your investment if, on the valuation
date for your exercise, the level of the index has increased by more than %
from its initial level.
CASH SETTLEMENT AMOUNT -- EXAMPLES
Here are two examples of hypothetical cash settlement amount calculations:
EXAMPLE 1: THE INDEX LEVEL ON THE VALUATION DATE IS 120 AND THE ISSUE PRICE OF
THE WARRANT IS $ .
Cash settlement amount per warrant =
120 - 100 = 5
----
4
As a result, upon exercise, you will receive $5 per warrant. This is below the
$ you paid per warrant.
S-3
<PAGE>
EXAMPLE 2: THE INDEX LEVEL ON THE VALUATION DATE IS 150 AND THE ISSUE PRICE OF
THE WARRANT IS $ .
Cash settlement amount per warrant =
150 - 100 = 12.50
-------
4
As a result, upon exercise, you will receive $12.50 per warrant. This is above
the $ you paid per warrant.
WHEN CAN I EXERCISE THE WARRANTS?
You may exercise the warrants at any time after their date of issuance until
July 2, 2001. If you have not exercised your warrants before 3:00 P.M., New York
City time, on July 2, 2001, your warrants will be automatically exercised.
AFTER I EXERCISE THE WARRANTS, WHEN IS THEIR VALUE DETERMINED?
The valuation date for the level of the index will depend on what time the
warrant agent receives the warrants and your exercise notice. For an exercise of
warrants prior to the second business day preceding the expiration date, if the
notice and warrants are received by the warrant agent before 3:00 P.M., New York
City time, the valuation date will be the next business day, subject to
postponement if a market disruption event occurs. If the notice and warrants are
received by the warrant agent after 3:00 P.M., New York City time, the valuation
date will be two business days later subject to postponement if a market
disruption event occurs. For an exercise of warrants on the expiration date and
the two business days immediately preceding the expiration date, the valuation
date will be the business day immediately preceding the expiration date. See
"Description of the Warrants--Valuation date of the warrants" beginning on page
S-14.
WHEN WILL I RECEIVE THE CASH SETTLEMENT AMOUNT?
Lehman Brothers Holdings will make the aggregate cash settlement value available
to the warrant agent on the third business day following the valuation date if
you exercise your warrants prior to the second business day preceding the
expiration date. If you exercise your warrants on the expiration date or the two
business days immediately preceding the expiration, or if your warrants are
automatically exercised for you on the expiration date, Lehman Brothers Holdings
will make the cash settlement value available to the warrant agent on the third
business day after the expiration date. The warrant agent will then make those
funds available to DTC prior to the close of business on the settlement date.
DTC will be responsible for distributing those funds to each participant of DTC
and each participant will be responsible for distributing those funds to the
warrantholders it represents and to each brokerage firm for which it acts as
agent. Each brokerage firm will be responsible for distributing funds to the
warrantholders it represents.
HOW DO I EXERCISE MY WARRANTS?
You may exercise your warrants on any business day by causing your warrants to
be transferred to the warrant agent on the records of DTC and by completing and
executing an exercise notice.
CAN I EXERCISE ALL OF MY WARRANTS ON A PARTICULAR DAY?
Except for automatic exercise of the warrants when they expire and upon
delisting of the warrants on the American Stock Exchange, the exercise of the
warrants is subject to the following three limitations:
- - You may not exercise fewer than 100 warrants on any one day;
- - You may not exercise more than 1,000,000 warrants on any one day; and
- - Not more than 1,000,000 warrants in total by all investors may be exercised on
any one day.
HOW HAS THE 10 UNCOMMON VALUES PERFORMED HISTORICALLY?
Lehman Brothers Holdings has provided a table, beginning on page S-21, 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 warrants. You should realize,
S-4
<PAGE>
however, that past performance is not necessarily indicative of how the index
and warrants will perform in the future.
WHAT CHANGES WILL OCCUR IN THE INDEX?
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. Also as an example,
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 index" beginning on page S-24.
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 may 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 index unit. 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 .
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the warrants are subject to a number of risks. See "Risk Factors" beginning
on page S-7.
WHO SHOULD CONSIDER INVESTING IN THE WARRANTS?
Because the warrants are tied to the results underlying the 10 Uncommon Values
index, they may be appropriate for investors with specific investment horizons
who seek to participate in the potential price appreciation of the underlying
common stocks and other equity securities with risk limited to the cost of the
warrants. The American Stock Exchange, the exchange on which the warrants will
be listed, requires that the warrants be sold only to investors whose accounts
have been approved for options trading. In addition, the American Stock Exchange
requires its members and member organizations and their registered employees to
make certain suitability determinations before recommending transactions in
warrants.
In particular, the warrants may be an attractive investment if you:
- - want to participate in the appreciation potential offered by the underlying
common stocks and other equity securities, but are concerned about limiting
your investment risk to the cost of the warrants you purchase;
- - seek to add a leveraged equity-linked investment to balance out a portfolio
otherwise dominated by fixed income investments;
- - desire to benefit from the potential appreciation and diversification offered
by an index based on a portfolio of 10 common stocks and other equity
securities with a significantly smaller initial investment than would
otherwise be required; and
- - are willing to forego dividend payments on the common stocks and other equity
securities underlying the index.
WHAT ABOUT TAXES?
The warrants will be treated as cash settlement options. You will be required to
recognize gain or loss with respect to a warrant on the sale, exchange, exercise
or other disposition of a warrant. See "United States Federal Income Tax
Consequences" beginning on page S-27.
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.
S-5
<PAGE>
WHAT IS THE ROLE OF LEHMAN BROTHERS INC.?
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, is an
underwriter for the offering and sale of the warrants. 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 warrants. 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" beginning
on page S-11 and "Description of the Warrants--Calculation agent" beginning on
page S-19.
After the initial offering, Lehman Brothers Inc. intends to buy and sell
warrants to create a secondary market in warrants, and may stabilize or maintain
the market price of the warrants during the initial distribution of the
warrants. 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 WARRANTS BE LISTED ON A STOCK EXCHANGE?
Lehman Brothers Holdings has applied to list the warrants on the American Stock
Exchange. You should be aware that the listing of the warrants on the American
Stock Exchange will not necessarily ensure that a liquid trading market will be
available for the warrants.
WHAT HAPPENS IF THE WARRANTS ARE NO LONGER LISTED ON THE AMERICAN STOCK
EXCHANGE?
If the warrants are delisted, or permanently suspended from trading on the
American Stock Exchange and they have not been accepted by another
self-regulatory organization for listing, your warrants will be automatically
exercised.
IN WHAT FORM WILL THE WARRANTS BE ISSUED?
The warrants will be represented by one or more global securities that will be
deposited with and registered in the name of Depository Trust Company or its
nominee. This means that you will not receive a certificate for your warrants.
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. Your investment
in the warrants will involve a high degree of risk. For example, there is the
risk that you might not earn a return on your investment and the risk that the
warrants will expire worthless. You should be prepared to sustain a total loss
of the purchase price of your warrants. You should be experienced with respect
to options and option transactions before considering an investment in the
warrants. You should reach an investment decision only after you have carefully
considered with your advisors the suitability of an investment in warrants in
light of your particular circumstances.
THE WARRANTS ARE LONG-TERM OPTIONS AND MAY EXPIRE WORTHLESS.
You will receive a cash payment upon exercise only if the warrants have a cash
settlement amount greater than zero on the valuation date. On the date of the
initial offering, the cash settlement amount of the warrants will equal zero.
The warrants will be "in-the-money", that is their cash settlement amount will
exceed zero, on the valuation date only if, as of that date, the closing level
of the 10 Uncommon Values index is greater than the initial level of the index
of 100. You may incur transaction costs in connection with any exercise of the
warrants. Therefore, you may receive no return, even if the warrants are
in-the-money, if the cash settlement amount does not exceed any transaction
costs and the price you paid for the warrants.
An increase in the level of the 10 Uncommon Values index from the date of the
initial offering to the public will result in a cash settlement amount for the
warrants, and a decrease in the level of the index from that date will result in
a zero cash settlement amount for your warrants. If a warrant is not exercised
prior to 3:00 P.M., New York City time on July 2, 2001, its expiration date and,
on the valuation date with respect to its expiration, the level of the 10
Uncommon Values index is less than or equal to than the initial level of the
index of 100, the warrant will expire worthless and you will have sustained a
total loss of the purchase price of the warrant. You should therefore be
prepared to sustain a total loss of the purchase price of your warrants.
THE VALUE OF THE WARRANTS IS CLOSELY RELATED TO CHANGES IN THE LEVEL OF THE 10
UNCOMMON VALUES INDEX.
- - THE WARRANTS PROVIDE OPPORTUNITIES FOR INVESTMENT BUT ALSO POSE RISKS TO YOU
AS A RESULT OF FLUCTUATIONS IN THE LEVEL OF THE UNDERLYING INVESTMENT. In
general, certain risks associated with the warrants are similar to those
generally applicable to other options or warrants of private corporate
issuers. However, unlike options or warrants on equity or debt securities,
which are traded primarily on the basis of the value of a single underlying
security, the trading value of the warrants is likely to reflect primarily the
extent of the appreciation or depreciation of the 10 Uncommon Values index.
- - YOU MAY LOSE YOUR ENTIRE INVESTMENT. This risk reflects the nature of a
warrant as an asset which tends to decline in value over time and which may,
depending on the relative value of the index, be worthless when it expires. A
warrant is "out-of-the-money" when the index level is less than the initial
index level of 100. Assuming all other factors are held constant, the more a
warrant is out-of-the-money and the shorter its remaining term to expiration,
the greater the risk that you will lose all of your investment. This means
that if you do not sell your warrants in the secondary market or exercise your
warrants prior to expiration, you will necessarily lose your entire investment
in the warrant if it expires when the index level is less than or equal to the
initial index level of 100.
- - YOU WILL RECEIVE A RETURN GREATER THAN YOUR INVESTMENT ONLY IF THE LEVEL OF 10
UNCOMMON VALUES INDEX APPRECIATES BY MORE THAN %. Until the level of the
index appreciates by more than %, you will receive less than you paid for
the warrants and, as a result, have a negative return on the warrants. Your
return on the warrants could be less than your return if you had owned the
common stocks and other equity securities underlying the index or an indexed
instrument that is directly linked to the common stocks and other equity
securities underlying the index.
S-7
<PAGE>
YOU MAY BE PAYING MORE FOR THE WARRANTS THAN A COMMERCIAL USER MAY PAY IN A
PRIVATE TRANSACTION.
The initial offering price of the warrants may be more than the price that a
commercial user of options on the index or the underlying common stocks and
other equity securities might pay for a comparable option in a private
transaction.
THE WARRANTS ARE SUITABLE ONLY FOR INVESTORS WITH EXPERIENCE IN OPTIONS
TRANSACTIONS.
The American Stock Exchange requires that warrants be sold only to investors
with options-approved accounts and that its members and member organizations and
their registered employees make certain suitability determinations before
recommending transactions in warrants. You should be experienced with respect to
options and option transactions and understand the risks of stock index
transactions and reach an investment decision only after carefully considering,
with your advisers, the suitability of the warrants in light of your particular
circumstances. You should be prepared to sustain a total loss of the purchase
price of your warrants.
BECAUSE THERE ARE LIMITS ON THE AMOUNT OF WARRANTS THAT CAN BE EXERCISED ON ANY
GIVEN DAY, THE RETURN YOU RECEIVE MAY BE DIFFERENT THAN YOU EXPECT.
- - YOU MAY EXERCISE NO LESS THAN 100 WARRANTS ON ANY GIVEN DAY. Except for cases
of automatic exercise at expiration or upon delisting of the warrants, you
must tender at least 100 warrants at any one time in order to exercise your
warrants. Thus, except in cases of automatic exercise at expiration or upon
delisting of the warrants, if you own fewer than 100 warrants you will need
either to sell your warrants or purchase additional warrants in the secondary
market, incurring transaction costs in either case, in order to realize
proceeds from your investment. At any time you purchase additional warrants in
order to have the minimum number of warrants necessary to elect to exercise,
you will be exposed to the conditions of the secondary market for warrants at
the time of that purchase, including the risk that there may be a limited
number of warrants available in the market at that time, and the other factors
affecting the secondary market. Furthermore, you incur the risk that there may
be differences between the trading value of the warrants and the cash
settlement amount of the warrants.
- - ON ANY GIVEN DAY, YOU CANNOT EXERCISE MORE THAN 1,000,000 WARRANTS. Except in
the case of automatic exercise at expiration or upon delisting of the warrants
or at Lehman Brothers Holdings' option, you may not exercise more than
1,000,000 warrants on any one day. As a result of any postponed exercise, you
will receive a cash settlement amount determined as of a day later than the
otherwise applicable valuation date. In that case, as a result of any
postponement, the cash settlement amount you receive may be lower than the
otherwise applicable cash settlement amount if the valuation date of the
warrants had not been postponed. Other persons or entities that are acting in
concert with you will be included in the determination of the number of
warrants being exercised on that date.
- - ON ANY GIVEN DAY, NOT MORE THAN 1,000,000 WARRANTS MAY BE EXERCISED. Except in
the case of automatic exercise at expiration or upon delisting of the warrants
or at Lehman Brothers Holdings' option, not more than 1,000,000 warrants may
be exercised by all holders of warrants on any one day. The warrant agent will
select the warrants to be exercised on a pro rata basis. As a result of any
postponed exercise, you will receive a cash settlement amount determined as of
a day later than the otherwise applicable valuation date. In that case, as a
result of any postponement, the cash settlement amount you receive may be
lower than the otherwise applicable cash settlement amount if the valuation
date of the warrants had not been postponed.
THERE MAY BE A TIME LAG AFTER YOU GIVE EXERCISE INSTRUCTIONS, WHICH COULD AFFECT
THE APPLICABLE VALUATION DATE AND THE CASH SETTLEMENT AMOUNT YOU RECEIVE.
There will be a time lag between the time you give instructions to exercise and
the time the index level relating to the exercise is determined. Therefore, you
will not be able to determine, at the time of exercise of a warrant, the index
level that will be used to calculate the cash settlement amount of the warrant,
and will thus be unable to determine the cash settlement amount. The delay will,
at a minimum, amount to one day and could be much
S-8
<PAGE>
longer. For example, an exercise notice received by the warrant agent after 3:00
P.M. Friday would generally result in the index level being determined the
following Tuesday. Any downward movement in the level of the index between the
time you exercise a warrant and the time the index level for that exercise is
determined will result in your receiving a cash settlement amount that is less
than the cash settlement amount you anticipated based on the level of the index
most recently reported prior to exercise.
Further delay may occur if a market disruption event has occurred. In that case,
the cash settlement amount in respect of exercised warrants will be calculated
as of the next succeeding valuation date on which there is no market disruption
event. During any period of delay due to a market disruption event, the level of
the index may change significantly, and that change may adversely affect the
amount paid on any warrants exercised during that period.
THE WARRANTS WILL BE AUTOMATICALLY EXERCISED IF THEY ARE DELISTED, WHICH MAY BE
AT A TIME WHEN THE CASH SETTLEMENT VALUE IS ZERO.
In the event that the warrants are delisted from, or permanently suspended from
trading on, the American Stock Exchange and the warrants are not simultaneously
accepted for trading pursuant to the rules of another self-regulatory
organization that are filed with the Securities and Exchange Commission under
U.S. securities laws, warrants not previously exercised will expire on the date
the delisting or trading suspension becomes effective and will be deemed
automatically exercised on the delisting date. At the applicable valuation date
with respect to the automatic exercise, the warrants may be out-of-the-money so
that the cash settlement amount would equal zero.
THE WARRANTS ARE NOT STANDARDIZED OPTIONS ISSUED BY THE OPTIONS CLEARING
CORPORATION.
The warrants are not standardized stock index options of the type issued by the
Options Clearing Corporation, a clearing agency regulated by the Securities and
Exchange Commission. For example, unlike purchasers of OCC standardized options
who have the credit benefits of guarantees and margin and collateral deposits by
OCC clearing members to protect the OCC from a clearing member's failure,
purchasers of warrants must look solely to Lehman Brothers Holdings for
performance of its obligations to pay the cash settlement amount on the exercise
of warrants. Further, the market for the warrants is not expected to be
generally as liquid as the market for OCC standardized options. The OCC does
issue standardized stock index options in which payments, if any, are determined
based on changes in the level of the index.
PURCHASING THE WARRANTS FOR HEDGING PURPOSES MAY INCREASE YOUR RISK.
If you intend to purchase the warrants to hedge against the market risk
associated with investing in one or more individual underlying common stocks or
other equity securities and/or other stocks, you should recognize the
complexities of utilizing warrants in this manner. The warrants remain subject
to issuer risk. Issuer risk is the risk that factors affecting a particular
issuer of a common stock or other equity security underlying the index, such as
its market position or the quality of its management, may cause its securities
to perform differently than the market as a whole. In addition, unless the
stocks in the portfolio that you are hedging exactly mirror the underlying
common stocks or other equity securities, the portfolio and the index may
respond differently to a given market influence, including in different
directions and to a different extent. For this reason, the use of warrants for
hedging purposes involves special risks that are not present with "true"
hedges--that is, hedges composed of options on the specific stocks in the hedged
position.
THE VALUE OF THE WARRANTS WILL BE AFFECTED BY NUMEROUS FACTORS, SOME OF WHICH
ARE RELATED IN COMPLEX WAYS.
The value of the warrants in the secondary market will be affected by supply and
demand of the warrants, 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 warrants prior to your exercise may be at
a discount, which could be substantial, from the amount you would receive upon
exercise of the warrants or from the amount that you paid to purchase the
warrants. A change in a specific factor
S-9
<PAGE>
discussed below, could have the following impacts on the market value of the
warrants, assuming all other conditions remain constant:
- - INDEX VALUE. Lehman Brothers Holdings expects that the market value of the
warrants will likely depend substantially on the amount, if any, by which the
current index level exceeds the initial value of 100. If you decide to sell
your warrants when the level of the index does not exceed this level, you may
receive substantially less than if you held your warrants for a longer period.
If you decide to sell your warrants when the level of the index is below its
initial level, you may receive less than the amount of your investment.
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
warrants.
- - INTEREST RATES. The trading value of the warrants will be affected by changes
in interest rates. In general, if U.S. interest rates increase, the trading
value of the warrants may be adversely affected, and if U.S. interest rates
decrease, the trading value of the warrants 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 warrants may be adversely affected.
- - TIME REMAINING TO EXPIRATION OF THE WARRANTS. The warrants may trade at a
value above that which would be expected based on the level of the index due
to a "time value" resulting from expectations concerning the value of the
index prior to the expiration of the warrants. Generally, as the time
remaining to the expiration date of the warrants decreases, we expect that any
time value associated with the warrants will decrease, lowering the trading
value of the warrants.
- - 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 securities
may not have the same characteristics as the common stock originally included
in the index.
- - DIVIDEND YIELDS. If dividend yields on the underlying common stocks or other
equity securities underlying the index increase, the value of the warrants 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 warrants.
- - 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 warrants.
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 warrants 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 warrants of a given change in
most of the factors listed above will be less if it occurs later than if it
occurs earlier in the term of the warrants.
HISTORICAL 10 UNCOMMON VALUES RETURNS SHOULD NOT BE TAKEN AS AN INDICATION OF
THE FUTURE PERFORMANCE OF THE INDEX DURING THE TERM OF THE WARRANTS.
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
S-10
<PAGE>
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.
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 its common stock or other
equity security, the index and the warrants. In addition, these companies are
not involved in the offering of warrants and have no obligations with respect to
the warrants, 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 warrants made hereby and are not
responsible for, and have not participated in, the determination of the timing
of, prices for, or quantities of, the warrants to be issued. These companies are
not involved with the administration, marketing or trading of the warrants and
have no obligations with respect to the amount to be paid to you upon exercise.
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 exercise of the
warrants, 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 Warrants--Calculation Agent" on page S-19, "--Market disruption
events" beginning on page S-18 and "The Index--Adjustments to the multipliers
and the index" beginning on page S-24.
THE COMMON STOCKS THAT WILL MAKE UP THE INDEX HAVE NOT YET BEEN SELECTED AND
COULD BE CONCENTRATED IN ONE OR MORE INDUSTRIES.
The common stocks that make up the index have not yet been selected. It is
possible that two or more of the common stocks or other equity securities that
make up the index 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 concentrated in any industry,
it will be more susceptible to developments affecting that industry and may be
subject to greater risk of loss.
PURCHASES AND SALES OF THE COMMON STOCKS OR OTHER EQUITY SECURITIES UNDERLYING
THE INDEX BY LEHMAN BROTHERS HOLDINGS AND ITS AFFILIATES COULD AFFECT THE PRICE
OF THE COMMON STOCKS OR OTHER EQUITY SECURITIES OR THE VALUE 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 warrants. 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" on page S-12.
S-11
<PAGE>
USE OF PROCEEDS AND HEDGING
An amount equal to approximately two-thirds of the proceeds to be received by
Lehman Brothers Holdings from the sale of the warrants will be used by Lehman
Brothers Holdings or one or more of its subsidiaries before and immediately
following the initial offering of the warrants 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 warrants. The balance
of the proceeds, if any, 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 expiration of the
warrants, 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 option 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 warrants from time to
time and may, in their sole discretion, hold or resell those warrants. 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 options 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 expiration of the warrants or at or
about the time of a change in the common 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.
DESCRIPTION OF THE WARRANTS
GENERAL
You will find information about the warrants in two separate documents that
progressively provide more detail:
- - the accompanying prospectus; and
- - this prospectus supplement.
Since the terms of the warrants 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 warrants are to be issued as under a warrant agreement, to be
dated as of July 1, 2000, between Lehman Brothers Holdings, Citibank, N.A., as
warrant agent, and Lehman Brothers Inc., as calculation agent. For a description
of the rights attaching to different series of warrants under the warrant
agreement, you should refer to the section
S-12
<PAGE>
"Description of the Warrants" beginning on page 14 of the accompanying
prospectus. The warrants are "Index Call Warrants" as described in the
accompanying prospectus.
If you purchase warrants, you may inspect the warrant agreement at the office of
the warrant agent which is currently located at 111 Wall Street, 5(th) Floor,
New York, NY 10043 during its normal business hours.
Lehman Brothers Holdings may issue up to 1,000,000 warrants. The warrants will
be issued in denominations of 100 warrants and integral multiples thereof.
You are not required to purchase or take delivery of any shares of any common
stock or other equity security underlying the index or any other securities.
Lehman Brothers Holdings is under no obligation to, nor will it, deliver or sell
any shares of any common stock or other equity security or any other securities
to you in connection with the exercise of any warrants. Upon exercise of a
warrant, Lehman Brothers Holdings will make only a U.S. dollar cash payment in
the amount of the applicable cash settlement value, if any. You will not receive
any interest on any applicable cash settlement value, and the warrants will not
entitle you to any of the rights of holders of any underlying common stock or
other equity security or any other securities.
EXERCISE DATE OF THE WARRANTS
Except for warrants subject to automatic exercise or delisting, the exercise
date for a warrant will be:
- - if the warrant agent receives the warrant on the records of DTC and the
exercise notice in proper form, at or prior to 3:00 P.M., New York City time,
on a business day, that business day; or
- - if the warrant agent receives the warrant on the records of DTC and the
exercise notice on a day which is not a business day or after 3:00 P.M., New
York City time, on a business day, then the next business day.
To make sure that an exercise notice and the related warrants will be delivered
on the records of DTC to the warrant agent before 3:00 P.M., New York City time,
on a given business day, you may need to give exercise instructions to your
broker or other intermediary substantially earlier than 3:00 P.M., New York City
time, on that day. Different brokerage firms or other intermediaries may have
different cut-off times for accepting and implementing exercise instructions
from their customers. Therefore, you should consult with your broker and other
intermediaries as to applicable cut-off times and other exercise mechanics.
EXERCISE AND SETTLEMENT OF THE WARRANTS
You may exercise your warrants on any business day after their issuance until
3:00 P.M., New York City time, on July 2, 2001, the final exercise date, by
causing:
- - your warrants to be transferred to the warrant agent on the records of DTC;
and
- - a duly completed and executed exercise notice to be delivered by a DTC
participant to the warrant agent.
Forms of the exercise notice for warrants may be obtained from the warrant agent
at its office. The warrant agent's telephone number is (800) 422-2066 and its
facsimile transmission number is (212) 825-3483.
After receiving the warrant and the exercise notice, the warrant agent will, by
10:00 A.M., New York City time, on the business day after the valuation date:
- - obtain from the calculation agent the index level on the valuation date;
- - obtain from the calculation agent the cash settlement value of the warrants;
and
- - advise Lehman Brothers Holdings of the aggregate cash settlement value of the
exercised warrants.
Except in the case of warrants subject to automatic exercise upon expiration or
upon delisting, if on any valuation date the cash settlement value would be
zero, then the attempted exercise of any of the warrants will be void and of no
effect. The warrants will be transferred back to the DTC participant that
submitted them on the records of DTC. In this case, you will be permitted to re-
exercise the warrants at a later time chosen by you.
S-13
<PAGE>
Your ability to exercise your warrants, however, may be limited or delayed by:
- - postponement upon the occurrence of a market disruption event with respect to
one or more common stocks or other equity securities underlying the index,
until the next business day on which there is not a market disruption event;
and
- - the minimum and maximum exercise limitations described below.
The warrants will expire on July 2, 2001, the expiration date. If you do not
exercise your warrants, including by reason of a postponed exercise, at or
before 3:00 P.M., New York City time, on July 2, 2001, the final exercise date,
the warrants will be automatically exercised as described under "--Automatic
exercise" on page S-17.
The settlement date, the date that Lehman Brothers Holdings will make adequate
funds available to the warrant agent, will be the third business day following
the valuation date. The warrant agent will then make those funds available to
DTC prior to the close of business on the settlement date. DTC will be
responsible for distributing those funds to each participant of DTC and each
participant will be responsible for distributing those funds to the
warrantholders it represents and to each brokerage firm for which it acts as
agent. Your brokerage firm will be responsible for distributing funds to you.
DETERMINATION OF THE CASH SETTLEMENT VALUE
The cash settlement value of a warrant will be determined by the calculation
agent and will equal the greater of zero and the quotient of:
- - the amount, if any, by which the index level for the valuation date exceeds
the initial index level of 100,
- - divided by 4, which is the number of warrants per index unit.
This calculation is represented by the following formula:
Index level on the valuation date-100
------
4
The cash settlement amount will be rounded down to the nearest cent.
You will only receive a return greater than your investment if, on the valuation
date for your exercise, the level of the index has increased by more than %
from its initial level.
The index level on the valuation date will be determined by the calculation
agent and generally will be based on the closing prices, as of 4:00 P.M., of the
common stocks and other equity securities underlying the index and the cash
included in the index on the valuation date, unless, on the valuation date, the
calculation agent determines that a market disruption event is occurring with
respect to one or more common stocks or other equity securities underlying the
index. In that case, the calculation agent will determine the closing prices for
those common stocks or other equity securities subject to a market disruption
event on the next business day on which there is not a market disruption event.
This situation will cause the payment you receive to be postponed until three
business days after the date that the affected common stock's or other equity
security's closing price is determined.
If any of the common stocks or other equity securities underlying the index are
listed or traded on a bulletin board at the time the cash settlement value 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
warrants. "Closing prices" means the closing prices on the relevant exchange,
trading system or market at 4:00 P.M., New York City time.
VALUATION DATE OF THE WARRANTS
The valuation date will be the first business day the index can be calculated
following the applicable exercise date, subject to:
- - postponement upon the occurrence of a market disruption event with respect to
one or more common stocks or other equity securities underlying the index,
until the first business day on which there is not a market disruption event;
and
S-14
<PAGE>
- - the minimum and maximum exercise limitations described below.
For an exercise of warrants prior to the second business day preceding the
expiration date, the applicable exercise date depends upon the time of day you
give exercise instructions to your broker or other intermediary and that notice
is delivered to DTC. For an exercise of warrants on the expiration date and the
two business days immediately preceding the expiration date, the valuation date
will be the business day immediately preceding the expiration date. See
"--Exercise date of the warrants" on page S-13.
EXAMPLES OF THE TIMING OF THE EXERCISE DATE AND THE ENSUING VALUATION AND
SETTLEMENT DATES.
The following are illustrations of the timing of an exercise date and the
ensuing valuation and settlement dates, assuming that all relevant dates are
business days and days on which the index can be calculated, exercise is not
subject to either of the maximum exercise limitations and that no market
disruption event is occurring.
PRIOR TO THE SECOND BUSINESS DAY PRECEDING THE EXPIRATION DATE
- - THE WARRANTS AND PROPER NOTICE ARE RECEIVED BY 3:00 P.M. If the warrant agent
receives the warrants on the records of DTC and an exercise notice in proper
form at or prior to 3:00 P.M., New York City time, on Monday, August 7, 2000:
-- the exercise date for the warrants will be Monday, August 7, 2000;
-- the valuation date for the warrants will be Tuesday, August 8, 2000;
-- the index level used to determine the cash settlement value of the warrants
will be the closing level of the 10 Uncommon Values index on Tuesday,
August 8, 2000;
-- the closing level of the 10 Uncommon Values index for Tuesday, August 8,
2000 is the level of the 10 Uncommon Values index calculated using the
closing prices for the underlying common stocks and other equity securities
and the cash included in the index on August 8, 2000; and
-- the settlement date will be Friday, August 11, 2000.
- - THE WARRANTS AND PROPER NOTICE ARE NOT RECEIVED BY 3:00 P.M. If the warrant
agent receives the warrants on the records of DTC and an exercise notice after
3:00 P.M., New York City time, on Monday, August 7, 2000:
-- the exercise date for the warrants will be Tuesday, August 8, 2000;
-- the valuation date will be Wednesday, August 9, 2000;
-- the index level used to determine the cash settlement value of the warrants
will be the closing level of the 10 Uncommon Values index on Wednesday,
August 9, 2000;
-- the closing level of the 10 Uncommon Values index for Wednesday, August 9,
2000 is the level of the 10 Uncommon Values index calculated using the
closing prices for the underlying common stocks and other equity securities
and the cash included in the index on August 9, 2000; and
-- the settlement date will be Monday, August 13, 2000.
ON OR AFTER THE SECOND BUSINESS DAY PRECEDING THE EXPIRATION DATE
- - THE WARRANTS AND PROPER NOTICE ARE RECEIVED AT ANY TIME. If the warrant agent
receives the warrants on the records of DTC and an exercise notice on
June 29, 2001:
-- the exercise date for the warrants will be Friday, June 29, 2001;
-- the valuation date will be Friday, June 29, 2001;
-- the index level used to determine the cash settlement value of the warrants
will be the closing level of the 10 Uncommon Value index on Friday, June
29, 2001;
-- the closing level of the 10 Uncommon Values index for Friday, June 29, 2001
is the level of the 10 Uncommon Values index calculated
S-15
<PAGE>
using the closing prices for the underlying common stocks and other equity
securities and the cash included in the index on Friday, June 29, 2001; and
-- the settlement date will be Friday, July 6, 2001.
HYPOTHETICAL WARRANT VALUES ON EXERCISE
The following table illustrates, for a range of hypothetical levels of the 10
Uncommon Values index on its valuation date, the approximate cash settlement
value.
<TABLE>
<CAPTION>
APPROXIMATE CASH
SETTLEMENT VALUE
(ALSO KNOWN AS
"INTRINSIC
HYPOTHETICAL VALUE")
INDEX LEVEL OF WARRANT
------------------- -----------------
<S> <C> <C>
EQUAL TO OR LOWER
THAN 100 (Initial Level) $ 0
115 3.75
130 7.50
145 11.25
160 15.00
175 18.75
190 22.50
</TABLE>
The above figures are for purposes of illustration only. The actual amount
received by investors and the resulting total and pretax rate of return will
depend entirely on the index level of the 10 Uncommon Values index and the cash
settlement amount determined by the calculation agent as provided above. In
particular, the actual index level of the 10 Uncommon Values index could be
lower or higher than those reflected in the table. The hypothetical cash
settlement values in the table do not reflect any "time value" for a warrant,
which may be reflected in trading value, and are not necessarily indicative of
potential profit or loss, which are also affected by, purchase price and
transaction costs.
You should compare the features of the warrants to other available investments
before deciding to purchase the warrants. Due to the uncertainty as to whether
the cash settlement amount will be greater than zero, the return on investment
with respect to the warrants 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 you reach an investment decision only
after carefully considering the suitability of the warrants in light of your
particular circumstances.
MINIMUM EXERCISE LIMITATION
You may not exercise fewer than 100 warrants on any one day, except in the case
of automatic exercise or delisting. If you own fewer than 100 warrants, you will
need either to sell your warrants or to purchase additional warrants in the
secondary market. You may incur additional transaction costs in order to realize
your investment if you sell your warrants or purchase additional warrants. In
addition, you may not combine warrants held through one DTC participant with
warrants held through another DTC participant in order to satisfy the minimum
exercise requirement.
MAXIMUM EXERCISE LIMITATIONS
- - LIMITATIONS ON THE NUMBER OF WARRANTS THAT ANY ONE HOLDER MAY EXERCISE ON ANY
DAY
-- You may not exercise more than 1,000,000 warrants on any day unless Lehman
Brothers Holdings elects otherwise, except in the case of automatic
exercise or delisting. If you attempt to exercise more than 1,000,000
warrants on any one day, 1,000,000 of the warrants will be exercised on
that day. Other persons or entities that are acting in concert with you
will be included in the determination of the number of warrants being
exercised on that date.
-- The remaining warrants that are not exercised because you attempted to
exercise too many warrants on any one day, will be exercised on the
following business day. The remaining warrants will be deemed exercised
before any other warrants for which a notice of exercise was delivered on a
later exercise date. If the exercise of your warrants is postponed, you
will receive a cash settlement value determined as of a day later than if
the exercise had not been postponed. You may receive a lower amount than
you would have received had the exercise of your warrants not been
postponed.
S-16
<PAGE>
- - LIMITATIONS ON THE NUMBER OF WARRANTS THAT ALL HOLDERS MAY EXERCISE ON ANY DAY
-- Not more than 1,000,000 warrants in total by all holders may be exercised
on any day unless Lehman Brothers Holdings elects otherwise, except in the
case of automatic exercise or delisting. If more than 1,000,000 warrants
are attempted to be exercised on any one day, 1,000,000 of the warrants
will be exercised on that day. The warrant agent will select the warrants
to be exercised on a pro rata basis. If, as a result of the pro rata
selection, any holder of warrants would have exercised less than 100
warrants, then the warrant agent, to the extent possible, will first select
additional warrants so that no holder will exercise less than 100 warrants.
-- The remaining warrants that are not exercised because too many warrants
were attempted to be exercised on any one day, will be exercised on the
following business day. The remaining warrants will be deemed exercised
before any other warrants for which a notice of exercise was delivered on a
later exercise date. If the exercise of your warrants is postponed, you
will receive a cash settlement value determined as of a day later than if
the exercise had not been postponed. You may receive a lower amount than
you would have received had the exercise of your warrants not been
postponed.
AUTOMATIC EXERCISE
If the warrant agent has not received before 3:00 P.M., New York City time, on
July 2, 2001, the final exercise date, a valid exercise notice and delivery of
the warrants on the records of DTC the warrants will be automatically exercised.
In addition, any warrants for which the valuation date is subject to
postponement as of 3:00 P.M. on the final exercise date will be automatically
exercised. The exercise date for these warrants will be July 2, 2001, the
expiration date, or, if this date is not a business day, the next business day.
The valuation date will be the business day preceding the exercise date unless
the index cannot be calculated on that business day, in which case the valuation
date will be the next business day on which the index can be calculated. The
warrant agent will obtain from the calculation agent the level of the index
determined as of the valuation date, except in the case of a postponed exercise
following the occurrence of a market disruption event, and the cash settlement
value, if any, of the warrants.
Except in the case of a postponed valuation following the occurrence of a market
disruption event or a postponed expiration date because July 2, 2001 is not a
business day, Lehman Brothers Holdings will make available to the warrant agent,
on July 6, 2001, the automatic settlement date, funds to pay the cash settlement
value. In any event Lehman Brothers Holdings will make those funds available on
the third business day after the expiration date. The warrant agent will then
make those funds available to DTC prior to the close of business on the
settlement date. DTC will be responsible for distributing those funds to each
participant of DTC and each participant will be responsible for distributing
those funds to the warrantholders it represents and to each brokerage firm for
which it acts as agent. Your brokerage firm will be responsible for distributing
funds to you.
DELISTING OF THE WARRANTS
If the warrants are delisted from, or permanently suspended from trading on, the
American Stock Exchange, and another self-regulatory organization has not
accepted them at the same time for listing, the warrants not previously
exercised will be deemed to be automatically exercised on that date, the
delisting date. The valuation date will be the next business day after the
exercise date that the index can be calculated. The cash settlement value, if
any, will be calculated and settled as if it were an automatic exercise. See
"--Automatic exercise" on page S-17.
Lehman Brothers Holdings will notify you as soon as practicable of the delisting
or trading suspension. However, if Lehman Brothers Holdings first receives
notice of the delisting or suspension on the same day on which the warrants are
delisted or suspended, that day will still be the delisting date.
Lehman Brothers Holdings will covenant in the warrant agreement that it will not
seek delisting of the warrants from, or suspension of their trading on, the
American Stock Exchange, unless Lehman Brothers Holdings has, at the same time,
arranged
S-17
<PAGE>
for listing of the warrants with another self-regulatory organization.
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 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
S-18
<PAGE>
determining the existence of market disruption events could conflict with the
interests of Lehman Brothers Inc. as an affiliate of the issuer of the warrants.
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 before the expiration of
the warrants, 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.
CALCULATION AGENT
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, will act as
calculation agent for the warrants.
The calculation agent will determine the amount you receive upon exercise of the
warrants by determining the cash settlement amount.
In addition, the calculation agent will determine:
- - the closing level of the index at the expiration date of the warrants; see
"The Index--Maintenance of the 10 Uncommon Values index" beginning on page
S-22;
- - 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-24; and
- - whether a market disruption event has occurred; see "Market disruption events"
beginning on page S-18.
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--Maintenance of the 10 Uncommon Values index" beginning on page S-22.
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 cash settlement amount or the closing level of 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 warrants; 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
multiplier and
S-19
<PAGE>
the index" beginning on page S-24, 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 warrants.
- - 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.
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, no one will know the identities of the underlying
common stocks other than:
- - the Investment Policy Committee of Lehman Brothers Inc.;
- - 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
- - those members of Lehman Brothers Inc.'s investment banking department who
manage client relations with the component companies. Lehman Brothers Inc.'s
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 warrants 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.
S-20
<PAGE>
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
the calculation of the closing prices that will be used to determine the cash
settlement amount which generally is the same as 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 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 cash settlement
amount will generally be determined by using the closing price of the common
stocks and other equity securities underlying the index and any cash included in
the index on the day that is three business days prior to the cash settlement
date.
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. Information concerning the performance of the 10 Uncommon Values
announced in 1999 will be available at the time of the completion of the sale of
the note. The charts below set 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.
<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
</TABLE>
S-21
<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>
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>
The results of ownership of warrants 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
warrants. The warrants 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 warrants will appreciate in value or, in fact, that they will
have any value. See "Risk Factors" beginning on page S-7.
MAINTENANCE 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
index selected on or about July 1, 2000. 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
S-22
<PAGE>
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 A.M., New York City time,
securities will be valued at the last available U.S. dollar cross-rate quote
before 11 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 Warrants--Calculation agent" beginning
on page S-19 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 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-24.
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 warrants.
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.
NOTICE OF LEVEL OF AND COMMON STOCKS UNDERLYING THE 10 UNCOMMON VALUES INDEX
By July 15, 2000, Lehman Brothers Holdings will send notice to DTC identifying
the 10 common stocks that will make up the 10 Uncommon Values index for the
twelve-month period that commenced
S-23
<PAGE>
on or about July 1, 2000 and the number of shares, including fractions of a
share, of each of the 10 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 index unit. 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 .
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 warrants on the date
that Lehman Brothers Inc. announces the ten new common stocks that will make up
the index. This date will be on or about July 1, 2000. The multipliers for each
security will remain constant for the next twelve months unless adjusted for the
extraordinary corporate events described below. 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 circumstances
described below. For purposes of these adjustments, except as noted below, ADRs
are treated like common stock if a comparable adjustment to the foreign shares
underlying the ADRs is made pursuant to the terms of the depository arrangement
for the ADRs or if the holders of ADRs are entitled to receive property in
respect of the underlying foreign share.
- - If an underlying common stock is subject to a stock split or reverse stock
split, then once the split has become effective, the multiplier relating to
the common stock will be adjusted. The multiplier will be adjusted to equal
the product of the number of shares outstanding after the split with respect
to each share immediately prior to effectiveness of the split and the prior
multiplier.
- - If 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
S-24
<PAGE>
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) are 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 Brothers Holdings' obligations under the warrants 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 security quoted on the Nasdaq Stock Market, 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
S-25
<PAGE>
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) are 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 Brothers Holdings' obligations under the warrants 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 warrants 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 warrants 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 warrants to be issued or in the determination or calculation
of the amount you receive upon exercise. The American Stock Exchange has no
obligation or liability in connection with the administration, marketing or
trading of the warrants.
Except with respect to the responsibility of the calculation agent to make
certain calculations under certain circumstances as described in this prospectus
supplement, none of Lehman Brothers Holdings, the calculation agent or the
underwriters accept 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 exercise.
S-26
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, exercise or other disposition of
warrants as of the date of this prospectus supplement. Except where noted, this
summary deals only with warrants held as capital assets by a United States
holder and does not deal with special situations of United States holders and
non-United States holders. For example, this summary does not address:
- - tax consequences to holders who may be subject to special tax treatment, such
as dealers in securities or currencies, traders in securities that elect to
use the mark-to-market method of accounting for their securities, financial
institutions, regulated investment companies, real estate investment trusts,
tax-exempt entities or life insurance companies;
- - tax consequences to persons holding warrants as part of a hedging, integrated,
constructive sale or conversion transaction or a straddle;
- - tax consequences to holders of warrants 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 (the "Code"), 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 United States federal income
tax consequences different from those discussed below.
If you are considering the purchase of warrants, 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
For purposes of this summary, a United States holder is the beneficial owner of
a warrant that is:
- - a citizen or resident of the United States;
- - a corporation or partnership created or organized in or under the laws of the
United States or any political subdivision of the United States;
- - an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- - a trust (x) that is subject to the supervision of a court within the United
States and the control of one or more United States persons as defined in
Section 7701(a)(30) of the Code or (y) that has a valid election in effect
under applicable Treasury Regulations to be treated as a United States person.
Each warrant will be treated as a cash settlement option. You will be required
to recognize gain or loss with respect to a warrant on the sale, exchange,
exercise or other disposition of the warrant.
Your tax basis in a warrant will be equal to your cost. Upon sale, exchange,
exercise or other disposition of a warrant, you will recognize gain or loss
equal to the difference between the amount realized, if any, and your tax basis
in the warrant. This gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange, exercise or
other disposition, you have held the warrant for more than one year. Under
current law, long-term capital gains of individuals derived in respect of
capital assets are taxed at a maximum rate of 20%. Your ability to deduct
capital losses is subject to limitations.
NON-UNITED STATES HOLDERS
The 30% U.S. federal withholding tax will not apply to any gain or income that
you realize on the sale, exchange, retirement or other disposition of a warrant.
Any gain or income realized on the sale, exchange, exercise or other disposition
of a warrant 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 holds the
warrants as a capital asset and who is present in the United States for 183 days
or more in the taxable year of that disposition and certain other conditions are
met.
S-27
<PAGE>
If you are an individual described in clause (1) above, you will be subject to
tax on the gain derived from the sale, exchange, exercise or other disposition
of a warrant as if you were a United States Holder. If you are an individual
described in clause (2) above, you will be subject to tax at a flat 30% rate on
the gain derived from the sale, exchange, exercise or other disposition of a
warrant, which may be offset by United States source capital losses, even though
you are not considered a resident of the United States.
If you are a foreign corporation described in clause (1) above, you will be
subject to tax at regular graduated United States federal income tax rates on
the gain derived from the sale, exchange, exercise or other disposition of a
warrant. In addition, you may be subject to the branch profits tax equal to 30%
of your effectively connected earnings and profits within the meaning of the
Code for the taxable year, as adjusted for certain items, unless you qualify for
a lower rate under an applicable income tax treaty.
Special rules may apply to you if you are a controlled foreign corporation,
passive foreign investment company or foreign personal holding companies and
therefore subject to special treatment under the Code. You should consult your
own tax advisors to determine the U.S. federal, state, local and other tax
consequences that may be relevant to you.
If you are an individual Non-United States holder, warrants held by you at the
time of death may be included in your gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a United States holder of warrants and you fail to provide Lehman
Brothers Holdings with your taxpayer identification number or otherwise fail to
comply with applicable information reporting or certification requirements, you
will be subject to backup withholding at a 31% rate with respect to any proceeds
you receive from the sale, exchange, exercise or other disposition of a warrant.
If you a Non-United States holder of warrants, you will not be required to pay
backup withholding and provide information reporting regarding the proceeds of
the sale, exchange, exercise or other disposition of a warrant within the United
States or conducted through certain U.S.-related financial intermediaries if you
furnish the payor with a statement certifying under penalties of perjury that
you are a Non-United States holder and the payor 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 certain payments made after
December 31, 2000. In general, the new Treasury Regulations would not
significantly alter the present rules discussed above, except in certain special
situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax liability, provided you
furnish the required information to the Internal Revenue Service.
BOOK-ENTRY ISSUANCE
The warrants 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 warrants.
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
warrants. Each participant will then keep a record of its clients. Unless it is
exchanged in whole or in part for a certificated security, a global security may
not be transferred. However, DTC, its nominees and their successors may transfer
a global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers of the
global security will be made only through, records maintained by DTC and its
participants. DTC holds securities that its direct participants deposit with
DTC. DTC also records the settlements among direct participants of securities
transactions, such as transfers and pledges, in deposited securities through
S-28
<PAGE>
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 warrants through the DTC system, the purchases must be made by
or through a direct participant, who will receive credit for the warrants on
DTC's records. Since you actually own the warrants, 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
warrants. DTC's records only show the identity of the direct participants and
the amount of the warrants 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 warrant agent for the warrants will wire payments on the warrants to DTC's
nominee. Lehman Brothers Holdings and the warrant agent will treat DTC's nominee
as the owner of each global security for all purposes. Accordingly, Lehman
Brothers Holdings, the warrant agent 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.
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 warrants based on customary
practices. Payments to you will be the responsibility of the participants and
not of DTC, the warrant agent or Lehman Brothers Holdings.
Warrants 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 certificated securities, the warrant
agent will keep the registration books for the warrants 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.
EUROCLEAR AND CLEARSTREAM
Links have been established among DTC, Clearstream Banking, societe anonyme and
Euroclear (two European book-entry depositories similar to DTC), to facilitate
the initial issuance of the warrants and cross-market transfers of the warrants
associated with secondary market trading.
Although DTC, Clearstream 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.
S-29
<PAGE>
Clearstream 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. agents of Clearstream and Euroclear, as participants in
DTC.
When warrants are to be transferred from the account of a DTC participant to the
account of a Clearstream participant or a Euroclear participant, the purchaser
must send instructions to Clearstream or Euroclear through a participant at
least one business day prior to settlement. Clearstream or Euroclear, as the
case may be, will instruct its U.S. agent to receive the warrants against
payment. After settlement, Clearstream or Euroclear will credit its
participant's account. Credit for the warrants 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 warrants to the
relevant U.S. agent acting for the benefit of Clearstream 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 Clearstream or Euroclear participant wishes to transfer warrants to a DTC
participant, the seller must send instructions to Clearstream or Euroclear
through a participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct its U.S. agent to transfer
warrants against payment. The payment will then be reflected in the account of
the Clearstream 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 Clearstream 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 under which the warrants are being offered and
sold, Lehman Brothers Holdings has agreed to sell to the underwriters the number
of warrants set forth opposite the name of each underwriter.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS WARRANTS
- ------------ ----------
<S> <C>
Lehman Brothers Inc.............
Fidelity Capital Markets........
----------
Total....................... 1,000,000
==========
</TABLE>
The underwriters have advised Lehman Brothers Holdings that they propose to
initially offer the warrants to the public at the public offering price set
forth on the cover page of this prospectus supplement; they may also offer
warrants to certain dealers at the same price less a concession not in excess of
$ per warrant. The underwriters may allow and dealers may reallow a
concession not in excess of $ per warrant to other dealers. After the
initial public offering of the warrants is completed, the public offering price
and concessions may be changed.
Until the distribution of the warrants is completed, the rules of the Securities
and Exchange Commission may limit the ability of the underwriters and selling
group members to bid for or purchase warrants. As an exception to these rules,
the underwriters are permitted to engage in various transactions that stabilize
the price of the warrants. These transactions may consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the warrants. If
the underwriters create a short position in the warrants in connection with the
offering (that is, if they sell a larger number of the warrants than is set
forth on the cover page of this prospectus supplement), the underwriters may
reduce that short position by purchasing warrants in the open market or by
exercising all or a portion of their over-allotment option.
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
S-30
<PAGE>
nor the underwriters 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 warrants. In addition, neither Lehman Brothers Holdings nor the
underwriters makes any representation that the underwriters 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
$ , associated with the offer and sale of the warrants.
Lehman Brothers Holdings has granted to the underwriters an option to purchase
up to additional warrants 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
underwriters will be committed, subject to certain conditions, to purchase the
additional warrants. If this option is exercised in full, the total public
offering price, underwriting discount and proceeds to Lehman Brothers Holdings
would be $ , $ and $ , respectively.
Neither of the underwriters may confirm sales to any account over which it
exercises discretionary authority without the prior written approval of the
customer.
Lehman Brothers Holdings has agreed to indemnify the underwriters 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, 1999 and 1998, and for each of the years in
the three-year period ended November 30, 1999, 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,
1999, 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
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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)
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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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1,000,000 WARRANTS
LEHMAN BROTHERS HOLDINGS INC.
10 UNCOMMON VALUES INDEX CALL WARRANTS
EXPIRING JULY 2, 2001
---------------------
PROSPECTUS SUPPLEMENT
, 2000
(INCLUDING PROSPECTUS DATED
FEBRUARY 17, 1998)
---------------------
LEHMAN BROTHERS FIDELITY CAPITAL MARKETS
a division of National Financial
Services Corporation
