-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, q+wBWjttK4FeChBeViEohMtAuG8lQhNpm4jpQ6J7BsPUtGnq58Rr3QkEYzT709H5 +HZe+apo30cco1PPDBjX8A== 0000950123-94-000546.txt : 19940322 0000950123-94-000546.hdr.sgml : 19940322 ACCESSION NUMBER: 0000950123-94-000546 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEHMAN BROTHERS HOLDINGS INC CENTRAL INDEX KEY: 0000806085 STANDARD INDUSTRIAL CLASSIFICATION: 6211 IRS NUMBER: 133216325 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 33 SEC FILE NUMBER: 033-65674 FILM NUMBER: 94517032 BUSINESS ADDRESS: STREET 1: AMERICAN EXPRESS TWR STREET 2: 3 WORLD FINANCIAL CNTR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2122982000 MAIL ADDRESS: STREET 1: AMERICAN EXPRESS TOWER STREET 2: WORLD FINANCIAL CENTER ATTN GEN COUNSEL CITY: NEW YORK STATE: NY ZIP: 10283 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN HUTTON HOLDINGS INC DATE OF NAME CHANGE: 19901017 424B2 1 PRELIMINARY PROSPECTUS SUPPLEMENT, 3/21/94 1 Pursuant to Rule 424(b)(2) Registration No. 33-65674 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION DATED MARCH 21, 1994 PROSPECTUS SUPPLEMENT (To Prospectus dated October 4, 1993) $75,000,000 LEHMAN BROTHERS HOLDINGS INC. GLOBAL TELECOMMUNICATIONS STOCK UPSIDE NOTE SECURITIES(SM) DUE 2000 "SUNS(SM)" ------------------------ The Global Telecommunications Stock Upside Note Securities Due 2000 (the "Securities" or "SUNS") of Lehman Brothers Holdings Inc. ("Holdings") are being offered at an original issue price of 100% of the principal amount thereof. The Stated Maturity of the Securities is , 2000. On of each year, commencing , 1995, and at Stated Maturity (each an "Interest Payment Date"), each Holder in whose name Securities are registered at the close of business on the preceding will be entitled to receive an interest payment (the "Interest Payment"), which shall be calculated based on the change in the value of a basket of specified telecommunications industry equity securities of issuers organized in the United States and abroad (the "Basket"), if the Basket Appreciation Percentage (as defined herein) is positive. If the Basket Appreciation Percentage is not positive, such Interest Payment shall be zero on such Interest Payment Date. Each Holder of Securities will be repaid the principal amount of such Securities at Stated Maturity. The Securities are to be issued as a series of Debt Securities under the Senior Indenture described in the accompanying Prospectus and will constitute "Senior Debt" of Holdings as described in the accompanying Prospectus. The Securities may not be redeemed prior to Stated Maturity and are not subject to any sinking fund. The Interest Payment payable to any Holder with respect to Securities on each Interest Payment Date will equal the product of (A) the principal amount of the Securities of such Holder and (B) % of the Basket Appreciation Percentage, with respect to the relevant Interest Determination Date. The calculation of the Basket Appreciation Percentage with respect to any Interest Determination Date, as more fully described herein, will be based upon the annual appreciation, if any, in excess of %, in the value of the Basket during the immediately preceding year. For information as to the calculation of the Interest Payment, which will be paid on each Interest Payment Date or upon earlier acceleration, the calculation and the composition of the Basket and certain tax consequences to holders of the Securities, see "Description of Securities," "Certain United States Federal Income Tax Consequences" and "The Basket" in this Prospectus Supplement. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "SPECIAL CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT. The Securities will originally be issued as certificates in registered form. Forty-five calendar days after the closing of the offering, each registered holder will have the option to convert the form of such holder's Securities from certificated to book-entry form within a forty-five calendar day period as described herein. Ownership of converted Securities will be maintained in book-entry form by or through the Depository. Beneficial owners of Securities in book-entry form will not have the right to receive physical certificates evidencing their ownership except under the limited circumstances described herein. Application has been made to list the SUNS on the American Stock Exchange under the symbol "SXT." Lehman Brothers Inc., a wholly owned subsidiary of Holdings, may, but is not obligated to, purchase and sell the Securities for its own account for the purpose of making a market in the Securities. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- UNDERWRITING DISCOUNTS PROCEEDS TO PRICE TO PUBLIC AND COMMISSIONS(1) HOLDINGS(2) - ----------------------------------------------------------------------------------------------------- Per Security.................... $25 % % - ----------------------------------------------------------------------------------------------------- Total(3)........................ $75,000,000 $ $ - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
(1) Holdings has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting other expenses payable by Holdings estimated at $ . (3) Holdings has granted the Underwriters a 30-day option to purchase up to an additional $ principal amount of SUNS solely to cover over-allotments. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Holdings, before deducting expenses, will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Securities offered by this Prospectus Supplement are offered by the Underwriters subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. The Underwriters reserve the right to reject orders in whole or in part. It is expected that delivery of the Securities will be made at the offices of Lehman Brothers Inc., New York, New York, on or about April , 1994. ------------------------ LEHMAN BROTHERS KEMPER SECURITIES, INC. KIDDER, PEABODY & CO. INCORPORATED OPPENHEIMER & CO., INC. March , 1994 2 "SUNS" and "Stock Upside Note Securities" are service marks of Lehman Brothers Inc. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 3 SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information set forth elsewhere or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. Issuer........................ Lehman Brothers Holdings Inc. ("Holdings"). Securities Offered............ $75,000,000 Global Telecommunications Stock Upside Note Securities Due 2000 (the "Securities" or "SUNS"). The Securities are to be issued as a series of Debt Securities under the Senior Indenture described in the accompanying Prospectus and will constitute Senior Debt of Holdings. Denominations................. $25 and integral multiples thereof. Original Issue Price.......... 100%. Stated Maturity............... , 2000 (the "Stated Maturity"). Payments...................... On of each year, commencing , 1995, and at Stated Maturity (each an "Interest Payment Date") each Holder in whose name Securities are registered at the close of business on the preceding (each, an "Interest Determination Date") will be entitled to receive an interest payment (the "Interest Payment") with respect to each $25 principal amount of Securities equal to the following: Determination Value - (Prior Determination Value X %) $25 X ------------------------------------------------------- X % Prior Determination Value provided, however, in the event such number is not positive, such Interest Payment shall be zero on such Interest Payment Date. The determination value (the "Determination Value") with respect to any Interest Determination Date will be determined by Lehman Brothers Inc., an affiliate of Holdings (the "Calculation Agent"), and will equal the sum of the products of the Average Market Prices and the applicable Multipliers for the securities in the Basket (each a "Basket Security" and collectively the "Basket Securities"). The average market price (the "Average Market Price") of a Basket Security will equal the average (mean) of the Market Prices (determined as described herein) of such Basket Security determined on the first five Calculation Days occurring during the period beginning on the tenth New York Trading Day prior to such Interest Determination Date, and on each succeeding New York Trading Day up to and including the sixth New York Trading Day prior to such Interest Determination Date (the "Calculation Period"). If there are fewer than five Calculation Days with respect to a Basket Security, then the Average Market Price will equal the average (mean) of the Market Prices on such Calculation Days, and if there is only one Calculation Day, the Average Market Price will equal the Market Price on such Calculation Day. The multiplier (the "Multiplier") relating to each Basket Security is specified under the caption "Description of Securities -- Basket Securities" below and indicates the number of shares (or fraction of one share) of such Basket Security included in the calculation of the Determination Value. The Multipliers will remain constant for the term of the Securities unless adjusted for certain corporate events such as stock splits, reverse stock splits or stock dividends or similar adjustments in the ADRs (as defined herein). See "Description of Securities -- Adjustments to the Multiplier and Basket" in this Prospectus Supplement. The prior determination value (the "Prior Determination Value") shall be equal to the Determination Value of the prior year except with respect to the calculation of the Interest Payment in the year 1995 for which the Prior Determination Value shall be equal to the Original Basket Value. The basket appreciation percentage (the "Basket Appreciation Percentage") with respect to any Interest
S-3 4 Determination Date will be the percentage increase, if any, in excess of % of the Determination Value over the Prior Determination Value. If the Basket Appreciation Percentage is not positive, such Interest Payment shall be zero on such Interest Payment Date. See "Description of Securities -- Interest Payments." On 2000, a Holder of Securities will be entitled to receive the principal amount thereof. See also "Description of Securities -- Events of Default and Acceleration" for a description of payments upon any acceleration of the maturity of the Securities. Global Telecommunications Basket...................... The Global Telecommunications Basket (the "Basket") is made up of the stocks (or the depositary receipts representing such stocks) of 24 corporations operating in the telecommunications business in the United States and abroad organized in the United States and abroad. Ownership of the Securities will not entitle Holders to receive Basket Securities. Certain of the Basket Securities are in the form of American Depositary Receipts ("ADRs"), which are receipts issued by a depositary institution representing stocks, or multiples or fractions thereof, held by such depositary institution. The terms and conditions of each ADR included as a Basket Security may be different and may affect the liquidity and market value of such ADR, as compared to the liquidity and market value of the underlying stock. The Basket Securities have been issued by corporations formed under the laws of Argentina (2), Brazil (1), Canada (1), Chile (1), France (1), Hong Kong (2), Israel (1), Italy (1), Malaysia (1) Mexico (1), New Zealand (1), the Philippines (1), Spain (1), Sweden (1), Thailand (1), the United Kingdom (2), and the United States (5), and have significantly different levels of market value (i.e., the number of shares outstanding of a security multiplied by the current price of such security). The original Multipliers will be determined so that each Basket Security represents an equal percentage of the Original Basket Value on the date the Securities are priced for initial sale to the public. See "Description of Securities -- Basket Securities" in this Prospectus Supplement. The inclusion of a Basket Security in the Basket is not a recommendation to buy or sell such Basket Security, and neither Holdings nor any of its affiliates make any representation as to the performance of the Basket or any Basket Security. Basket Value.................. The basket value (the "Basket Value"), for any day, will equal the sum of the products of the most recently available Market Prices and the applicable Multipliers for the Basket Securities. The Determination Value, however, is calculated based on Average Market Prices for certain days. See "Description of Securities -- Interest Payments" in this Pro- spectus Supplement. Original Basket Value......... Based on the individual prices of the Basket Securities on the date that the Securities are priced for initial offering to the public, the Multiplier for each Basket Security will be initially set so that the Basket Value on such date (the "Original Basket Value") will equal 100. Special Considerations........ The Securities are subject to certain special considerations. Investors should be aware that if, on any Interest Determination Date, the Determination Value of the Basket is equal to or less than % of the Prior Determination Value, the interest due and payable on the next succeeding Interest Payment Date shall be zero, even if the value of the Basket as of some interim period or periods prior to such Interest Determination Date may have exceeded % of the Prior Determination Value, because the Interest Payment payable on any Interest Payment Date is calculated on the basis of the applicable Determination Value only. The Determination Value of the Basket does not reflect the payment of dividends on the Basket Securities and therefore the yield based on the appreciation of the Basket, if any, between Interest
S-4 5 Payment Dates will not produce the same yield as if the Basket Securities were purchased and held for a similar period. Moreover, there can be no assurance as to how the Securities will trade in the secondary market or whether such market will be liquid. The price at which a Holder will be able to sell Securities prior to Maturity may be at a discount from the principal amount thereof, if, among other things, the Basket Value at such time is below, equal to or not sufficiently above the Prior Determination Value. It is expected that the secondary market for the Securities will be affected by a number of factors, including changes in interest rates, the volatility of the Basket Value, the time remaining to Stated Maturity and changes in dividend rates. See "Special Considerations" herein. Holders of the Securities will receive the principal amount of such Securities at Maturity and will not have any right at any time to receive any of the Basket Securities or any ownership right or interest in such Basket Securities, even though the return on the investment in the Securities is based on the value of the Basket. Certain of the Basket Securities (or securities underlying the ADRs included in the Basket) have been issued by non-United States corporations. Investments in securities indexed to the value of non-United States securities involve certain risks. Fluctuations in foreign exchange rates, future foreign political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions applicable to such investments may affect the U.S. dollar value of such non-United States securities, and ADRs that represent such non-United States securities. With respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, economic, political or social instability or diplomatic developments which could affect the value of investments in those countries. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. entities are subject. In addition, certain foreign investments could be subject to foreign withholding taxes, which could affect the value of investment in such countries. Foreign financial markets, while growing in volume, may have substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable U.S. companies. The foreign markets may have different trading practices that may affect the prices of securities. The foreign markets may also have different clearance and settlement procedures, and in certain countries there have been periods when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. There is generally less government supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in the U.S. In addition, the terms and conditions of depositary facilities may result in less liquidity or lower market prices for the ADRs than the underlying stocks. It is suggested that prospective investors who consider purchasing the Securities should reach an investment decision only after carefully considering with their advisers the suitability of an investment in the Securities in the light of their particular circumstances. Investors should also consider the tax consequences of investing in the Securities. See "Certain United States Federal Income Tax Consequences" in this Prospectus Supplement.
S-5 6 USE OF PROCEEDS The net proceeds from the sale of the Securities will be used as described under "Use of Proceeds" in the accompanying Prospectus and to hedge market risks affecting the value of any Interest Payment (described below under "Description of Securities -- Interest Payments"). SPECIAL CONSIDERATIONS INTEREST PAYMENTS If, on any Interest Determination Date, the Determination Value is equal to or less than % of the Prior Determination Value, the interest due and payable on the next succeeding Interest Payment Date will be zero. This will be true even though the value of the Basket as of some interim period or periods prior to such Interest Determination Date may have exceeded % of the Prior Determination Value, because the Interest Payment payable on any Interest Payment Date is calculated on the basis of the applicable Determination Value only. The Determination Value of the Basket does not reflect the payment of dividends on the Basket Securities and therefore the yield based on the appreciation of the Basket, if any, between Interest Payment Dates will not produce the same yield as if the Basket Securities were purchased and held for a similar period. Under present New York law, the maximum permitted rate of interest, with certain exceptions, is 25% per annum (calculated, in each case, on a simple interest basis). This limit does not apply to loans of $2,500,000 or more. Holdings will covenant for the benefit of the Holders of the Securities, to the extent permitted by law, not to claim voluntarily the benefits of any laws concerning usurious rates of interest against a Holder of the Securities. TRADING Application has been made to list the Securities on the American Stock Exchange ("AMEX"). There can be no assurance as to how the Securities will trade in the secondary market or whether such market will be liquid. It is expected that the secondary market for the Securities will be affected by a number of factors. The trading value of the Securities is expected to depend primarily on the extent of the appreciation, if any, of the Basket Value over the Prior Determination Value. However, the price at which a Holder will be able to sell Securities prior to Maturity may be at a discount from the principal amount thereof if, at such time, the Basket Value is below, equal to or not sufficiently above the applicable Prior Determination Value. A discount could also result from increased interest rates, increased dividends or decreased volatility of the Basket Securities. Before selling Securities, a Holder of Securities should carefully consider, among other things, (i) the trading price of the Securities, (ii) the Basket Value at the time, (iii) the time remaining to the next Interest Determination Date, (iv) prevailing interest rates and (v) any related transaction costs. The trading values of the Securities may be affected by a number of interrelated factors, including those listed below. The relationship among these factors is complex, including how these factors affect the relative trading value of the principal amount of the Securities to be repaid at Maturity and the amount, if any, of any Interest Payment. Accordingly, investors should be aware that factors other than the Basket Value are likely to affect their trading value. The expected effect on the trading value of the Securities of each of the factors listed below, assuming in each case that all other factors are held constant, is as follows: Interest Rates. In general, if U.S. interest rates increase, the value of the Securities is expected to decrease. If U.S. interest rates decrease, the value of the Securities is expected to increase. Local interest rates may also affect the economies of countries in which issuers of the respective Basket Securities (or shares underlying such securities) operate, and, in turn, affect the Basket Value. Rising interest rates may lower the Basket Value and, thus, may lower the value of the Securities. Falling interest rates may increase the value of the Basket Value and, thus, may increase the value of the Securities. S-6 7 Volatility of the Basket Value. If the volatility of the Basket Value increases, the trading value of the Securities is expected to increase. If the volatility of the Basket Value decreases, the trading value of the Securities is expected to decrease. Time Remaining to Interest Determination Date. The Securities may trade at a value other than that which may be inferred from the level of interest rates and the Basket Value. This difference may be due to expectations concerning interest rates and the value of the Basket Value during the period prior to the next Interest Determination Date. As the time remaining to the next Interest Determination Date decreases, this difference in value is expected to decrease. Dividend Rates. If dividend rates on the stocks comprising the Basket Securities increase, the value of the Securities is expected to decrease. Conversely, if dividend rates on the Basket Securities decrease, the value of the Securities is expected to increase. FOREIGN CURRENCY EXCHANGE AND FOREIGN MARKETS The Securities are U.S. dollar-denominated securities issued by Holdings, a United States corporation. Investments in the Securities do not give the beneficial owners any right to receive any Basket Security or any other ownership right or interest in the Basket Securities, although the return on the investment in the Securities is based on the Determination Value of the Basket Securities. Certain of the Basket Securities (or securities underlying ADRs included in the Basket) have been issued by non-United States companies, and certain of the Basket Securities and the underlying securities represented by the ADRs are quoted in currencies other than the U.S. dollar. Investments in securities indexed to the value of non-United States securities involve certain risks. Fluctuations in foreign exchange rates, future foreign political and economic developments and the possible imposition of exchange controls or other foreign governmental laws or restrictions applicable to such investments may affect the U.S. dollar value of such non-United States securities, including ADRs. Securities prices in different countries are subject to different economic, financial, political and social factors. Rates of exchange between the dollar and other currencies are determined by forces of supply and demand in the foreign exchange markets. These forces are, in turn, affected by international balance of payments and other economic and financial conditions, government intervention, speculation and other factors. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. With respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could affect the value of investments in those countries. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. entities are subject. Certain foreign investments may be subject to foreign withholding taxes which could affect the value of investment in these countries. In addition, investment laws in certain foreign countries may limit or restrict ownership of certain securities by foreign nationals by restricting or eliminating voting or other rights or limiting the amount of securities that may be so owned, and such limitations or restrictions may affect the prices of such securities. Foreign financial markets, while growing in volume, may have substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable domestic companies. The foreign markets have different trading practices that may affect the prices of securities. The foreign markets have different clearance and settlement procedures, and in certain countries there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. In addition, there is generally less government supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in the U.S. S-7 8 AMERICAN DEPOSITARY RECEIPTS Certain of the Basket Securities are in the form of ADRs. An ADR is a negotiable receipt which is issued by a depositary, generally a bank, representing shares (the "Underlying Shares") of a foreign issuer (the "Foreign Issuer") that have been deposited and are held, on behalf of the holders of the ADRs, at a custodian bank in the Foreign Issuer's home country. While the market for Underlying Shares will generally be in the country in which the Foreign Issuer is organized and while trading in such market will generally be based on that country's currency, ADRs that are Basket Securities will trade in U.S. Dollars. Although ADRs are distinct securities from the Underlying Shares, the trading characteristics and valuations of ADRs will usually, but not necessarily, mirror the characteristics and valuations of the Underlying Shares represented by the ADRs. Active trading volume and efficient pricing in the principal market in the home country for the Underlying Shares will usually indicate similar characteristics in respect of the ADRs. In the case of certain ADRs, however, there may be inadequate familiarity with or information about the Foreign Issuer of the Underlying Shares represented by the ADR in the market in which the ADR trades to support active volume, thus resulting in pricing distortions. This is more likely to occur when the ADR is not listed on a U.S. stock exchange or quoted on the National Market System of the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), and trades only over-the-counter, because the Foreign Issuer would not be required to register such ADRs under the U.S. Securities Exchange Act of 1934, as is the case with ADRs so listed or quoted. Because of the size of an offering of Underlying Shares in ADR form outside the home country and/or other factors that have limited or increased the float of certain ADRs, the liquidity of such securities may be less than or greater than that with respect to the Underlying Shares. In addition, the terms and conditions of depositary facilities may result in less liquidity or lower market values for the ADRs than for the Underlying Shares. Inasmuch as holders of ADRs may surrender the ADR in order to take delivery of and trade the Underlying Shares, a characteristic that allows investors in ADRs to take advantage of price differentials between different markets, a market for the Underlying Shares that is not liquid will generally result in an illiquid market for the ADR representing such Underlying Shares. The depositary bank that issues an ADR generally charges a fee based on the price of the ADR, upon issuance and cancellation of the ADR. This fee would be in addition to the brokerage commissions paid upon the acquisition or surrender of the security. In addition, the depositary bank incurs expenses in connection with the conversion of dividends or other cash distributions paid in local currency into U.S. Dollars and such expenses are deducted from the amount of the dividend or distribution paid to holders, resulting in a lower payout per Underlying Share represented by the ADR than would be the case if the Underlying Share were held directly. Furthermore, foreign investment laws in certain countries may restrict ownership by foreign nationals of certain classes of Underlying Shares. Accordingly, the ADR representing such class of securities may not possess voting rights, if any, equivalent to those in respect of the Underlying Shares. Certain tax considerations, including tax rate differentials arising from application of the tax laws of one nation to the nationals of another and from certain practices in the ADR market may also exist with respect to certain ADRs. In varying degrees, any or all of these factors may affect the value of the ADR compared with the value of the Underlying Shares in the local market. OTHER CONSIDERATIONS It is suggested that prospective investors who consider purchasing the Securities should reach an investment decision only after carefully considering with their advisers the suitability of the Securities in the light of their particular circumstances. Investors should also consider the tax consequences of investing in the Securities. See "Certain United States Federal Income Tax Consequences" in this Prospectus Supplement. S-8 9 DESCRIPTION OF SECURITIES GENERAL The Securities are to be issued as a series of Debt Securities under the Senior Indenture, which is more fully described in the accompanying Prospectus. The following description of the particular terms of the Securities offered hereby supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Debt Securities set forth under the heading "Description of Debt Securities" in the accompanying Prospectus. For a description of the rights attaching to different series of Debt Securities under the Senior Indenture, see "Description of Debt Securities" in the accompanying Prospectus. The Securities constitute "Senior Debt" as defined in the accompanying Prospectus. Certain capitalized terms used herein have the meanings ascribed thereto in the accompanying Prospectus. Reference is also made to the Glossary for certain defined terms used herein and the locations of other defined terms used herein. The Securities will be issued at 100% of their principal amount in denominations of $25 and integral multiples thereof. The Securities will mature on , 2000. On each Interest Payment Date each Holder of Securities will be entitled to receive an Interest Payment, but if the Basket Appreciation Percentage is not positive, such Interest Payment shall be zero. See "Interest Payments" below. The Securities are not redeemable by Holdings or repayable at the option of any Holder prior to Stated Maturity and are not subject to any sinking fund. Upon the occurrence of an Event of Default with respect to the Securities, Holders of the Securities may accelerate the Maturity of the Securities, as described under "Description of Securities -- Events of Default and Acceleration" in this Prospectus Supplement and "Description of Debt Securities -- Events of Default" in the accompanying Prospectus. Currency amounts in this Prospectus Supplement and the accompanying Prospectus are stated in United States dollars ("$," "dollars," "U.S. dollars" or "U.S.$"). INTEREST PAYMENTS On each Interest Payment Date each Holder in whose name Securities are registered at the close of business on the preceding will be entitled to receive an Interest Payment with respect to each $25 principal amount of Securities equal to the following: Determination Value - (Prior Determination Value X %) $25 X ------------------------------------------------------- X % Prior Determination Value provided, however, in the event such number is not positive, such Interest Payment shall be zero on such Interest Payment Date. At Stated Maturity, a Holder of Securities will be entitled to receive the principal amount thereof. The Basket Appreciation Percentage with respect to any Interest Determination Date will be determined by Lehman Brothers Inc., as Calculation Agent, and will equal the percentage increase, if any, in excess of %, of the Determination Value over the Prior Determination Value. The Determination Value with respect to any Interest Determination Date will equal the sum of the products of the Average Market Prices and the applicable Multipliers for each Basket Security. The Prior Determination Value with respect to any Interest Determination Date will equal the Determination Value as determined by the Calculation Agent with respect to the preceding Interest Determination Date except with respect to the calculation of the interest payment for the year 1995 for which the Prior Determination Value shall be equal to the Original Basket Value. The Average Market Price of a Basket Security will equal the average (mean) of the Market Prices (determined as described herein) of such Basket Security determined on the first five Calculation Days occurring during the period beginning on the tenth New York Trading Day prior to such Interest Determination Date and on each succeeding Trading Day up to and including the sixth New York Trading Day prior to such Interest Determination Date. If there are fewer than five Calculation Days with respect to a S-9 10 Basket Security, then the Average Market Price will equal the average (mean) of the Market Prices on such Calculation Days, and if there is only one Calculation Day, the Average Market Price will equal the Market Price on such Calculation Day. The Multiplier relating to each Basket Security is specified under the caption "Description of Securities -- Basket Securities" below and indicates the number of shares (or fraction of one share) of such Basket Security included in the calculation of the Determination Value. The Multipliers will remain constant for the term of the Securities unless adjusted for certain corporate events such as stock splits, reverse stock splits or stock dividends or similar adjustments in the ADRs. See "Description of Securities -- Basket Securities -- Adjustments to the Multiplier and Basket" in this Prospectus Supplement. "Calculation Day" with respect to a Basket Security means any Trading Day during the Calculation Period in the country in which such Basket Security is being priced on which a Market Disruption Event has not occurred. If a Market Disruption Event occurs on all Trading Days in such country during the Calculation Period then the fifth scheduled New York Trading Day prior to such Interest Determination Date in such country will be deemed a Calculation Day, notwithstanding the Market Disruption Event; provided, however, that if such fourth scheduled New York Trading Day is not a Trading Day in such country then the immediately following Trading Day shall instead be deemed a Calculation Day. Any reference to a specific day herein shall mean such calendar day in each market in which Basket Securities are priced. "Market Price," which will be determined by the Calculation Agent based on information reasonably available to it, means for a Calculation Day the following: (i) If the Basket Security is listed on a national securities exchange in the United States or is a NASDAQ National Market System ("NASDAQ NMS") security, Market Price means the last reported sale price, regular way, on such day on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such Basket Security is listed or admitted to trading on NASDAQ NMS, as the case may be, or, if such last reported sale price is not obtainable, the last reported sale price on the United States over-the-counter market on such day. If the last reported sale price on the United States over-the-counter market is not obtainable, then the Market Price shall mean the average (mean) of the last available bid and offer prices of the three most active dealers, selected by the Calculation Agent, in such market. If the Basket Security is a security issued by a company organized in the United States and is not listed on a national securities exchange in the United States or is not a NASDAQ NMS security, Market Price means the last reported sale price on the United States over-the-counter market. If the last reported sale price on the United States over-the-counter market is not obtainable, then Market Price shall mean the average (mean) of the last available bid and offer prices of the three most active dealers, selected by the Calculation Agent, in such market. (ii) If the Basket Security is a security issued by a company organized other than in the United States or is an ADR, that, in either case, is not listed on a national securities exchange in the United States or is not a NASDAQ NMS security, Market Price means the last reported sale price on such day on the securities exchange on which such Basket Security is listed or admitted to trading with the greatest volume of trading for the calendar month preceding such day, provided that if such last reported sale price is for a transaction which occurred more than four hours prior to the close of such exchange then Market Price shall mean the average (mean) of the last available bid and offer price on such exchange. If such Basket Security is not listed or admitted to trading on any such securities exchange or if such last reported sale price or bid and offer are not obtainable, the Market Price shall mean the last reported sale price on the over-the-counter market with the greatest volume of trading, provided that if such last reported sale price is for a transaction which occurred more than four hours prior to when trading in such over-the-counter market typically ends, then the Market Price shall mean the average (mean) of the last available bid and offer prices of the three most active dealers, selected by the Calculation Agent, in such market. If such prices are quoted in a currency other than in U.S. Dollars, such prices will be translated into U.S. Dollars for purposes of calculating the Average Market Price using the Spot Rate on the same calendar day as the date of any such price. The "Spot Rate" on any date will be determined by the Calculation Agent and will equal the bid spot rate for dealer purchase of such currency per U.S. $1.00 on such date at approximately 4:00 p.m., New York City time, as reported on the Reuters System or, if the Reuters System has not reported such rate by 4:30 p.m., New York City time, on such day, the bid spot S-10 11 rate of such currency per U.S. $1.00 on such date for a transaction amount in an amount customary for such market on such date quoted at approximately 4:30 p.m., New York City time, by a leading bank in the foreign exchange markets as may be selected by the Calculation Agent, in each case adjusted by the Calculation Agent to account for any difference between the Spot Rate settlement date and the settlement date of the related Basket Security. If no such quotation is available, the Calculation Agent will determine the Spot Rate. If the Calculation Agent is required to use the bid and offer price for a Basket Security to determine the Market Price of such Basket Security pursuant to the foregoing, the Calculation Agent shall not use any bid or offer price announced by Lehman Brothers Inc. or any other affiliate of Holdings. As used herein, "New York Trading Day" shall mean a day on which trading is generally conducted on the New York Stock Exchange ("NYSE"), AMEX and NASDAQ NMS and in the over-the-counter market for equity securities in the United States as determined by the Calculation Agent. "Trading Day" shall mean a day on which trading is conducted on the principal securities exchanges in the country in which such Basket Security is being priced. "Market Disruption Event" with respect to a Basket Security means either of the following events as determined by the Calculation Agent: (i) the suspension or material limitation (provided that, with respect to Basket Securities that are priced in the United States, limitations pursuant to New York Stock Exchange Rule 80A (or any applicable rule or regulation enacted or promulgated by the New York Stock Exchange, any other self regulatory organization or the Securities and Exchange Commission of similar scope as determined by the Calculation Agent) on trading during significant market fluctuations shall be considered "material" for purposes of this definition) in the trading of such Basket Security in the country in which such Basket Security is being priced for more than two hours of trading or during the period one-half hour prior to the time that such Basket Security is to be priced, or (ii) the suspension or material limitation (whether by reason of movements in price otherwise exceeding levels permitted by the relevant exchange or otherwise) in option contracts related to a Basket Security traded on any exchange in the country in which such Basket Security is being priced for more than two hours of trading or during the period one-half hour prior to the time that such Basket Security is to be priced. For the purposes of this definition, a limitation on the hours in a trading day and/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. All percentages resulting from any calculation on the Securities will be rounded to the nearest one hundred-thousandth of a percentage point, with five one millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent with one-half cent being rounded upwards. BASKET SECURITIES The stocks or the ADRs representing the stocks listed below will be used to calculate the value of the Basket. Holders of the Securities will not have any right to receive the Basket Securities. The following table sets forth the Basket Securities, the country in which each issuer of a Basket Security is organized, the primary exchange on which the Basket Securities are traded, the market capitalization of the respective issuers of the Basket Securities (and, in the case of ADRs, the total market capitalization of the issuer of the Underlying Shares) and the initial Multipliers. Each Basket Security will initially represent 4.17% of the Original Basket Value. S-11 12
APPROXIMATE U.S. DOLLAR PRIMARY MARKET VALUE EXCHANGE OF OF ISSUER OF ISSUER OF THE COUNTRY IN WHICH BASKET BASKET BASKET INITIAL BASKET SECURITY(1) ISSUER IS ORGANIZED SECURITY(2) SECURITY SECURITIES(3) MULTIPLIER(4) ----------------------------------------- ------------------- ----------- ------------ ------------ ----------- ($MM) 1. Advanced Info Service Public Co. Ltd. ... Thailand Ordinary Thailand 2,451 2. Alcatel Alsthom Compagnie Generale d'Electricite................. France ADR NYSE 23,509 3. ALLTEL Corp. ............................ United States Common NYSE 5,049 4. American Telephone & Telegraph Company... United States Common NYSE 71,230 5. Bell Atlantic Corp. ..................... United States Common NYSE 22,891 6. Cable & Wireless P.L.C. ................. United Kingdom ADR NYSE 15,025 7. Champion Technology Holdings Ltd. ......................... Hong Kong Ordinary Hong Kong 253 8. Compania de Telefonos de Chile S.A.............................. Chile ADR NYSE 5,065 9. GTE Corporation.......................... United States Common NYSE 30,280 10. Hong Kong Telecommunications Ltd......... Hong Kong ADR NYSE 20,298 11. L.M. Ericsson Telephone Co............... Sweden ADR NASDAQ 10,138 12. MCI Communications Corp. ................ United States Common NASDAQ 13,574 13. Newbridge Networks Corporation........... Canada Common NASDAQ 4,986 14. Philippine Long Distance Telephone Company................................ Philippines Common AMEX 3,524 15. STET Societa Finanziaria Telefonica P.A. ....................... Italy Ordinary Milan 9,427 16. Tadiran Limited.......................... Israel Common NYSE 439 17. Telecom Argentina Stet-France Telecom S.A. .................................. Argentina Ordinary Buenos Aires 6,005(5) (Class B) 18. Telecom Corporation of New Zealand, Ltd....................... New Zealand ADR NYSE 7,795 19. Telecommunicacoes Brasileiras S.A........................ Brazil Ordinary Sao Paulo 13,546 (Preferred) 20. Telefonica de Argentina S.A. ............ Argentina ADR NYSE 8,474(5) 21. Telefonica de Espana S.A. ............... Spain ADR NYSE 12,940 22. Telefonos de Mexico...................... Mexico ADR NYSE 32,653 23. Telekom Malaysia BHD..................... Malaysia Ordinary Kuala Lumpur 13,435 24. Vodaphone Group PLC...................... United Kingdom ADR NYSE 8,466
- --------------- 1 Or, in the case of ADRs, the Underlying Shares. 2 If restrictions are imposed on the number or percentage of shares of a Basket Security held by foreign nationals, such shares may have a different value than shares held by persons not subject to such restrictions. Under such circumstances, the Basket will reflect the price of the shares of the Basket Security owned by persons not subject to such restrictions. 3 The approximate total market value of the issuer of a Basket Security organized in the United States was calculated by multiplying the most recent publicly available number of outstanding shares of the Basket Security of such issuer by the Market Price for such shares on March 16, 1994. The approximate total market value of the issuer of a Basket Security organized other than in the United States or, in the case of a Basket Security that is an ADR, the issuer of the Underlying Shares, was calculated by multiplying the most recent publicly available number of outstanding shares of stock of the issuer of such Underlying Shares by the last available Market Price for such shares based on the last available Spot Rate. 4 Initial Multipliers will be determined on the date the Securities are priced for initial offering to the public. 5 The approximate total market value for the issuer was calculated assuming that the price of all of its capital stock was the same as the price of the Basket Security or, in the case of an ADR, the Underlying Shares. The initial Multiplier relating to each Basket Security will indicate the number of such Basket Security, given the market price of such Basket Security, required to be included in the calculation of the Original Basket Value so that each Basket Security represents an equal percentage (i.e., 4.17%) of the Original Basket Value. The price of each Basket Security used to calculate the initial Multiplier relating to each such Basket Security will be the closing price of such Basket Security on the date that the Securities are priced by Holdings for initial sale to the public. The respective Multipliers will remain constant for the term of the Securities unless adjusted for certain corporate events, as described below. S-12 13 The Basket Value, for any day, will equal the sum of the products of the most recently available Market Prices and the applicable Multipliers for the Basket Securities. The Determination Value, however, is calculated based on the average Market Prices for certain days. The Calculation Agent currently intends to provide the Basket Value to the AMEX once each business day. The AMEX has informed Holdings that, as long as SUNS are listed on the AMEX, it intends to disseminate the Basket Value to vendors via the facilities of the AMEX Tape under the symbol "GTB." ADJUSTMENTS TO THE MULTIPLIER AND BASKET The Multiplier with respect to any Basket Security and the Basket will be adjusted by the Calculation Agent as follows: 1. If a Basket Security is subject to a stock split or reverse stock split (or similar adjustment in the case of ADRs) then once such split has become effective, the Multiplier relating to such Basket Security will be adjusted to equal the product of the number of shares outstanding after such split has become effective with respect to each share of such Basket Security outstanding immediately prior to the effectiveness of such split (or the number of receipts outstanding with respect to each ADR if a Basket Security is an ADR) and the prior Multiplier. 2. If a Basket Security is subject to an extraordinary stock dividend or extraordinary stock distribution (i.e., issuance of additional shares of the Basket Security other than in lieu of an ordinary cash dividend) that is given equally to all holders of shares of the issuer of such Basket Security, then once the dividend has become effective and such Basket Security is trading ex-dividend, the Multiplier will be adjusted so that the new Multiplier shall equal the former Multiplier plus the product of the number of shares of such Basket Security issued with respect to one such share of Basket Security and the prior Multiplier. 3. If the issuer of a Basket Security is being liquidated or dissolved or is subject to a proceeding under any applicable bankruptcy, insolvency or other similar law such Basket Security will continue to be included in the Basket so long as a Market Price for such Basket Security is available. Subject to paragraph 11 below, if a Market Price is no longer available for a Basket Security for whatever reason, including the liquidation or dissolution of the issuer of such Basket Security or the subjection of the issuer of such Basket Security to a proceeding under any applicable bankruptcy, insolvency or other similar law, then the value of such Basket Security will equal zero in connection with calculating the Basket Value and the Determination Value for so long as no Market Price is available, and no attempt will be made to find a replacement stock or increase the value of the Basket to compensate for the deletion of such Basket Security. 4. If the issuer of a Basket Security (or, if a Basket Security is an ADR, the Foreign Issuer of the Underlying Share) has been subject to a merger or consolidation and is not the surviving entity or is nationalized, then a value for such Basket Security will be determined at the time such issuer is merged or consolidated or nationalized and will equal the last available Market Price for such Basket Security and that value will be constant for the remaining term of the Securities. At such time, no adjustment will be made to the Multiplier of such Basket Security. The Calculation Agent may at it sole discretion increase such last available Market Price to reflect payments or dividends of cash, securities or other consideration to holders of such Basket Security in connection with such merger or consolidation which may not be reflected in such last available Market Price. 5. If all the Basket Securities of any class or series of an issuer are converted into the same or a different number of shares of any class or classes of equity security other than such Basket Security, whether by capital reorganization, recapitalization, reclassification or otherwise (other than pursuant to paragraph 4 above), then, once such conversion has become effective, the former Basket Security will be removed from the Basket and such new equity securities will be added to the Basket as new Basket Securities. The Multiplier for each such new Basket Security will equal the product of the last value of S-13 14 the Multiplier with respect to the former Basket Security and the number of shares of such new Basket Security issued with respect to one share of the former Basket Security. 6. If the issuer of a Basket Security issues to all of its shareholders equity securities of an issuer other than the issuer of the Basket Security, then such new equity securities will be added to the Basket as a new Basket Security. The Multiplier for such new Basket Security will equal the product of the last value of the Multiplier with respect to the Basket Security for which the new Basket Security is being issued (the "Original Basket Security") and the number of shares of the new Basket Security issued with respect to one share of the Original Basket Security. 7. If an ADR is no longer listed or admitted to trading on a United States securities exchange registered under the Securities Exchange Act of 1934 or is no longer a NASDAQ NMS security, then the Underlying Share with respect to such ADR will be deemed to be a new Basket Security. The initial Multiplier for such new Basket Security will equal the last value of the Multiplier for such ADR multiplied by the number of shares of Underlying Share represented by a single ADR. 8. If a Foreign Issuer whose stock is included in the Basket subsequently lists ADRs on a national securities exchange in the United States or NASDAQ NMS, the Calculation Agent shall have the option of using the ADRs in the calculation of the Basket Value instead of the Underlying Shares and such ADRs will be deemed to be a new Basket Security. The initial Multiplier for such new Basket Security will equal the last value of the Multiplier for the Basket Security being replaced divided by the number of shares of Underlying Shares represented by a single ADR. 9. In the event that holders of Basket Securities (or any class of holders of Basket Securties) become bound to transfer the Basket Securities to any governmental authority or entity controlled by any governmental authority, the Calculation Agent may take such action, including adjustments to the Multipler or the Market Price with respect to such Basket Security or to the Basket, as it deems appropriate. 10. In the event that a capital gains tax or any other tax or duty is hereafter imposed or increased by any governmental or regulatory authority on Basket Securities beneficially owned, held or traded by foreign nationals, the Market Price or Multiplier with respect to such Basket Security shall be adjusted as the Calculation Agent deems appropriate. 11. If a Basket Security is subject to an extraordinary dividend or an extraordinary distribution (including upon liquidation or dissolution) of cash or other property of any kind (other than any such dividend or distribution otherwise addressed in the preceding paragraphs) which is received equally by all holders of such Basket Securities, then the Calculation Agent shall determine the fair market value, if any, of such cash or other property received in respect of each share of such Basket Security and the Basket shall thereafter be deemed to include an amount equal to the product of the Multiplier on such date and such fair market value. No adjustments of any Multiplier of a Basket Security will be required unless such adjustment would require a change of a least 1% in the Multiplier then in effect. The Multiplier resulting from any of the adjustments specified above will be rounded to the nearest one thousandth with five ten-thousandths being rounded upward. No adjustments to the Multiplier of any Basket Security or to the Basket will be made other than those specified above. S-14 15 THE BASKET GENERAL While the Basket consists of stocks (or ADRs representing interests therein) of issuers that are involved in the global telecommunications industry, the Basket is not intended to provide an indication of the pattern of price movements of common stocks of corporations involved in the global telecommunications industry generally. Each of the United States issuers of a Basket Security files certain information reports with the Securities and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934. Such reports generally contain a description of the business of the issuer, financial statements and certain other information which may be material to potential investors in the Securities. Foreign Issuers of Underlying Shares related to ADRs that are Basket Securities and that are traded in the United States also file certain information reports with the SEC pursuant to the Securities Exchange Act of 1934, although information contained in such reports will generally be more limited than that available with respect to a United States issuer. Neither Holdings nor Lehman Brothers Inc. makes any representation or warranty as to the accuracy or completeness of such reports. THE INCLUSION OF A BASKET SECURITY IN THE BASKET IS NOT A RECOMMENDATION TO BUY OR SELL SUCH BASKET SECURITY, AND NEITHER HOLDINGS NOR ANY OF ITS AFFILIATES MAKE ANY REPRESENTATION TO ANY PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF THE BASKET OR ANY BASKET SECURITY. Holdings or its affiliates may presently or from time to time engage in business with one or more of the issuers of the Basket Securities or, in the case of ADRs, the Underlying Shares, including extending loans to, or making equity investments in, such issuers or providing advisory services to such issuers, including merger and acquisition advisory services. In the course of such business, Holdings or its affiliates may acquire non-public information with respect to such issuers and, in addition, one or more affiliates of Holdings may publish research reports with respect to such issuers. Holdings does not make any representation to any purchaser of a Security with respect to any matters whatsoever relating to such issuers. Any prospective purchaser of a Security should undertake an independent investigation of the issuers of the Basket Securities as in its judgment is appropriate to make an informed decision with respect to an investment in the Securities. GLOBAL TELECOMMUNICATIONS SECTOR The global telecommunications industry is subject to varying degrees of regulatory, political and economic risk which may affect the price of the stocks of companies involved in such industry. Such risks depend on a number of factors including the country in which a company is located. Telecommunications companies in both developed and emerging countries are undergoing significant change due to varying and evolving levels of governmental regulation and other factors. As a result, competitive pressures are increasing. Additionally, as key components of foreign equity markets, the securities of such companies may be subject to price volatility. In addition, companies offering telephone services are experiencing, and will continue to experience, increasing competition from other types of service providers such as wireless, cable, long distance and other local loop providers. The cellular telephone industry, with a limited operating history, faces uncertainty concerning the future of the industry and demand for cellular and other wireless telephones. All telecommunications companies in both developed and emerging countries are subject to additional economic, political, currency and other fundamental risks. In virtually every country, certain aspects of the telecommunications industry are subject to some government regulation. The nature and scope of such regulation generally is subject to political forces and market considerations, the effect of which cannot be predicted. Such regulation can have significant effects upon the operations of a telecommunications venture. It is difficult to predict the directions, types or effects of future telecommunications-related regulation. During the 1980s and early 1990s, the global telecommunications industry underwent structural changes. Many state-owned telephone monopolies were completely or partially divested to the public. Within the U.S., American Telephone & Telegraph Company divested its local telephone service, creating seven holding companies in 1984 under an agreement with the U.S. Government. In addition, the evolution of technology and regulatory changes is allowing the entrance of new competitors into the previously exclusive domain of the traditional local telephone operators including operators of cable television systems. Companies that employ S-15 16 various technologies including fibre-optics, microwave and satellite communications are allowed to compete for traditional telephone company business in many countries. Continued mergers, divestures, privatizations and alliances in the global telecommunications industry and changes in technology will affect companies involved in such industry and the prices of their stocks. Among the issuers of the Basket Securities, 2 are incorporated in Argentina, 1 in Brazil, 1 in Canada, 1 in Chile, 1 in France, 2 in Hong Kong, 1 in Israel, 1 in Italy, 1 in Malaysia, 1 in Mexico, 1 in New Zealand, 1 in the Philippines, 1 in Spain, 1 in Sweden, 1 in Thailand, 2 in the United Kingdom and 5 in the United States. HISTORICAL INFORMATION The following table sets forth the high and low closing price for each of the Basket Securities as reported in the country of the issuer's organization, or, in the case of ADRs, on the U.S. exchange in which it trades, and converted to U.S. Dollars during 1991, 1992, 1993 and during 1994 (through March 17, 1994), and the closing price on March 17, 1994. The historical prices of the Basket Securities should not be taken as an indication of future performance, and no assurance can be given that the prices of the Basket Securities will increase sufficiently to cause the beneficial owners of the Securities to receive any interest on an Interest Payment Date. The historical stock prices set forth herein have been adjusted to reflect certain corporate events that affected the prices of the Basket Securities, including, but not limited to, scrips issues, rights issues, stock splits, reverse splits, stock dividends, spin-offs and extraordinary dividends. Certain adjustments to the Multiplier and the Basket will be made by the Calculation Agent as set forth under "Description of Securities -- Adjustments to the Multiplier and Basket;" such adjustments may not correspond to the adjustments made in determining the historical stock prices set forth herein.
BASKET SECURITIES(1) HIGH LOW LAST - ------------------------------------------------------------ --------- -------- --------- Advanced Info Service Public Co. Ltd. 1991........................................................ $ 5.935 $ 5.162 $ 5.935 1992........................................................ 17.569 5.450 12.143 1993........................................................ 44.036 11.769 44.019 1994 (through March 17)..................................... 45.408 30.976 30.976 Alcatel Alsthom Compagnie Generale d'Electricite 1991........................................................ ND ND ND 1992........................................................ 26.583 22.399 24.368 1993........................................................ 29.375 21.907 28.625 1994 (through March 17)..................................... 30.125 24.000 25.500 ALLTEL Corp. 1991........................................................ 21.563 16.000 19.500 1992........................................................ 24.750 17.750 23.875 1993........................................................ 30.625 23.313 29.500 1994 (through March 17)..................................... 29.000 26.750 27.375 American Telephone & Telegraph Company 1991........................................................ 39.875 29.250 39.125 1992........................................................ 52.750 36.750 51.000 1993........................................................ 64.750 50.750 52.500 1994 (through March 17)..................................... 56.750 50.875 53.500 Bell Atlantic Corp. 1991........................................................ 54.000 43.250 48.250 1992........................................................ 53.750 40.500 51.250 1993........................................................ 67.625 49.750 59.250 1994 (through March 17)..................................... 58.625 52.500 53.000
S-16 17
BASKET SECURITIES(1) HIGH LOW LAST - ------------------------------------------------------------ --------- -------- --------- Cable & Wireless P.L.C. 1991........................................................ $ 15.908 $ 11.469 $ 15.948 1992........................................................ 16.068 12.798 15.516 1993........................................................ 24.875 14.780 24.000 1994 (through March 17)..................................... 24.750 20.125 20.375 Champion Technology Holdings Ltd. 1991........................................................ ND ND ND 1992........................................................ 0.242 0.096 0.242 1993........................................................ 0.653 0.218 0.653 1994 (through March 17)..................................... 0.654 0.401 0.414 Compania de Telefonos de Chile S.A. 1991........................................................ 45.509 14.010 37.634 1992........................................................ 60.358 35.031 58.003 1993........................................................ 103.170 57.515 101.550 1994 (through March 17)..................................... 132.000 99.432 105.625 GTE Corporation 1991........................................................ 34.875 28.000 34.625 1992........................................................ 35.500 29.000 34.625 1993........................................................ 39.875 34.375 35.000 1994 (through March 17)..................................... 35.000 31.500 32.125 Hong Kong Telecommunications Ltd. 1991........................................................ 28.989 19.479 28.616 1992........................................................ 36.338 27.253 34.983 1993........................................................ 65.750 34.508 62.250 1994 (through March 17)..................................... 64.500 53.500 53.500 L.M. Ericsson Telephone Co. 1991........................................................ 38.071 14.996 18.624 1992........................................................ 26.985 17.898 26.242 1993........................................................ 59.625 23.395 40.375 1994 (through March 17)..................................... 47.750 40.125 47.000 MCI Communications Corp. 1991........................................................ 15.750 9.000 15.125 1992........................................................ 20.375 14.938 19.813 1993........................................................ 29.625 18.938 28.250 1994 (through March 17)..................................... 28.500 24.250 25.000 Newbridge Networks Corporation 1991........................................................ 4.750 1.563 3.813 1992........................................................ 21.625 3.813 20.625 1993........................................................ 73.250 19.313 54.750 1994 (through March 17)..................................... 68.375 54.250 62.625 Philippine Long Distance Telephone Company 1991........................................................ 27.021 7.207 27.021 1992........................................................ 41.565 25.384 33.058 1993........................................................ 80.796 30.451 79.209 1994 (through March 17)..................................... 79.331 64.563 66.625
S-17 18
BASKET SECURITIES(1) HIGH LOW LAST - ------------------------------------------------------------ --------- -------- --------- STET Societa Finanziaria Telefonica P.A. 1991........................................................ $ 2.053 $ 1.294 $ 1.791 1992........................................................ 2.031 0.781 1.207 1993........................................................ 2.879 1.164 2.564 1994 (through March 17)..................................... 2.999 2.424 2.999 Tadiran Limited 1991........................................................ ND ND ND 1992........................................................ 27.760 14.316 27.635 1993........................................................ 38.625 26.500 26.500 1994 (through March 17)..................................... 26.125 20.500 22.000 Telecom Argentina Stet-France Telecom S.A. 1991........................................................ ND ND ND 1992........................................................ 3.698 2.271 2.901 1993........................................................ 6.440 2.819 6.284 1994 (through March 17)..................................... 8.173 5.655 6.156 Telecom Corporation of New Zealand, Ltd. 1991........................................................ 25.883 21.516 24.941 1992........................................................ 24.941 18.515 22.761 1993........................................................ 48.554 21.502 48.315 1994 (through March 17)..................................... 54.250 45.452 54.250 Telecommunicacoes Brasileiras S.A. 1991........................................................ ND ND ND 1992........................................................ 0.024 0.011 0.018 1993........................................................ 0.038 0.017 0.034 1994 (through March 17)..................................... 0.053 0.033 0.049 Telefonica de Argentina S.A. 1991........................................................ ND ND ND 1992........................................................ ND ND ND 1993........................................................ ND ND ND 1994 (through March 17)..................................... 78.250 70.250 70.875 Telefonica de Espana S.A. 1991........................................................ 35.027 22.525 34.566 1992........................................................ 35.142 24.703 28.300 1993........................................................ 39.643 28.300 38.652 1994 (through March 17)..................................... 45.218 38.776 41.750 Telefonos de Mexico 1991........................................................ 45.361 23.893 45.361 1992........................................................ 57.853 41.269 54.862 1993........................................................ 67.625 44.086 67.500 1994 (through March 17)..................................... 75.500 60.875 61.500 Telekom Malaysia BHD 1991........................................................ 4.300 2.508 3.582 1992........................................................ 5.964 3.529 5.539 1993........................................................ 8.455 4.566 8.200 1994 (through March 17)..................................... 8.985 6.586 6.749
S-18 19
BASKET SECURITIES(1) HIGH LOW LAST - ------------------------------------------------------------ --------- -------- --------- Vodaphone Group PLC 1991........................................................ $ 69.068 $ 45.190 $ 69.068 1992........................................................ 69.068 51.813 63.194 1993........................................................ 90.125 54.375 89.250 1994 (through March 17)..................................... 94.000 84.250 85.750
- --------------- 1 Certain prices for certain Basket Securities are not presented because (i) such Basket Securities were not outstanding during the relevant year or were only outstanding for a portion of such year or (ii) certain information was not available. EVENTS OF DEFAULT AND ACCELERATION In case an Event of Default with respect to any Securities shall have occurred and be continuing, the amount payable to a Holder of a Security upon any acceleration permitted under the Senior Indenture will be equal to: (i) the principal amount thereof plus (ii) an additional amount, if any, of interest calculated as though the date of acceleration was an Interest Determination Date. See "Description of Securities -- Interest Payments" herein. If a bankruptcy proceeding is commenced in respect of Holdings, the claim of the Holder of a Security may be limited, under Section 502(b)(2) of Title 11 of the United States Code, to the principal amount of the Security plus an additional amount, if any, of contingent interest calculated as though the date of the commencement of the proceeding was an Interest Determination Date. CALCULATION AGENT All determinations made by the Calculation Agent shall be at the sole discretion of the Calculation Agent and, in the absence of manifest error, shall be conclusive for all purposes and binding on Holdings and the Holders of the Securities and the Calculation Agent shall have no liability therefor. FORM OF SECURITIES CONVERSION OPTION The Securities will initially be evidenced by certificates in fully registered form (each, a "Certificate"). Forty-five calendar days after the closing of the offering, each Holder will have the option to convert the form of such Holder's Securities from certificated to book-entry form within a forty-five calendar day period (the "Conversion Option Period"). In order to be exchanged for Securities in book-entry form (represented by a beneficial interest in the Global Security described below), a Certificate must be delivered to the Depository in the manner referred to below. The Conversion Option Period is expected to run from , 1994, through , 1994. Certificates received by the Depository for exchange during the Conversion Option Period will be exchanged for Securities in book-entry form by the close of business on the Business Day so received by the Depository (if received by the Depository at its then applicable cut-off time for same day credit) or on the following Business Day (if received by the Depository at its then applicable cut-off time for next day credit). After the last day of the Conversion Option Period, the Depository will not be required to accept delivery of Certificates for exchange for book-entry Securities, but may permit Certificates to be so exchanged on a case-by-case basis. It is anticipated that after the Conversion Option Period, Certificates delivered to the Depository in proper form for deposit will be accepted by the Depository for exchange for book-entry Securities, generally within three to four Business Days after delivery to the Depository. However, there can be no assurance that such Certificates will be accepted for exchange. Further, there can be no assurance, with respect to Certificates accepted for exchange, that exchange will occur within that time period. Securities surrendered at any time for exchange for book-entry Securities may not be delivered for transfer until such exchange has been effected. Since Certificates are not required to be exchanged for Securities in book-entry form, it is likely that not all Certificates will be so exchanged. Accordingly, Holders purchasing Securities in secondary market trading after the Conversion Option Period may wish to make specific S-19 20 arrangements with brokers or other participants or indirect participants if they wish to purchase only Securities in book-entry form and not Certificates. In order to be exchanged for a Security in book-entry form, a Certificate must be delivered to the Depository, in proper form for deposit, by a participant of the Depository. Accordingly, a Holder which is not a participant must deliver its Certificate, in proper form for deposit, to such a participant either directly or through an indirect participant or brokerage firm which maintains an account with the participant, in order to have its Certificate exchanged for a Security in book-entry form. Such Holders who desire to exchange their Certificates for Securities in book-entry form should contact their brokers or other participants or indirect participants to obtain information on procedures for submitting their Certificates to the Depository, including the proper form for submission and (during the Conversion Option Period) the cut-off times for same day and next day exchange. Certificates which are held by the Holder in nominee or "street" name may be automatically exchanged into book-entry form by the broker or other entity in whose name such Certificates are registered, without action of or consent by the beneficial owner of the related Security (i.e., such beneficial owner need not deliver a Certificate). Certificates which have been exchanged into book-entry form may not be re-exchanged for Certificates, except under the limited circumstances described in the accompanying Prospectus under "Global Securities." CERTIFICATES FOR SECURITIES The Trustee will maintain a register (the "Security Register") for registering the ownership of and transfers of Securities represented by Certificates. Prior to due presentment for registration of transfer, Holdings, the Trustee, and any agent of either of them may deem and treat the person in whose name a Certificate is registered (the "registered holder") as the absolute owner of the Securities evidenced by such Certificate for any purpose whatsoever, and as the person entitled to exercise the rights represented by the Securities evidenced thereby, and neither Holdings, the Trustee, nor any agent of either of them shall be affected by any notice to the contrary. Accordingly, if a beneficial owner of a Security evidenced by a Certificate is not the registered holder thereof (for example, if it holds the Certificate through a broker holding such Certificate in nominee or "street" name), it may exercise its rights as a Holder only through the registered holder. The Trustee shall from time to time register the transfer of any outstanding Certificates upon surrender thereof at the Trustee's office, duly endorsed, or accompanied by a written instrument or instruments of transfer in form satisfactory to the Trustee duly executed by the registered holder thereof, by the duly appointed legal representative thereof or by its duly authorized attorney, such signature to be guaranteed by a bank or trust company located, or with a correspondent office, in The City of New York or by a broker or dealer which is a member of a national securities exchange. A new Certificate shall be issued to the transferee upon any such registration of transfer. At the option of a Holder, Certificates may be exchanged for other Certificates, representing a like principal amount of Securities upon surrender to the Trustee at the Trustee's office of the Certificates to be exchanged. Holdings shall thereupon execute, and the Trustee shall countersign and deliver, one or more new Certificates representing a like principal amount of Securities. If any Certificate is mutilated, lost, stolen or destroyed, Holdings may in its discretion execute, and the Trustee may countersign and deliver, in exchange and substitute for and upon cancellation of the mutilated Certificate, or in lieu of the lost, stolen or destroyed Certificate, a new Certificate of like tenor and representing an equivalent principal amount of Securities, but only (in the case of loss, theft or destruction) upon receipt of evidence satisfactory to Holdings and the Trustee of such loss, theft or destruction of such Certificate and security or indemnity, if requested, also satisfactory to them. Applicants for substitute Certificates must also comply with such other reasonable regulations and pay such other reasonable charges as Holdings or the Trustee may prescribe. The principal of, and interest on Securities in certificated form will be payable when due at the office of the Trustee, Citibank, N.A., Corporate Trust Services, at 111 Wall Street, 5th Floor, New York, New York 10043; provided, however, that payment of interest may be made at the option of Holdings by check mailed to the address of the person entitled thereto as it appears on the books of the Trustee. S-20 21 BOOK-ENTRY FORM Securities held in book-entry form will be held in the form of one or more global certificates (the "Global Security") registered in the name of the nominee of the depository, The Depository Trust Company ("DTC", and together with any successor depository, the "Depository"). Holdings anticipates that the Depository's initial nominee will be CEDE & Co. ("CEDE"). Accordingly, CEDE is expected to be the registered holder of the Securities in book-entry form. DTC is a limited-purpose trust company which was created to hold securities for its participating organizations ("participants") and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants. Participants include securities brokers and dealers (including the Underwriters), banks and trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Persons who are not participants may beneficially own securities held by DTC only through participants or indirect participants. DTC's nominee for all purposes will be considered the sole owner or holder of the Securities which are held in book-entry form. Holders which own Securities in book-entry form will not be entitled to have Securities registered in their names, will not be considered the holders thereof under the Senior Indenture, and will not be entitled to exchange their book-entry Securities for definitive form Certificates, except under the limited circumstances described below. A Holder that is not a participant will have its ownership of a Security in book-entry form recorded on or through the records of the brokerage firm or other entity that maintains such Holder's account. In turn, the total number of Securities in book-entry form held by an individual brokerage firm for its clients will be maintained on the records of the Depository in the name of such brokerage firm (or in the name of a participant that acts as agent for the Holder's brokerage firm if such firm is not a participant). Therefore, a Holder must rely upon the foregoing procedures to evidence such Holder's ownership of a Security in book-entry form. Transfer of ownership of a Security in book-entry form may be effected only through the Depository, and, if applicable, the brokerage firm or other entity that maintains the selling Holder's book-entry account. The laws of some states of the United States may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits on transfer and such laws may impair the ability to own, transfer or pledge securities in book-entry form. Neither Holdings nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made to beneficial owners of book-entry securities or for maintaining, supervising or reviewing any records relating to such beneficial owners. Holdings understands that under existing industry practices, in the event that Holdings requests any action of Holders or that Holders which own Securities in book-entry form desire to give or take any action which Holders are entitled to give or take under the Senior Indenture, the Depository would authorize the participants to give or take such action, and such participants would authorize Holders owning through such participants to give or take such action or would otherwise act upon the instructions of Holders owning through them. Accordingly, each Holder which owns a Security in book-entry form must rely on the procedures of the Depository and, if such Holder is not a participant, on the procedures of the participant through which such Holder owns its Security, to exercise any rights of a Holder under the Senior Indenture. Payment of the principal of, and any interest payment with respect to, Securities registered in the name of the Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the holder of the Global Securities representing such Securities. None of Holdings, the Trustee or any other agent of Holdings or any agent of the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests or for supervising or reviewing any records relating to such beneficial ownership interests. Holdings expects that the Depository, upon receipt of any payment of principal or any interest payment in respect of a Global Security, will credit the accounts of the participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interest in such Global Security as shown on the records of the Depository. Holdings also expects that payments by participants to Holders will be governed by standing customer instructions and customary S-21 22 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. If at any time (i) the Depository notifies Holdings that it is unwilling or unable to continue as Depository or (ii) Holdings becomes aware that the Depository shall no longer be eligible under the Senior Indenture, Holdings shall appoint a successor Depository. If a successor Depository for the Securities is not appointed by Holdings within 90 days after any such event, Holdings will issue, and the Trustee will authenticate and deliver, Securities in definitive form in an aggregate principal amount equal to the aggregate principal amount of the Global Securities, in denominations of $25 and integral multiples thereof. Such definitive Securities shall be registered in such name or names as the Depository shall instruct the Trustee. It is expected that such instructions will be based upon directions received by the Depository from participants with respect to ownership of beneficial interests in such Global Securities. LISTING Application has been made to list the SUNS on the American Stock Exchange under the symbol "SXT". CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following summary describes certain United States federal income tax consequences of the ownership of Securities as of the date hereof. Except where noted, it deals only with Securities held as capital assets and does not deal with special situations, such as those of dealers in securities, financial institutions, life insurance companies or United States Holders whose "functional currency" is not the U.S. dollar. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986 (the "Code"), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in federal income tax consequences different from those discussed below. Persons considering the purchase, ownership or disposition of Securities should consult their own tax advisors concerning the federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. UNITED STATES HOLDERS As used herein, a "United States Holder" of a Security means a holder that is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, or an estate or trust the income of which is subject to United States federal income taxation regardless of its source. A "Non-United States Holder" is a holder that is not a United States Holder. PAYMENTS OF INTEREST This summary is based upon Internal Revenue Service ("IRS") regulations which were published in the Federal Register on February 2, 1994 (the "OID Regulations") and are to be effective as final regulations on April 4, 1994. The OID Regulations provide, however, that taxpayers generally may rely on them in determining the federal income tax consequences of owning debt instruments issued after December 21, 1992 and before their effective date. The Securities constitute variable rate debt instruments under the OID Regulations, and, accordingly, interest on the Securities will be taxable to a holder as ordinary income at the time it is paid, in the case of a cash basis taxpayer, or accrued, in the case of an accrual basis taxpayer. In the case of an accrual basis taxpayer, the OID Regulations do not specify the method by which a United States Holder must accrue interest on a Security. A reasonable method for the accrual of interest by a United States Holder would be to accrue interest currently based on the Basket Value as of the applicable accrual date. Furthermore, such United States Holder would take into account any difference between the amount accrued under the preceding sentence, and the amount actually paid on an Interest Payment Date as S-22 23 an adjustment to interest accrued in the subsequent period. For example, if the amount accrued is greater than the amount actually paid, the amount accrued in the subsequent period will be reduced by such difference, and to the extent the adjustment is greater than the amount otherwise accruable, such difference should be treated as an ordinary deduction. Other approaches to the accrual of interest are possible and there can be no assurance that regulations will not be promulgated which take a different approach. Holdings intends, however, to accrue and report interest to United States Holders as described above. MARKET DISCOUNT If a United States Holder purchases a Security for an amount that is less than its issue price (defined as the first price at which a substantial amount of the Securities were initially sold), the amount of the difference will be treated as "market discount" for federal income tax purposes, unless such difference is less than a specified de minimis amount. Under the market discount rules, a United States Holder will be required to treat any principal payment on, or any gain on the sale or exchange or other disposition of, a Security as ordinary income to the extent of the market discount which has not previously been included in income and is treated as having accrued on such Security at the time of such payment or disposition. In addition, the United States Holder may be required to defer, until the maturity of the Security or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Security, unless a current inclusion election is made as described below. Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Security, unless the United States Holder elects to accrue on a constant yield method. A United States Holder of a Security may elect to include market discount in income currently as it accrues on either a ratable or constant yield basis. This election to include market discount in income currently, once made, applies to all market discount obligations acquired on or after the first taxable year to which the election applies, and may not be revoked without the consent of the IRS. Alternatively, a United States Holder may elect to treat market discount and all interest that accrues on a Security as "original issue discount." United States Holders should consult their own tax advisors about this election. AMORTIZABLE BOND PREMIUM A United States Holder who purchases a Security for an amount in excess of the sum of all amounts payable on the Security after the purchase date other than qualified stated interest will be considered to have purchased the Security at a "premium." A United States Holder generally may elect to amortize the premium over the remaining term of the Security on a constant yield method. The amount amortized in any year will be treated as a reduction of the United States Holder's interest income from the Security. Bond premium on a Security held by a United States Holder that does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of the Security. The election to amortize premium on a constant yield method once made applies to all debt obligations held or subsequently acquired by the electing holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. SALE AND EXCHANGE OF SECURITIES A United States Holder's tax basis in a Security will, in general, be the United States Holder's cost therefor, increased by market discount, if any, previously included in income by the United States Holder and reduced by any amortized premium, if any. Upon the sale or exchange of a Security, a United States Holder may be required to include in income as ordinary interest income any portion of the amount realized which is attributable to the change in Basket Value (which the Calculation Agent will provide to the AMEX once each business day for dissemination via the AMEX Tape) as of the date of such sale or exchange. Moreover, a United States Holder will recognize gain or loss equal to the difference between the amount realized, in excess of the amount treated as ordinary income, if any, under the preceding sentence, and the adjusted tax basis of the Security. Except as described above with respect to market discount, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if at the time of sale or exchange the Security has been held S-23 24 for more than one year. Under current law, net capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations. NON-UNITED STATES HOLDERS Under present United States federal income and estate tax law, and subject to the discussion below concerning backup withholding: (a) no withholding of United States federal income tax will be required with respect to the payment by the Company or any Paying Agent of principal or interest on a Security owned by a Non-United States Holder, provided (i) that the beneficial owner does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote within the meaning of section 871(h)(3) of the Code and the regulations thereunder, (ii) the beneficial owner is not a controlled foreign corporation that is related to the Company through stock ownership, (iii) the beneficial owner is not a bank whose receipt of interest on a Security is described in section 881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies the statement requirement (described generally below) set forth in section 871(h) and section 881(c) of the Code and the regulations thereunder; (b) no withholding of United States federal income tax will be required with respect to any gain or income realized by a Non-United States Holder upon the sale, exchange or retirement of a Security; and (c) a Security beneficially owned by an individual who at the time of death is a Non-United States Holder will not be subject to United States federal estate tax as a result of such individual's death, provided that such individual does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the company entitled to vote within the meaning of section 871(h)(3) of the Code and provided that the interest payments with respect to such Security would not have been, if received at the time of such individual's death, effectively connected with the conduct of a United States trade or business by such individual. To satisfy the requirement referred to in (a)(iv) above, the beneficial owner of such Security, or a financial institution holding the Security on behalf of such owner, must provide, in accordance with specified procedures, a paying agent of the Company with a statement to the effect that the beneficial owner is not a U.S. person, citizen or resident. Pursuant to current temporary Treasury regulations, these requirements will be met if (1) the beneficial owner provides his name and address, and certifies, under penalties of perjury, that he is not a U.S. person, citizen or resident (which certification may be made on an Internal Revenue Service Form W-8 (or successor form) or (2) a financial institution holding the Debt Security on behalf of the beneficial owner certifies, under penalties of perjury, that such statement has been received by it and furnishes a paying agent with a copy thereof. Payments to Non-United States Holders not meeting the requirements of paragraph (a) above and thus subject to withholding of United States federal income tax may nevertheless be exempt from such withholding if the beneficial owner of the Security provides the Company with a properly executed (1) Internal Revenue Service Form 1001 (or successor form) claiming an exemption from withholding under the benefit of a tax treaty or (2) Internal Revenue Service Form 4224 (or successor form) stating that interest paid on the Security is not subject to withholding tax because it is effectively connected with the owner's conduct of a trade or business in the United States. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements will apply to certain payments of principal and interest paid on Securities and to the proceeds of sale of a Security made to United States Holders other than certain exempt recipients (such as corporations). A 31 percent backup withholding tax will apply to such payments if the United States Holder fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. S-24 25 No information reporting or backup withholding will be required with respect to payments made by the Company or any paying agent to Non-United States Holders if a statement described in (a)(iv) under "Non-United States Holders" has been received and the payor does not have actual knowledge that the beneficial owner is a United States person. In addition, backup withholding and information reporting will not apply if payments of the principal or interest on a Security is paid or collected by a foreign office of a custodian, nominee or other foreign agent on behalf of the beneficial owner of such Security, or if a foreign office of a broker (as defined in applicable Treasury regulations) pays the proceeds of the sale of a Security to the owner thereof. If, however, such nominee, custodian, agent or broker is, for United States federal income tax purposes, a U.S. person, a controlled foreign corporation or a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, such payments will not be subject to backup withholding but will be subject to information reporting, unless (1) such custodian, nominee, agent or broker has documentary evidence in its records that the beneficial owner is not a U.S. person and certain other conditions are met or (2) the beneficial owner otherwise establishes an exemption. Temporary Treasury regulations provide that the Treasury is considering whether backup withholding will apply with respect to such payments of principal, interest or the proceeds of a sale that are not subject to backup withholding under the current regulations. Under proposed Treasury regulations not currently in effect backup withholding will not apply to such payments absent actual knowledge that the payee is a United States person. Payments of principal and interest on a Security paid to the beneficial owner of a Security by a United States office of a custodian, nominee or agent, or the payment by the United States office of a broker of the proceeds of sale of a Security, will be subject to both backup withholding and information reporting unless the beneficial owner provides the statement referred to in (a)(iv) above and the payor does not have actual knowledge that the beneficial owner is a United States person or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against such holder's U.S. federal income tax liability provided the required information is furnished to the Internal Revenue Service. S-25 26 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement dated as of March , 1994 (the "Underwriting Agreement"), Holdings has agreed to sell to each of the underwriters named below (the "Underwriters") for whom Lehman Brothers Inc., Kemper Securities, Inc., Kidder, Peabody & Co. Incorporated and Oppenheimer & Co., Inc. are acting as representatives (the "Representatives"), and each of the Underwriters has severally agreed to purchase, the principal amount of Securities set forth opposite its name below.
PRINCIPAL UNDERWRITERS AMOUNT OF SECURITIES ----------------------------------------------------------- -------------------- Lehman Brothers Inc. ...................................... $ Kemper Securities, Inc..................................... Kidder, Peabody & Co. Incorporated......................... Oppenheimer & Co., Inc..................................... -------------------- Total............................................ $ 75,000,000 -------------------- --------------------
Holdings has been advised by the Representatives that the Underwriters propose initially to offer the Securities to the public at the public offering price set forth on the cover page of this Prospectus Supplement, and to certain dealers at such price less a concession not in excess of $ per Security. The Underwriter may allow and such dealers may reallow a concession not in excess of $ per Security to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed. Holdings has granted an option to the Underwriters, exercisable within 30 days of the date of this Prospectus Supplement, to purchase up to an additional $ principal amount of Securities to cover over-allotments, if any, at the price to public less the underwriting discounts and commissions specified on the cover page of this Prospectus Supplement. Lehman Brothers Inc. is a wholly owned subsidiary of Holdings. The participation of Lehman Brothers Inc. in the offer and sale of the SUNs complies with the requirements of Schedule E of the By Laws of the National Association of Securities Dealers regarding underwriting securities of an affiliate. The Representatives have advised Holdings that they intend to make a market in the Securities but the Representatives are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Securities. Holdings has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. S-26 27 GLOSSARY Set forth below are definitions of some of the terms used in this Prospectus Supplement and not defined in the accompanying Prospectus. "Business Day" means a day of the week which is not a day on which banking institutions in New York, New York, are authorized or required by law to close. "Maturity" of any Security means the date on which the principal of such Security becomes due and payable as provided therein or in the Senior Indenture, whether at Stated Maturity or by declaration of acceleration or otherwise. "Holder" means, with respect to any certificated Security, the Person in whose name the certificate is registered in the Security Register and, with respect to any Global Security, any Beneficial Holder thereof to the extent of such Beneficial Holder's interest therein. In addition, definitions for the following terms are set forth in this Prospectus Supplement at the pages indicated:
DEFINED TERM PAGE - -------------------------------------------------------------------------------------- ----- ADRs.................................................................................. S-4 AMEX.................................................................................. S-6 Average Market Price.................................................................. S-3 Basket................................................................................ S-4 Basket Appreciation Percentage........................................................ S-3 Basket Securities..................................................................... S-3 Basket Security....................................................................... S-3 Basket Value.......................................................................... S-4 Calculation Agent..................................................................... S-3 Calculation Day....................................................................... S-10 Calculation Period.................................................................... S-3 CEDE.................................................................................. S-21 Certificate........................................................................... S-19 Code.................................................................................. S-22 Conversion Option Period.............................................................. S-19 Depository............................................................................ S-21 Determination Value................................................................... S-3 $..................................................................................... S-9 dollars............................................................................... S-9 DTC................................................................................... S-21 Foreign Issuer........................................................................ S-8 Global Security....................................................................... S-21 Holdings.............................................................................. S-3 indirect participants................................................................. S-21 Interest Determination Date........................................................... S-3 Interest Payment...................................................................... S-3 Interest Payment Date................................................................. S-3 IRS................................................................................... S-22 Market Disruption Event............................................................... S-11 Market Price.......................................................................... S-10 Multiplier............................................................................ S-3 NASDAQ................................................................................ S-8 NASDAQ NMS............................................................................ S-10
S-27 28
DEFINED TERM PAGE - -------------------------------------------------------------------------------------- ----- NYSE.................................................................................. S-11 New York Trading Day.................................................................. S-11 Non-United States Holder.............................................................. S-22 OID Regulations....................................................................... S-22 Original Basket Value................................................................. S-4 Original Basket Security.............................................................. S-14 participants.......................................................................... S-21 Prior Determination Value............................................................. S-3 registered holder..................................................................... S-20 Representatives....................................................................... S-26 SEC................................................................................... S-15 Securities............................................................................ S-3 Security Register..................................................................... S-20 Spot Rate............................................................................. S-10 Stated Maturity....................................................................... S-3 SUNS.................................................................................. S-3 Trading Day........................................................................... S-11 Underlying Shares..................................................................... S-8 Underwriters.......................................................................... S-26 Underwriting Agreement................................................................ S-26 United States Holder.................................................................. S-22 U.S. dollars.......................................................................... S-9 U.S.$................................................................................. S-9
S-28 29 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HOLDINGS SINCE THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. --------------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Summary............................... S-3 Use of Proceeds....................... S-6 Special Considerations................ S-6 Description of Securities............. S-9 The Basket............................ S-15 Form of Securities.................... S-19 Certain Federal United States Income Tax Consequences.................... S-22 Underwriting.......................... S-26 Glossary.............................. S-27 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 Limitations on Issuance of Bearer Securities................... 14 United States Taxation................ 15 Capital Requirements.................. 17 Plan of Distribution.................. 18 ERISA Matters......................... 19 Legal Opinions........................ 19 Independent Accountants............... 20 - -------------------------------------------- - --------------------------------------------
- ------------------------------------------------------ - ------------------------------------------------------ $75,000,000 LEHMAN BROTHERS HOLDINGS INC. GLOBAL TELECOMMUNICATIONS STOCK UPSIDE NOTE SECURITIES DUE 2000 "SUNS" --------------------- PROSPECTUS SUPPLEMENT MARCH , 1994 --------------------- LEHMAN BROTHERS KEMPER SECURITIES, INC. KIDDER, PEABODY & CO. INCORPORATED OPPENHEIMER & CO., INC. - ------------------------------------------------------ - ------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----