-----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, Wk9OVm4znENRX2ATJd8rbIyJI4Omlya7Iz3bTzTSsLsbzWz6SDJ/HU4k3U9d0TwI fmsIutoahah5Dxq4r7Oifg== 0000950123-94-001650.txt : 19941018 0000950123-94-001650.hdr.sgml : 19941018 ACCESSION NUMBER: 0000950123-94-001650 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19941017 SROS: NYSE 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: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 033-58548 FILM NUMBER: 94552965 BUSINESS ADDRESS: STREET 1: AMERICAN EXPRESS TWR STREET 2: 3 WORLD FINANCIAL CNTR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2125267000 MAIL ADDRESS: STREET 1: AMERICAN EXPRESS TOWER 15TH FL STREET 2: 2 WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN HUTTON HOLDINGS INC DATE OF NAME CHANGE: 19901017 424B5 1 LEHMAN BROTHERS HOLDINGS INC. 1 Pursuant to Rule 424(b)(5) Registration No. 33-58548 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 OCTOBER 14, 1994 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED OCTOBER 14, 1994) $50,000,000 LEHMAN BROTHERS HOLDINGS INC. INDUSTRIAL COMMODITY BASKET NOTES DUE 1996 The Industrial Commodity Basket Notes Due 1996 (the "Securities") of Lehman Brothers Holdings Inc. ("Holdings") will mature on November , 1996 (the "Stated Maturity Date"). Each Holder in whose name Securities are registered at the close of business on the day preceding the Stated Maturity Date will be entitled to receive a payment in respect of such Securities (the "Settlement Amount") which shall, subject to certain exceptions, be calculated based on the average of the Market Prices (as defined herein) of a basket of certain non-financial commodities (the "Basket") for the first three Determination Days (as defined herein) occurring between November , 1996 and the Stated Maturity Date, inclusively. If the average of the Market Prices of the Basket over such Determination Days (the "Basket Maturity Value") exceeds $1,000, each Holder will be entitled to a Settlement Amount that will be greater than the principal amount of such Holder's Securities; if the Basket Maturity Value is $1,000 or less, each Holder will be entitled to a Settlement Amount that will be equal to the principal amount of such Holder's Securities. The Calculation Agent (as defined herein) has estimated that, based on forward prices, the value of the Basket on November , 1994, was $1,000. Although each Holder will be entitled to receive, on or after the Stated Maturity Date, the Settlement Amount with respect to such Holder's Securities, there will be no payment of interest, periodic or otherwise, with respect to the Securities. For information as to the calculation of the Settlement Amount, which will be payable on the Stated Maturity Date (unless accelerated upon an Event of Default or delayed due to a Market Disruption Event), the calculation of the value of the Basket, the composition of the Basket and certain tax consequences to holders of the Securities, see "Description of Securities," "The Basket" and "Certain United States Federal Income Tax Consequences" in this Prospectus Supplement. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "SPECIAL CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT. 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 the Stated Maturity Date and are not subject to any sinking fund. Application will be made to list the Securities on the Luxembourg Stock Exchange under the symbol " ." Lehman Brothers Inc., a wholly owned subsidiary of Holdings, may, but is not obligated to, purchase and sell 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 REPRESEN- TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Price to Underwriting Proceeds to Public Discount(1) Holdings(2) - ---------------------------------------------------------------------------------------------------------- Per Security............................ % % % - ---------------------------------------------------------------------------------------------------------- Total................................... $50,000,000 $ $ - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
(1) Holdings has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting other expenses payable by Holdings estimated at $ . --------------------------- The Securities offered by this Prospectus Supplement are offered by the Underwriter subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriter and to certain further conditions. The Underwriter reserves the right to reject orders in whole or in part. It is expected that delivery of the Securities will be made at the offices of Lehman Brothers Inc., New York, New York, on or about November , 1994. This Prospectus Supplement together with the accompanying Prospectus may also be used by Lehman Brothers Inc. in connection with offers and sales of Securities related to market making transactions, by and through Lehman Brothers Inc., at negotiated prices related to prevailing market prices at the time of sale or otherwise. Lehman Brothers Inc. may act as principal or agent in such transactions. --------------------------- LEHMAN BROTHERS November , 1994 2 The Securities will originally be issued as certificates in registered form. One hundred and eighty 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. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED 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. Certain capitalized terms used herein have the meanings ascribed thereto in the accompanying Prospectus. Reference is also made to the "Glossary" appearing at the end of this Prospectus Supplement for certain defined terms used herein and the locations of other defined terms used herein. Issuer..................... Lehman Brothers Holdings Inc. ("Holdings"). Securities Offered......... $50,000,000 of Industrial Commodity Basket Notes Due 1996 (the "Securities"). The Securities are to be issued as a series of Debt Securities under the Senior Indenture described in the accompanying Prospectus and will constitute Senior Debt of Holdings. Denominations.............. $50,000, and $10,000 increments in excess thereof. Interest Payments.......... The Securities will not bear interest. Stated Maturity Date....... November , 1996 (the "Stated Maturity Date"). Settlement Amount.......... Each Holder in whose name Securities are registered at the close of business on the day preceding the Stated Maturity Date will be entitled to receive a payment (the "Settlement Amount") with respect to the principal amount of Securities registered to such Holder equal to such principal amount multiplied by the following: 1 + (Multiplier X (Basket Maturity Value -- $1,000) ) ------------------ $1,000 provided, however, if the Basket Maturity Value is less than $1,000, then such Settlement Amount will be equal to such principal amount. The Basket Maturity Value will be equal to the sum of the Settlement Prices of the Commodities included in the Basket. On the date of this preliminary Prospectus Supplement, the "Multiplier" equals 1.1082. The actual Multiplier applicable to the Securities will be determined by Holdings with reference to the forward prices of the Commodities in the Basket on or about the date of the final Prospectus Supplement and will be set forth in the final Prospectus Supplement. Such actual Multiplier may be less than, equal to or greater than 1.1082. Subject to the occurrence of Market Disruption Events, the Settlement Price of each Commodity will be equal to the average of the Market Prices (determined as described herein) of such Commodity for the first three Determination Days occurring between November , 1996 (the "Calculation Initiation Date") and the Stated Maturity Date, inclusively (such period, the "Determination Period"). See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. See also "Description of Securities -- Events of Default and Acceleration" for a description of the calculation of payments upon any acceleration of the Maturity of the Securities. The Settlement Prices of certain of the Commodities will be determined by reference to settlement prices of certain contracts traded on the New York Mercantile Exchange, Inc. (the "NYMEX") and the London Metal Exchange (the "LME"). The Settlement Prices of the balance of the Commodities will be determined by reference to the Fixing Prices of such Commodities reported by the London Bullion S-3 4 Market Association (the "LBM"). See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. The Basket................. The "Basket" is made up of different quantities of the following Commodities: Aluminum, Copper, Crude Oil, Gold, Lead, Nickel, Silver and Zinc. Ownership of Securities will not entitle any Holder to invest in or to receive any of the Commodities. The Basket is not equally weighted; that is, on the date the Securities are issued, the various Commodities will represent differing percentages of the Basket Value on that date, ranging from 3.5% for Lead to 30% for Gold. See "Description of Securities -- Commodities" and "The Basket" in this Prospectus Supplement. The inclusion of a Commodity in the Basket is not a recommendation to buy or sell such Commodity, and neither Holdings nor any of its affiliates makes any representation or warranty as to the performance of the Basket or any Commodity. Basket Value............... The value of the Basket at any given time will equal the sum of the current forward prices for each Commodity multiplied in each case by the quantity of such Commodity in the Basket (the "Basket Value"). To determine the appropriate forward prices for the Commodities in the Basket, Holders should refer: (i) in the case of Aluminum, Copper, Lead, Nickel and Zinc, to the current price for the appropriate Contract on the LME for delivery in November 1996 (or, with respect to Lead and Nickel prior to July 1995, to the estimated forward price for delivery of such Commodity on or about the Calculation Initiation Date), (ii) in the case of Crude Oil, to the current price for the Crude Oil Contract on the NYMEX for delivery in December 1996, and (iii) in the case of Gold and Silver, to the estimated forward price for delivery of Gold and Silver, respectively, on or about the Calculation Initiation Date. Lehman Brothers Inc., a wholly-owned subsidiary of Holdings (the "Calculation Agent"), has estimated that the Basket Value at the close of business on November , 1994 was $1,000. Subject to the occurrence of Market Disruption Events, the Basket Maturity Value will be calculated based on the average of the Market Prices of the respective Commodities during the first three Trading Days during the Determination Period. See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. See also "Description of Securities -- Events of Default and Acceleration" for a description of the calculation of payments upon any acceleration of the Maturity of the Securities. Special Considerations..... The Securities are subject to certain special considerations. Investors should be aware that if the Basket Maturity Value is equal to or less than $1,000, the Settlement Amount payable with respect to each Security shall be limited to the principal amount of such Security, even if the Basket Value as of some date or dates prior to the Calculation Initiation Date may have exceeded $1,000, because the Settlement Amount will be calculated only on the basis of Market Prices (or other prices, in the case of a Market Disruption Event) during the Determination 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 face amount thereof, if, among other things, the Basket Value at such time S-4 5 is below, equal to or not sufficiently above $1,000. It is expected that the secondary market for the Securities will be affected by a number of factors, including the Basket Value, fluctuations in interest rates, the volatility of the Basket Value and the time remaining to the Stated Maturity Date. See "Special Considerations" in this Prospectus Supplement. Payment of the Settlement Amount could be deferred beyond the Stated Maturity Date for up to three Business Days in the event that a Market Disruption Event with respect to any Commodity occurs during the Determination Period. In that event, interest in respect of the Securities will not accrue or be payable on or after the Stated Maturity Date. See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. Holders of Securities will not, by virtue of their ownership of Securities, have any right at any time to invest in or receive any of the Commodities, even though the return on an investment in the Securities will be based on the Settlement Prices of such Commodities. The Market Prices of certain of the Commodities will be determined by reference to settlement prices of contracts traded on the NYMEX, a U.S. commodity exchange, and the LME, a foreign commodity exchange, or by reference to prices reported by the LBM, an industry association of bullion market participants. Trading on commodity exchanges involves certain risks, and trading on the LME may involve additional risks. See "Special Considerations -- LME Trading," "-- LBM Trading," "-- Effect of Adverse Changes in Market Prices," and "-- Suspension or Material Disruption of Futures Trading; Temporary Distortions" in this Prospectus Supplement. 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 the Settlement Amount payable with respect to the Securities (the transactions used to hedge such market risks are herein called the "Hedging Transactions"). For a description of the calculation of the Settlement Amount, see "Description of Securities -- Settlement Amount" in this Prospectus Supplement. In connection with such Hedging Transactions, Holdings or one or more of its subsidiaries may purchase or maintain positions in a variety of financial instruments relating to the Basket and the Commodities. Depending on future market conditions and the actual amount of Securities outstanding from time to time, among other things, the aggregate amount and the composition of such positions are likely to vary over time. Holdings expects that it or its subsidiaries may take positions in (i) futures contracts related to the Commodities, (ii) listed or over-the-counter option contracts on the Commodities and (iii) other derivative or synthetic instruments relating to the Commodities. There can be no assurance that Holdings or one or more of its subsidiaries did not or will not affect the prices of the Commodities or the Basket as a result of its hedging activities. SPECIAL CONSIDERATIONS PAYMENT AT MATURITY If the Basket Maturity Value is equal to or less than $1,000, the Settlement Amount payable with respect to each Security will be limited to the principal amount of such Security. This will be true even though the Basket Value as of some date or dates prior to the Calculation Initiation Date may have exceeded $1,000, because the Settlement Amount will be calculated only on the basis of Market Prices (or other prices, in the case of a Market Disruption Event) during the Determination Period. Purchasers of Securities should therefore be prepared to realize no "time value" return on the principal amount of their Securities. TRADING Application will be made to list the Securities on the Luxembourg Stock Exchange under the symbol " ." 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 $1,000. 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 $1,000. In addition to discounts which could result from a decrease in the Basket Value, as discussed below, discounts could also result from fluctuations in interest rates, decreased volatility of the Basket Value or decreased time remaining to the Stated Maturity Date. The trading value of the Securities may be affected by a number of interrelated factors, including those listed below. The relationship among these factors, and how they affect the Settlement Amount, is complex. Accordingly, investors should be aware that factors other than the Basket Value are likely to affect the trading value of the Securities. 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, due to "time value" considerations, if interest rates increase, the value of the Securities is expected to decrease and if interest rates decrease, the value of the Securities is expected to increase. However, due to the complex interaction between interest rates, commodity prices and the performance of the economy in general, it is difficult to predict the impact of interest rate movements on the Basket Value. Volatility of the Basket Value. An increase in the volatility of the Basket Value would normally have a positive impact on the trading value of the Securities although such impact will be diminished to S-6 7 the extent that the Basket Value is significantly less than or significantly greater than $1,000. Conversely, a decrease in the volatility of the Basket Value would normally have a negative impact on the trading value of the Securities although such impact will also be diminished to the extent that the Basket Value is significantly less than or significantly greater than $1,000. Time Remaining to the Stated Maturity Date. The Securities may trade at a value other than that which may be inferred from the level of interest rates, volatility and the Basket Value. This difference may be due to expectations concerning interest rates, volatility and the Basket Value during the period prior to the Stated Maturity Date. As the time remaining to the Stated Maturity Date decreases, this difference in value is expected to decrease. Relationship Between Spot Prices and Forward Prices. Prior to Maturity, the Basket Value is determined in relation to the forward prices for the Commodities in the Basket. Since the relationship between forward and spot prices depends on prevailing interest rates, supply and demand and other factors, the Basket Value may not always reflect movements in the spot prices of the Commodities. There can be no assurance that the foregoing factors will affect the Basket Value and the trading value of the Securities as described, and neither Holdings nor any of its affiliates makes any representation or warranty as to the performance of the Basket or as to the trading value of the Securities. LME TRADING The Market Prices of certain of the Commodities will be determined by reference to the settlement prices of contracts traded on the LME. As discussed below, the LME is a principals' market which operates in a manner more closely analogous to the over-the-counter physical commodity markets than the futures markets, and certain features of U.S. futures markets are not present in the context of LME trading. For example, there are no daily price limits on the LME, which would otherwise restrict the extent of daily fluctuations in the prices of LME contracts. In a declining market, therefore, it is possible that prices would continue to decline without limitation within a Trading Day or over a period of Trading Days. In addition, a contract may be entered into on the LME calling for delivery on any day from one day to three months following the date of such contract and for monthly delivery in any of the next 16 to 24 months (depending on the Commodity) following such third month, in contrast to trading on futures exchanges, which call for delivery in stated delivery months. As a result, there may be a greater risk of a concentration of positions in LME contracts on particular delivery dates, which in turn could cause temporary aberrations in the prices of LME contracts for certain delivery dates. If such aberrations occur during the Determination Period, the prices of the contracts used to determine the Settlement Prices, and consequently the Settlement Amount, could be adversely affected. LBM TRADING The Settlement Prices of Gold and Silver will be determined by reference to the Fixing Prices of such Commodities reported by the LBM. The LBM is a self-regulatory association of bullion market participants. Although all market making members of the LBM are supervised by the Bank of England and are required to satisfy a capital adequacy test, the LBM itself is not a regulated entity. If the LBM should stop operations, or if bullion trading by LBM members should become subject to a value added tax, any other tax or any other form of regulation currently not in place, the role of LBM price fixings for Gold and Silver as global benchmarks for those Commodities may be affected. EFFECT OF TRADING IN THE COMMODITIES AND RELATED INSTRUMENTS Holdings and its affiliates are and will be actively involved in the trading of the Commodities, futures and forward contracts with respect to the Commodities and other instruments and derivative products based on the Commodities and/or the Basket (collectively, "Commodity Investments"). Holdings and its affiliates may also issue or underwrite, or authorize unaffiliated entities to issue or underwrite, other Commodity Invest- S-7 8 ments. In addition, affiliates of Holdings are market making members of in the LBM, ring-dealing members of the LME and clearing members of the NYMEX. Such activities with respect to Commodity Investments could adversely affect the Basket Value, which could in turn adversely affect the value of, and the return on, the Securities. POTENTIAL CONFLICTS OF INTEREST As noted above, Holdings and its affiliates expect to engage in activities related to Commodity Investments, for their proprietary accounts or for other accounts under their management. Such activities could present certain conflicts of interest. For example, the issuance of other securities indexed to the Basket, i.e., the introduction of competing products into the marketplace, could adversely affect the value of the Securities. To the extent that Holdings or its affiliates serves as issuer, agent or underwriter of such securities or other instruments, its interests with respect to such products may be adverse to those of the Holders of Securities. Additionally, if a Market Disruption Event occurs during the Determination Period or if the Maturity of the Securities is accelerated, the Basket Maturity Value may be determined by reference to firm bid prices quoted by the Calculation Agent and/or to forward prices published by members of the LBM selected by the Calculation Agent. Finally, under certain circumstances, the Calculation Agent may adjust the Basket or the method of determining the Market Price of one or more of the Commodities. Such quotes, selections and adjustments by the Calculation Agent will directly impact the Settlement Amount payable with respect to the Securities. See "Description of Securities -- Settlement Amount," "-- Events of Default and Acceleration" and "-- Adjustments to the Basket and Market Price" in this Prospectus Supplement. Conflicts of interest may arise between the Calculation Agent's responsibilities with respect to the Securities and its status as a wholly-owned subsidiary of Holdings. EFFECT OF ADVERSE CHANGES IN MARKET PRICES OF COMMODITIES The Basket is comprised of eight distinct Commodities, and the Market Prices are determined by reference to futures contracts, forward contracts and spot prices relating to such Commodities. The Basket Value, and therefore the value of the Securities, could be adversely affected by adverse changes in the Market Prices of one or more of the Commodities. Market Prices of the Commodities can be affected by a variety of factors, including inflation, weather, governmental programs and policies, national and international political and economic events, changes in interest and exchange rates, the outbreak or cessation of war, acts of terrorism, significant accidents, natural catastrophes, technological advances, the discovery of significant additional sources of such Commodities and trading activity in Commodity Investments. SUSPENSION OR MATERIAL DISRUPTION OF TRADING; TEMPORARY DISTORTIONS The Market Prices of certain of the Commodities are determined by reference to the settlement prices of contracts traded on the LME and the NYMEX and the Market Prices of the balance of the Commodities are determined by reference to spot prices reported by the LBM. These markets are subject to temporary distortions or other disruptions due to conditions of illiquidity in the markets, the participation of speculators, government regulation and intervention and other factors. Such circumstances, particularly if they occur during the Determination Period, could adversely affect the value of the Securities. If a Market Disruption Event with respect to any Commodity exists or occurs during the first three Trading Days of the Determination Period, the Settlement Price of such Commodity will be calculated using the Market Prices of such Commodity on the first three Determination Days during the Determination Period. With respect to each Commodity, a "Determination Day" means a Trading Day on which no Market Disruption Event with respect to such Commodity has occurred. If, due to a Market Disruption Event for any Commodity, there are less than three Determination Days for such Commodity during the Determination Period, the Settlement Price for such Commodity will be calculated based on the average of (i) the Market S-8 9 Price for such Commodity on each Determination Day, if any, and (ii) the firm bid price for the relevant quantity of such Commodity quoted by the Calculation Agent on as many of the last three Trading Days during the Determination Period as are required to assure that the Settlement Price is based on the average of three prices (including Market Prices and prices quoted by the Calculation Agent) during the Determination Period. See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. DEFERRAL OF SETTLEMENT DATE As discussed above under "Suspension or Material Disruption of Trading; Temporary Distortions," if a Market Disruption Event exists or occurs with respect to a Commodity during the first three Trading Days of the Determination Period, the calculation of the Settlement Price of such Commodity would be deferred until such Commodity ceased to be so affected or, if such Market Disruption Event continued through the Determination Period, until the Stated Maturity Date at which time the Calculation Agent would determine such Settlement Price in the manner described herein. Because the Settlement Amount will not be calculated until a Settlement Price for each Commodity has been determined, it is possible that settlement of the Securities will take place up to three Business Days after the Stated Maturity Date. See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. If a Market Disruption Event results in the deferral of the payment of the Settlement Amount beyond the Stated Maturity Date, interest in respect of such deferred payment will not accrue or be payable. See "Description of Securities -- Settlement Amount" in this Prospectus Supplement. POTENTIAL MODIFICATIONS OF THE BASKET AND MARKET PRICE The composition of the Basket and the method of calculating Market Prices may be adjusted by the Calculation Agent, a wholly-owned subsidiary of Holdings, from time to time upon the occurrence of certain extraordinary events. By way of example, if the terms of the Contracts used for determining the Market Price of a Commodity are changed in a material respect by the commodity exchange upon which the Contract trades, or if a Market Price is not available for a Commodity for any reason, then the Calculation Agent may take such action, including adjustments to the Basket or to the method of calculating the Market Price of such Commodity, as it deems appropriate. See "Description of Securities -- Adjustments to the Basket and Market Price" in this Prospectus Supplement. Such changes could adversely affect the Basket Value and, consequently, the value of the Securities. OTHER CONSIDERATIONS An investment in the Securities may not be appropriate for all investors. 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. 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. S-9 10 The aggregate principal amount of Securities to be issued will be $50,000,000. See "Underwriting" in this Prospectus Supplement. The Securities will be issued in denominations of $50,000, and $10,000 increments in excess thereof. The Securities will not bear interest and will mature on November , 1996. Each Holder in whose name Securities are registered at the close of business on the day preceding the Stated Maturity Date will be entitled to receive the Settlement Amount in respect of such Securities, which shall be calculated based on the Basket Maturity Value. If the Basket Maturity Value exceeds $1,000, each Holder will be entitled to a Settlement Amount that shall be greater than the principal amount of such Holder's Securities; if the Basket Maturity Value is $1,000 or less, each Holder will be entitled to a Settlement Amount that shall be equal to the principal amount of such Holder's Securities. See "Settlement Amount" below. The Securities are not redeemable by Holdings or repayable at the option of any Holder prior to the Stated Maturity Date 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. SETTLEMENT AMOUNT Each Holder in whose name Securities are registered at the close of business on the day preceding the Stated Maturity Date will be entitled to receive a Settlement Amount with respect to the principal amount of Securities registered to such Holder, which Settlement Amount shall be equal to such principal amount multiplied by the following: 1 + (Multiplier X (Basket Maturity Value -- $1,000) ) $1,000 provided, however, that if the Basket Maturity Value is less than $1,000, then such Settlement Amount shall be equal to such principal amount. On the date of this preliminary Prospectus Supplement, the Multiplier equals 1.1082. THE ACTUAL MULTIPLIER APPLICABLE TO THE SECURITIES WILL BE DETERMINED BY HOLDINGS WITH REFERENCE TO THE FORWARD PRICES OF THE COMMODITIES IN THE BASKET ON OR ABOUT THE DATE OF THE FINAL PROSPECTUS SUPPLEMENT AND WILL BE SET FORTH IN THE FINAL PROSPECTUS SUPPLEMENT. SUCH ACTUAL MULTIPLIER MAY BE LESS THAN, EQUAL TO OR GREATER THAN 1.1082. The value of the Basket on the Stated Maturity Date (the "Basket Maturity Value") will be determined by the Calculation Agent and will equal the sum of the Settlement Prices of all of the Commodities included in the Basket. The "Settlement Price" of each Commodity will equal the average of the Market Prices of such Commodity for the first three Determination Days occurring during the Determination Period. If, due to a Market Disruption Event for any Commodity, there are less than three Determination Days for such Commodity during the Determination Period, the Settlement Price for such Commodity will be calculated based on the average of (i) the Market Price for such Commodity on each Determination Day, if any, and (ii) the firm bid price for the relevant quantity of such Commodity quoted by the Calculation Agent on as many of the last three Trading Days during the Determination Period as are required to assure that the Settlement Price is based on the average of three prices (including Market Prices and prices quoted by the Calculation Agent) during the Determination Period. The quantity of each Commodity included in the Basket is specified under the caption "Description of Securities -- Commodities" below. The quantity of each Commodity included in the Basket will remain constant for the term of the Securities unless adjusted by the Calculation Agent upon the occurrence of certain extraordinary events as set forth under "Adjustments to the Basket and Market Price" below. "Market Price" for any day, which will be determined with respect to each Commodity based on reasonably available information, means the following: (i) in the case of Aluminum on any day (including any Determination Day), the Market Price (expressed in dollars) shall be the product of (a) the final closing price (expressed in dollars per tonne) S-10 11 on such day of the November 1996 Aluminum Contract, as established by the LME and displayed on Reuters LMES, and (b) tonnes; (ii) in the case of Copper on any day (including any Determination Day), the Market Price (expressed in dollars) shall be the product of (a) the final closing price (expressed in dollars per tonne) on such day of the November 1996 Copper Contract, as established by the LME and displayed on Reuters LMEN, and (b) tonnes; (iii) in the case of Crude Oil, the Market Price (expressed in dollars) shall be the product of (a) the closing settlement price (expressed in dollars per barrel) on such day of the December 1996 Crude Oil Contract, as established by the NYMEX and displayed on Telerate page 8810, and (b) barrels; (iv) in the case of Gold on any Determination Day, the Market Price (expressed in dollars) shall be the product of (a) the London p.m. Gold Fixing Price (expressed in dollars per ounce) on such day reported by the LBM, as displayed on Reuters MTUA, and (b) ounces; and in the case of Gold on any other day, the Market Price shall be an amount (expressed in dollars) equal to the estimated forward price on such day for ounces of Gold for delivery on or about the Calculation Initiation Date, as estimated by the person making such determination; (v) in the case of Lead on any Determination Day and on any other day on and after the day that the LME first establishes prices with respect to the November 1996 Lead Contract (expected by Holdings to be in July 1995), the Market Price (expressed in dollars) shall be the product of (a) the final closing settlement price (expressed in dollars per tonne) on such day of the November 1996 Lead Contract, as established by the LME and displayed on Reuters LMEO, and (b) tonnes; and in the case of Lead on any other day, the Market Price shall be an amount (expressed in dollars) equal to the estimated forward price on such day for tonnes of Lead for delivery on or about the Calculation Initiation Date, as estimated by the person making such determination; (vi) in the case of Nickel on any Determination Day and on any other day on and after the day that the LME first establishes prices with respect to the November 1996 Nickel Contract (expected by Holdings to be in July 1995), the Market Price (expressed in dollars) shall be the product of (a) the final closing price (expressed in dollars per tonne) on such day of the November 1996 Nickel Contract, as established by the LME and displayed on Reuters LMEP, and (b) tonnes; and in the case of Nickel on any other day, the Market Price shall be an amount (expressed in dollars) equal to the estimated forward price on such day for tonnes of Nickel for delivery on or about the Calculation Initiation Date, as estimated by the person making such determination; (vii) in the case of Silver on any Determination Day, the Market Price (expressed in dollars) shall be the product of (a) the London Spot Silver Fixing Price (expressed in dollars per ounce) on such day reported by the LBM and as published in the Wall Street Journal and (b) ounces; and in the case of Silver on any other day, the Market Price shall be an amount (expressed in dollars) equal to the estimated forward price on such day for ounces of Silver for delivery on or about the Calculation Initiation Date, as estimated by the person making such determination; and (viii) in the case of Zinc on any day (including any Determination Day), the Market Price (expressed in dollars) shall be the product of (a) the final closing price (expressed in dollars per tonne) on such day of the November 1996 Zinc Contract, as established by the LME and displayed on Reuters LMEQ, and (b) tonnes. Except as otherwise provided in this paragraph, the Settlement Amount will be payable to the Holders of Securities on the Stated Maturity Date. As discussed above, if a Market Disruption Event exists or occurs S-11 12 with respect to a Commodity during the first three Trading Days of the Determination Period, the calculation of the Settlement Price of such Commodity would be deferred until such Commodity ceased to be so affected or, if such Market Disruption Event continued through the Determination Period, until the Stated Maturity Date at which time the Calculation Agent would determine such Settlement Price in the manner described above. Because the Settlement Amount will not be calculated until a Settlement Price for each Commodity has been determined, it is possible that settlement of the Securities will take place up to three Business Days after the Stated Maturity Date. In any event, Holders of Securities will be entitled to receive the Settlement Amount with respect to their Securities no later than the third Business Day after the Stated Maturity Date. IN THE EVENT THAT PAYMENT OF THE SETTLEMENT AMOUNT IS DEFERRED BEYOND THE STATED MATURITY DATE, INTEREST IN RESPECT OF SUCH DEFERRED PAYMENT WILL NOT ACCRUE OR BE PAYABLE. "Market Disruption Event" with respect to any of Aluminum, Copper, Lead, Nickel or Zinc (each, an "LME Metal") means either of the following events: (i) the LME fails to announce official closing prices in U.S. dollars for such LME Metal or (ii) a suspension, material limitation or termination of trading in contracts for such LME Metal or a disruption in the trading of such LME Metal such that the Calculation Agent determines that any Hedging Transactions in such LME Metal at the official LME settlement prices have not been or could not be executed. "Market Disruption Event" with respect to either Gold or Silver (each, a "Precious Metal") means that such Precious Metal is not traded by the LBM or is not quoted in U.S. dollars by the LBM. "Market Disruption Event" with respect to Crude Oil means either of the following events: (i) the NYMEX fails to announce official closing prices for Crude Oil or (ii) the termination or suspension of, or a material limitation or disruption in, the trading of Crude Oil on the NYMEX such that the Calculation Agent determines that any Hedging Transactions in Crude Oil at the official NYMEX settlement price have not been or could not be executed. For the purposes of the foregoing, 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 a previously announced change in the regular business hours of the relevant exchange. The Calculation Agent in its sole discretion will be responsible for determining if a Market Disruption Event has occurred. All percentages resulting from any calculation with respect to 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. HYPOTHETICAL SETTLEMENT AMOUNTS Set forth below is a table demonstrating the Settlement Amount with respect to $50,000 principal amount of Securities based upon various hypothetical Basket Maturity Values. The illustrative Settlement Amounts in the table have been calculated with reference to the Multiplier (i.e., 1.1082) determined by Holdings during the course of business on October 13, 1994. THE ACTUAL MULTIPLIER APPLICABLE TO THE SECURITIES WILL BE DETERMINED BY HOLDINGS WITH REFERENCE TO THE FORWARD PRICES OF THE COMMODITIES IN THE BASKET ON OR ABOUT THE DATE OF THE FINAL PROSPECTUS SUPPLEMENT AND WILL BE SET FORTH IN THE FINAL PROSPECTUS SUPPLEMENT. IF SUCH ACTUAL MULTIPLIER IS NOT EQUAL TO 1.1082, THE TABLE OF ILLUSTRATIVE SETTLEMENT AMOUNTS SET FORTH BELOW WILL BE REVISED IN THE FINAL PROSPECTUS SUPPLEMENT. IN THAT EVENT, PROSPECTIVE INVESTORS SHOULD CONSIDER THE REVISED TABLE OF ILLUSTRATIVE SETTLEMENT AMOUNTS PRIOR TO ANY INVESTMENT IN THE SECURITIES. The illustrative Settlement Amounts in the table do not reflect any "time value" which may be reflected in the trading value, and are not necessarily indicative of potential profit or loss, which are affected in addition by purchase price and transaction costs. Neither Holdings nor any of its affiliates makes any representation or warranty as to the probability or magnitude of any increase or decrease in the Market Prices of the Commodities, and no assurance can be given that the Market Prices of the Commodities will increase sufficiently to cause Holders to receive a Settlement Amount in excess of the principal amount of their S-12 13 Securities. See "Settlement Amount" above for a description of the method of calculation of the Settlement Amount.
HYPOTHETICAL BASKET SETTLEMENT MATURITY VALUE AMOUNT ----------------------------------------- ---------- $1,000 or less $50,000.00 1,025................................... 51,385.25 1,050................................... 52,770.50 1,075................................... 54,155.75 1,100................................... 55,541.00 1,125................................... 56,926.25 1,150................................... 58,311.50 1,175................................... 59,696.75 1,200................................... 61,082.00 1,225................................... 62,467.25 1,250................................... 63,852.50 1,275................................... 65,237.75 1,300................................... 66,623.00 1,325................................... 68,008.25 1,350................................... 69,393.50 1,375................................... 70,778.75 1,400................................... 72,164.00
COMMODITIES The commodities listed below (each, a "Commodity" and collectively, the "Commodities") comprise the Basket and, therefore, the value of such Commodities will affect the trading value of the Securities and the magnitude of the Settlement Amount. Holders of Securities will not, by virtue of their ownership of Securities, have any right at any time to invest in or to receive any of the Commodities, even though the return on the investment in the Securities is based on the Market Prices of such Commodities. The following table sets forth each Commodity, the quantity of each Commodity included in the Basket, the Market Price on November , 1994 of each Commodity and the percentage of the Basket Value contributed on November , 1994 by each Commodity.
NOVEMBER , 1994 NOVEMBER , 1994 % OF COMMODITY QUANTITY MARKET PRICE BASKET VALUE - ---------------------------------------------- --------------- ------------------ ----------------- Aluminum...................................... tonnes 12.5% Copper........................................ tonnes 14.5 Crude Oil..................................... barrels 13.0 Gold(1)....................................... ounces 30.0 Lead(1)....................................... tonnes 3.5 Nickel(1)..................................... tonnes 5.0 Silver(1)..................................... ounces 14.0 Zinc.......................................... tonnes 7.5 ------- ------ $1,000 100.0%
- --------------- (1) The Market Prices for Gold, Lead, Nickel and Silver were determined by the Calculation Agent by reference to the Lehman Brothers Inc. bid on November , 1994 for ounces of Gold, for tonnes of Lead, for tonnes of Nickel and for ounces of Silver, respectively, for delivery on November , 1996. As set forth in the above table, different quantities of the various Commodities are included in the Basket, and each Commodity represents a different percentage of the forward value of the Basket on November , 1994. The respective quantities of each Commodity included in the Basket will remain constant for the term of the Securities unless adjusted by the Calculation Agent upon the occurrence of certain extraordinary events as set forth under "Adjustments to the Basket and Market Price" below. S-13 14 The Basket Value, for any day, will equal the current forward prices for each Commodity multiplied in each case by the quantity of such Commodity in the Basket. To determine the appropriate forward prices for the Commodities in the Basket, Holders should refer: (i) in the case of an LME Metal, to the current price for the appropriate Contract on the LME for delivery in November 1996 (or, with respect to Lead and Nickel prior to July 1995, to the estimated forward price for delivery of such Commodity on or about the Calculation Initiation Date), (ii) in the case of Crude Oil, to the current price for the Crude Oil Contract on the NYMEX for delivery in December 1996 and (iii) in the case of a Precious Metal, to an estimated forward price for delivery of such Precious Metal on or about the Calculation Initiation Date. The Basket Maturity Value, and therefore the Settlement Amount, is calculated based on the Market Prices of the Commodities on and after the Calculation Initiation Date. See "Settlement Amount" above. Aluminum The Market Price of Aluminum is determined by reference to the LME's "High Grade Primary Aluminum Contract" (the "Aluminum Contract"). The price of the Aluminum Contract is primarily affected by the global demand for and supply of Aluminum. Demand for Aluminum is significantly influenced by the level of global industrial economic activity. Industrial sectors which are particularly important include the automobile, packaging and construction sectors. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. The supply of Aluminum is widely spread around the world, and the principal factor dictating the smelting of such Aluminum is the ready availability of inexpensive power. The supply of Aluminum is also affected by current and previous price levels, which will influence investment decisions in new smelters. Other factors influencing supply include droughts, transportation problems and shortages of power and raw materials. Copper The Market Price of Copper is determined by reference to the LME's "Copper -- Grade A Contract" (the "Copper Contract"). The price of the Copper Contract is primarily affected by the global demand for and supply of Copper. Demand for Copper is significantly influenced by the level of global industrial economic activity. Industrial sectors which are particularly important include the electrical and construction sectors. In recent years demand has been supported by strong consumption from newly industrializing countries, which continue to be in a copper-intensive period of economic growth as they develop their infrastructure. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. Apart from the United States, Canada and Australia, the majority of copper concentrate supply (the raw material) comes from outside the Organization for Economic Cooperation and Development countries. Chile is the largest producer of copper concentrate. In recent years, copper supply has been affected by strikes, financial problems and terrorist activity. Output has fallen particularly sharply in the "African Copperbelt" and in Bougainville, Papua New Guinea. Crude Oil The Market Price of Crude Oil is determined by reference to the NYMEX's "Light 'Sweet' Crude Oil Futures Contract" (the "Crude Oil Contract"). The Crude Oil Contract is based on West Texas Intermediate ("WTI") crude oil delivered to Cushing, Oklahoma. Although WTI is refined principally in the United States' mid-continent region, it forms the basis for pricing other domestic crudes as well as some foreign grades. The WTI spot price, in turn, is usually determined by global (rather than regional) supply and demand conditions due to the availability of product and crude oil pipelines that link the mid-continent to the Gulf Coast, a major crude oil trading and refining center. Demand for petroleum products by consumers, as well as agricultural, manufacturing and transportation industries, determines demand for Crude Oil by refiners. Since the precursors of product demand are linked to S-14 15 economic activity, Crude Oil demand will tend to reflect economic conditions. However, other factors such as weather will also influence product and crude oil demand. Crude Oil supply is determined by both economic and political factors. Oil prices (along with drilling costs, availability of attractive prospects for drilling, taxes and technology) determine exploration and development spending which influence output capacity with a lag. In the short run, production decisions by the Organization of Petroleum Exporting Countries also affects supply and prices. Oil export embargoes such as the United Nations-imposed trade sanctions on Iraq represent another route through which political developments move the market. Gold The Market Price of Gold is determined by reference to the London p.m. Gold Fixing (expressed in dollars per ounce) by the LBM. Spot market Gold prices can fluctuate widely and are affected by numerous factors, including industrial and jewelry demand, expectations with respect to the rate of inflation, the strength of the U.S. dollar (the currency in which the price of Gold is generally quoted) and of other currencies, interest rates, central bank sales, forward sales by producers, global or regional political or economic events, and production costs and disruptions in major Gold producing regions such as South Africa and the Commonwealth of Independent States ("CIS"). The demand for and supply of Gold affect Gold prices, but not necessarily in the same manner as supply and demand affect the prices of other Commodities. The supply of Gold consists of a combination of new mine production and existing stocks of bullion and formulated Gold held by governments, public and private financial institutions, industrial organizations and private individuals. As the amounts produced in any single year constitute a very small portion of the total potential supply of Gold, normal variations in production do not necessarily have a significant impact on the supply of Gold or on its price. In addition, the price of Gold has on occasion been subject to very rapid short-term changes due to speculative activities. Lead The Market Price of Lead is determined by reference to the LME's "Standard Lead Contract" (the "Lead Contract"). The price of the Lead Contract is primarily affected by the global demand for and supply of Lead. Demand for Lead is significantly influenced by the level of global industrial economic activity. The automobile industrial sector is particularly important given that the use of Lead in batteries accounts for approximately 60% of world-wide Lead demand. In recent years, demand has stabilized following substitution of other commodities for Lead in a number of markets -- notably gasoline and chemicals -- in the 1970s and 1980s. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. The secondary (recycling) sector is the source of approximately 50% of the total supply of Lead and refined lead output is dominated by the developed economies. The supply of Lead is also affected by current and previous price levels, which will influence investment decisions in new mines and smelters. The low prices for Lead in the early 1990s have tended to discourage such investments. Nickel The Market Price of Nickel is determined by reference to the LME's "Primary Nickel Contract" (the "Nickel Contract"). The price of the Nickel Contract is primarily affected by the global demand for and supply of Nickel. Demand for Nickel is significantly influenced by the level of global industrial economic activity. The stainless steel industrial sector is particularly important given that the use of Nickel in the manufacture of stainless steel accounts for approximately 60% of world-wide Nickel demand. The stainless steel sector has growth potential as there is a trend for alloyed steel such as stainless steel to replace non-alloyed steel as the benefits of life-cycle costing become more clear. A number of stainless steel mills have invested in new S-15 16 capacity which indicates the likelihood of continued growth in stainless steel production and therefore Nickel demand. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. Nickel supply is dominated by Canada and the CIS. Although exports from the CIS have increased sharply in recent years, there are indications that such exports have now peaked. The supply of Nickel is also affected by current and previous price levels, which will influence investment decisions in new mines and smelters. The low prices for Nickel in the early 1990s have tended to discourage such investments. Silver The Market Price of Silver is determined by reference to the London Spot Silver Fixing (expressed in dollars per ounce) by the LBM. Spot market Silver prices can fluctuate widely and are affected by numerous factors, including industrial and jewelry demand, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar (the currency in which the price of Silver is generally quoted) and of other currencies, interest rates, central bank sales, forward sales by producers, global or regional political or economic events, and production costs and disruptions in major Silver producing countries such as Mexico and Peru. The demand for and supply of Silver affect Silver prices, but not necessarily in the same manner as supply and demand affect the prices of other Commodities. The supply of Silver consists of a combination of new mine production and existing stocks of bullion and fabricated Silver held by governments, public and private financial institutions, industrial organizations and private individuals. Zinc The Market Price of Zinc is determined by reference to the LME's "Special High Grade Zinc Contract" (the "Zinc Contract"). The price of the Zinc Contract is primarily affected by the global demand for and supply of Zinc. Demand for Zinc is significantly influenced by the level of global industrial economic activity. The galvanized steel industrial sector is particularly important given that the use of Zinc in the manufacture of galvanized steel accounts for approximately 50% of world-wide Zinc demand. The galvanized steel sector is in turn heavily dependent on the automobile and construction sectors. The galvanized steel sector has growth potential as there is a trend for coated steel such as galvanized steel to replace non-coated steel as the benefits of life-cycle costing become more clear. A number of galvanized steel mills have invested in new capacity which indicates the likelihood of continued growth in galvanized steel production and therefore Zinc demand. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. The supply of zinc concentrate (the raw material) is dominated by Australia, North America and Latin America. The supply of Zinc is also affected by current and previous price levels, which will influence investment decisions in new mines and smelters. The low prices for Zinc in the early 1990s have tended to discourage such investments. ------------------------ Finally, in addition to supply and demand factors that influence settlement prices for the Commodities as described above, psychological and speculative forces play a major role in driving the markets for each of the Commodities. ADJUSTMENTS TO THE BASKET AND MARKET PRICE The Basket and/or the method of calculating the Market Price may be adjusted from time to time by the Calculation Agent, a wholly-owned subsidiary of Holdings, as follows: (i) In the event that a Market Price is not available for a Commodity for whatever reason, including any discontinuance of trading in the relevant Contract by the LME or the NYMEX, then the Calculation Agent may take such action, including adjustments to the Basket or to the method of calculating such Market Price as it deems appropriate. By way of example, and without limitation, if a Contract which S-16 17 serves as the basis for determining the Market Price of a particular Commodity is discontinued by the exchange on which it traded, the Calculation Agent may calculate such Market Price for such Commodity by reference to another contract for such Commodity traded on another exchange or to the Lehman Brothers Inc. bid for such Commodity for delivery during the Determination Period. (ii) In the event that the terms of any Contract used for determining the Market Price of any Commodity are changed in a material respect by the commodity exchange upon which the contract trades, the Calculation Agent may take such action, including adjustments to the Basket or to the method of calculating the Market Price of such Commodity, as it deems appropriate. The Calculation Agent has informed Holdings that, to its knowledge, the terms of certain of the LME Metal Contracts have been adjusted several times since 1980 with respect to the required quality of the Commodity to be delivered thereunder and the location for such delivery. Although Holdings is not aware of any planned modification of the terms of any Contract, no assurance can be given that such modifications will not occur prior to the Stated Maturity Date. No adjustment will be made unless the Calculation Agent determines, in its sole discretion, that such adjustment is appropriate to maintain the validity of the Market Price as an economic benchmark for the affected Commodity within the Basket. Such adjustments, if any, may be made by the Calculation Agent at any time, or from time to time, on or prior to the Stated Maturity Date. No adjustment will be made other than in accordance with the foregoing. See "Special Considerations -- Potential Conflicts of Interest" in this Prospectus Supplement for a description of certain conflicts of interest which may arise between the Calculation Agent's status as a wholly-owned subsidiary of Holdings and its responsibilities to adjust the Basket and/or the method of calculating the Market Price. EVENTS OF DEFAULT AND ACCELERATION If an Event of Default with respect to the Securities shall have occurred and be continuing, the amount payable to a Holder with respect to any Security upon any acceleration permitted under the Senior Indenture will be equal to an amount calculated as though the Basket Maturity Value is equal to the sum of the Market Prices on the date of acceleration for each Commodity other than Gold and Silver plus the Acceleration Value on the date of acceleration for each of Gold and Silver; provided, that if the date of acceleration is not a Determination Day for any Commodity, the Basket Maturity Value will be calculated by reference to the bid price for the relevant quantity of such Commodity quoted on such day by the Calculation Agent, a wholly-owned subsidiary of Holdings. 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 Basket Maturity Value is equal to the sum of the Market Prices on the date of the commencement of the proceeding for each Commodity other than Gold and Silver plus the Acceleration Value on the date of acceleration for each of Gold and Silver; provided, that if the date of acceleration is not a Determination Day for any Commodity, the Basket Maturity Value will be calculated by reference to the bid price for the relevant quantity of such Commodity quoted on such day by the Calculation Agent, a wholly-owned subsidiary of Holdings. The "Acceleration Value" for each of Gold and Silver shall be the forward price for ounces of Gold and for ounces of Silver, respectively, for delivery during the Determination Period, as determined by the Calculation Agent by reference to the arithmetic mean of such forward prices published by three members of the LBM selected by the Calculation Agent. See "Description of Securities -- Settlement Amount" in this Prospectus Supplement for a description of the calculation of the Settlement Amount and see "Special Considerations -- Potential Conflicts of Interest" in this Prospectus Supplement for a description of certain conflicts of interest which may arise between the Calculation Agent's status as a wholly-owned subsidiary of Holdings and its foregoing responsibilities with respect to the Securities. CALCULATION AGENT All selections, adjustments and 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. S-17 18 THE BASKET GENERAL The Basket is comprised of eight distinct non-financial (i.e., physical) Commodities, each of which falls within one of the following three general sectors (the "Sectors"): precious metals, base metals and energy. Holdings has included the Sectors in the Basket because it believes that, as a general matter, the prices of commodities in these Sectors are broadly reflective of economic recovery; that is, prices of such Commodities generally increase during periods of economic recovery. NEITHER HOLDINGS NOR ANY OF ITS AFFILIATES MAKES ANY REPRESENTATION OR WARRANTY AS TO THE PERFORMANCE OF THE COMMODITIES OR THE BASKET, AND NEITHER HOLDINGS NOR THE CALCULATION AGENT WILL ADJUST THE BASKET FOR THE PURPOSE OF CAUSING OR ENCOURAGING THE PERFORMANCE INDICATED IN THE PRECEDING SENTENCE. The specific Commodities which comprise the Basket (namely Aluminum, Copper, Crude Oil, Gold, Lead, Nickel, Silver and Zinc) were selected by Holdings on the basis of, among other things, their liquidity, their general lack of seasonality and the ready availability of price information. Holdings has included in the Basket the specified quantity of each Commodity such that, as of November , 1994, each Sector represented not less than 10% and not more than 50% of the Basket Value and such that no individual Commodity represented more than 30% of the Basket Value. THE INCLUSION OF A COMMODITY IN THE BASKET IS NOT A RECOMMENDATION TO INVEST IN OR DIVEST ANY INTEREST IN SUCH COMMODITY, AND NEITHER HOLDINGS NOR ANY OF ITS AFFILIATES MAKE ANY REPRESENTATION OR WARRANTY TO ANY PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF THE BASKET, ANY COMMODITY OR ANY SECTOR. Holdings or its affiliates may presently or from time to time invest in, or divest an interest in, one or more Commodity Investments, may render investment advice to a third party with respect to one or more Commodity Investments, or may facilitate on behalf of a third party an investment in, or a divestiture of an interest in, one or more Commodity Investments. In the course of such business, Holdings or its affiliates may acquire nonpublic information with respect to such Commodity Investments and, in addition, one or more affiliates of Holdings may produce and/or publish research reports with respect to such Commodity Investments. Holdings does not make any representation or warranty to any purchaser of a Security with respect to any matters whatsoever relating to such activities. ANY PROSPECTIVE PURCHASER OF A SECURITY SHOULD UNDERSTAND THE COMMODITY FUTURES, FORWARD AND SPOT MARKETS AND SHOULD UNDERTAKE AN INDEPENDENT INVESTIGATION OF THE COMMODITIES SUCH AS IN ITS JUDGMENT IS APPROPRIATE TO MAKE AN INFORMED DECISION WITH RESPECT TO AN INVESTMENT IN THE SECURITIES. THE COMMODITIES MARKETS The Market Prices of certain of the Commodities (i.e., Crude Oil and the LME Metals) are determined by reference to the settlement prices of futures and forward contracts traded on the NYMEX and the LME, respectively, and the Market Prices of the Precious Metals are determined by reference to spot prices on the LBM. An exchange-traded futures contract is a bilateral agreement providing for the purchase and sale of a specified type and quantity of a commodity or financial instrument during a stated delivery month for a fixed price or, in the case of a futures contract on an index, providing for the payment and receipt of a cash settlement. By its terms, a futures contract provides for a specified settlement month in which the commodity or financial instrument is to be delivered by the seller (whose position is therefore described as "short") and acquired by the purchaser (whose position is therefore described as "long") or in which the cash settlement amount is required to be paid. Prior to the date on which delivery is to be made under a futures contract, the exchange clearing house will require the holders of short positions to state their intentions with respect to delivery and, to the extent that such holders elect to make delivery (as opposed to cash settlement), the clearing house will match them with holders of long positions, who will then be required to accept delivery. In the vast majority of cases, actual delivery under contracts never takes place, as contracts are often liquidated with offsetting futures transactions prior to the maturity of the original contract. S-18 19 No purchase price is paid or received on the purchase or sale of a futures contract. Instead, an amount of cash or cash equivalents, which varies based on the requirements imposed by the exchange clearing houses, but which may be as low as 5% or less of the value of the contract, must be deposited with the broker as "initial margin." This margin deposit collateralizes the obligations of the parties to the futures contract to perform their obligations under such contract. By depositing margin in the most advantageous form (which may vary depending on the exchange, clearing house or broker involved), a market participant may be able to earn interest on its margin funds, thereby increasing the potential total return which may be realized from an investment in futures contracts. Subsequent payments to and from the broker, referred to as "variation margin," are then normally made on a daily basis as the price of the futures contract fluctuates, thereby making existing positions in the futures contract more or less valuable, a process known as "marking to the market." Futures contracts are traded on organized exchanges, known as "contract markets," through the facilities of a centralized clearing house and a brokerage firm which is a member of the clearing house. The clearing house guarantees the performance of each clearing member which is a party to a futures contract by, in effect, taking the opposite side of the transaction. At any time prior to the expiration of a futures contract, subject to the availability of a liquid secondary market, a trader may elect to close out its position by taking an opposite position on the exchange on which the position was entered into, which operates to terminate the position and fix the trader's profit or loss. U.S. contract markets (including the NYMEX), as well as brokers and market participants, are subject to regulation by the Commodity Futures Trading Commission. Futures markets outside the U.S. are generally subject to regulation by comparable regulatory authorities (such as the Securities and Investment Board in the United Kingdom (the "SIB")). The NYMEX The NYMEX, located in New York City, is the principal exchange for the trading of oil futures contracts. NYMEX began commodities trading in 1872, organized as the Butter and Cheese Exchange of New York, and has since traded a variety of commodity products. The establishment of energy futures on the NYMEX occurred in 1978, with the introduction of heating oil futures contracts. NYMEX opened trading in leaded gasoline futures in 1981, followed by the Crude Oil Contract in March 1983 and unleaded gasoline futures in 1984. The LME The LME was established in 1877 and is the principal base-metal exchange in the world on which contracts for delivery of copper, lead, zinc, tin, aluminum, aluminum alloy and nickel are traded. In contrast to U.S. futures exchanges, the LME operates as a principals' market for the trading of forward contracts, and is therefore more closely analogous to over-the-counter physical commodity markets than futures markets. As a result, members of the LME trade with each other as principals and not as agents for customers, although such members may enter into offsetting "back-to-back" contracts with their customers. In addition, while futures exchanges permit trading to be conducted in contracts for monthly delivery in stated delivery months, LME contracts may be established for delivery on any day (referred to as a "prompt date") from one day to three months following the date of contract, and for monthly delivery in any of the next 16 to 24 months (depending on the Commodity) following such third month. Further, because it is a principals' forward market, there are no price limits applicable to LME contracts, and prices could decline without limitation over a period of time. Trading is conducted on the basis of warrants that cover physical material held in listed warehouses. The LME is not a cash cleared market; its interoffice and floor trading procedure is combined with a clearing system operating between principals based on bank guarantees and other forms of collateral. Both interoffice and floor trading are covered by a matching system run by the London Clearing House, whose role is to act as a central counterparty to trades executed between clearing members and thereby reduce risk and settlement costs. The LME is subject to regulation by the SIB. S-19 20 The bulk of trading on the LME is transacted through interoffice dealing which allows the LME to operate as a 24-hour market. Trading on the floor takes place in two sessions daily, from 11:50 am to 1:35 pm and from 3:20 to 5:00 pm, London time. The two sessions are each broken down into two rings made up of five minutes' trading in each contract. After the second ring of the first session the official prices for the day are announced. Contracts may be settled by offset or delivery and can be cleared in U.S. dollars, Pounds Sterling, Japanese Yen and German Marks. Copper and Tin have traded on the LME since its establishment. The Copper Contract was upgraded to High Grade Copper in November 1981 and again to today's Grade-A Contract which began trading in June 1986. Lead and Zinc were officially introduced in 1920, but were traded unofficially before that. The Lead Contract has remained virtually unchanged since its reintroduction in 1952 following the closure of the Exchange brought about by the second World War. Zinc, on the other hand, has undergone a number of upgradings, most recently with the introduction of the present Special High Grade Zinc Contract in June 1986. Primary Aluminum was introduced as a 99.5% contract in December 1978 and today's 99.7% High Grade Aluminum Contract began trading in August 1987. Nickel joined the Exchange the year after Aluminum, in April 1979. The LME share (by weight) of world terminal market trading is over 90% of all Copper and virtually all Aluminum, Lead, Nickel, Tin and Zinc. The LME, therefore, is well established to reflect changes in supply and demand for these metals worldwide. The LBM The Market Prices of Gold and Silver will be determined by reference to the "Fixing Prices" of such Commodities on the LBM. The Fixing Prices represent the matching of orders from customers and bullion markets throughout the world. The LBM, located in London, England, was formally incorporated in 1987. The LBM is a self-regulatory association of bullion market participants. All market making members of the LBM are supervised by the Bank of England and are required to satisfy a capital adequacy test. Market making members of the LBM quote spot and forward delivery prices (in U.S. dollars per ounce) for Gold and Silver throughout each business day. In addition, the LBM publishes the Fixing Price for Gold in the morning and in the evening of each business day and the Fixing Price for Silver in the afternoon of each business day. HISTORICAL INFORMATION The following table sets forth for the days indicated during 1990, 1991, 1992, 1993 and 1994 (through November , 1994) (a) in the case of Gold and Silver, the spot prices for the days indicated (b) in the case of each of the other Commodities, the settlement prices for the nearby Contract for such Commodity and (c) the spot value of the Basket (i.e., the value of the Basket calculated by reference to the spot prices and to the quantity of each Commodity in the Basket). The spot value of the Basket has been calculated and included in this table for the benefit of prospective investors; prospective investors should note that the Basket Value (as such term is defined and used in this Prospectus Supplement) is calculated by reference to forward prices for the Commodities rather than by reference to spot prices for the Commodities. By way of example, although the spot value of the Basket on the date hereof (as indicated below) is $ , the Calculation Agent has estimated that the Basket Value on the date hereof is $1,000. The historical prices of the Commodities should not be taken as an indication of future performance, and no assurance can be given that the prices of the Commodities will increase sufficiently to cause the Holders of Securities to receive a S-20 21 Settlement Amount in excess of the principal amount of such Securities. The historical spot prices set forth below have been obtained from commercial data services unaffiliated with Holdings, which services are believed by Holdings to be reliable.
SPOT CRUDE VALUE OF DATE GOLD(1) SILVER(1) ALUMINUM(2) COPPER(2) NICKEL(2) LEAD(2) ZINC(2) OIL(3) BASKET - -------- -------- --------- ----------- --------- ---------- -------- --------- ------- -------- 1/2/90 $399.000 $ 5.210 $1637.000 $2418.111 $ 7900.000 $721.728 $1395.000 $22.890 $ 2/1/90 415.800 5.265 1405.000 2252.523 6400.000 703.703 1300.500 22.700 3/1/90 406.300 5.140 1532.000 2494.170 8315.000 882.450 1512.000 21.170 4/2/90 368.400 4.940 1595.000 2758.468 8975.000 824.932 1608.000 20.480 5/2/90 369.600 4.995 1494.000 2735.595 9300.000 798.005 1750.000 18.680 6/1/90 363.400 5.035 1591.000 2639.728 8275.000 824.915 1745.000 17.500 7/2/90 357.400 4.920 1530.000 2629.173 8605.000 906.915 1723.000 16.720 8/1/90 370.600 4.830 1715.000 2867.830 10330.000 876.488 1569.000 21.540 9/4/90 381.400 4.740 1875.000 2934.846 11135.000 867.881 1606.000 29.120 10/1/90 396.300 4.665 1930.000 2776.095 9850.000 768.620 1382.000 37.090 11/1/90 380.400 4.200 1922.000 2598.445 8750.000 723.309 1300.000 35.170 12/3/90 380.600 4.120 1494.000 2497.627 8365.000 656.059 1249.500 29.150 1/2/91 390.800 4.125 1542.000 2638.808 8325.000 621.866 1257.000 26.490 2/1/91 364.500 3.835 1481.000 2401.600 8593.000 586.575 1180.000 21.340 3/1/91 366.900 3.735 1540.000 2495.870 8561.000 597.870 1226.000 19.380 4/2/91 357.500 4.015 1435.000 2453.946 9095.000 617.462 1227.000 19.700 5/1/91 356.500 3.955 1346.000 2438.877 9040.000 588.992 1152.000 21.250 6/3/91 363.000 4.170 1226.000 2161.978 8140.000 532.858 1052.700 21.130 7/1/91 368.900 4.450 1316.000 2256.853 8585.000 559.771 1077.000 20.760 8/1/91 363.400 4.055 1266.000 2260.599 8220.000 546.620 1058.000 21.270 9/3/91 347.300 3.895 1250.500 2297.064 7786.000 531.069 1023.500 22.240 10/1/91 353.900 4.140 1143.500 2315.438 7532.000 535.609 997.500 22.220 11/1/91 357.700 4.105 1156.500 2375.157 7436.000 513.713 989.700 23.820 12/2/91 368.300 4.065 1102.200 2383.392 7127.000 519.480 1218.000 21.080 1/2/92 350.900 3.935 1117.000 2150.500 7188.000 540.430 1173.700 19.490 2/3/92 356.400 4.150 1216.700 2159.079 7718.000 505.370 1162.500 18.960 3/2/92 350.400 4.100 1270.000 2285.610 7592.000 518.214 1176.000 18.340 4/1/92 344.000 4.140 1288.200 2242.890 7461.000 533.463 1278.700 19.840 5/1/92 337.500 3.995 1288.000 2196.040 7372.000 519.955 1371.500 20.850 6/1/92 336.800 4.030 1304.400 2216.766 7332.000 535.521 1436.000 22.030 7/1/92 343.500 4.030 1309.700 2429.256 7485.000 611.331 1323.000 21.860 8/3/92 354.000 3.900 1318.600 2496.076 7325.000 681.465 1358.500 21.580 9/1/92 341.700 3.750 1294.400 2501.496 7203.000 660.339 1411.100 21.640 10/1/92 348.500 3.730 1239.300 2310.800 6693.000 587.205 1325.200 21.830 11/2/92 339.500 3.760 1144.200 2253.174 5964.000 484.497 1082.000 20.770 12/1/92 334.600 3.725 1199.300 2166.601 5512.000 460.135 1075.000 19.510 1/4/93 328.200 3.640 1238.300 2346.813 6150.000 454.052 1066.700 19.040 2/1/93 329.700 3.665 1196.100 2217.488 5776.000 416.125 1106.500 20.310 3/1/93 328.500 3.565 1174.200 2125.728 5907.000 409.104 992.000 20.600 4/1/93 336.300 3.870 1128.000 2148.091 6086.000 412.766 980.500 20.520 5/4/93 356.100 4.270 1125.500 1838.270 5953.000 415.711 1006.700 20.390 6/1/93 377.300 4.585 1122.700 1794.435 5609.000 398.470 922.700 20.240 7/1/93 379.000 4.710 1227.400 1922.500 5320.000 388.000 919.400 18.450 8/2/93 405.600 5.350 1213.400 1963.500 4915.000 391.800 920.700 17.970 9/1/93 369.100 4.800 1140.300 1967.200 4573.000 384.000 872.200 17.970 10/1/93 354.000 4.060 1098.200 1680.200 4056.000 364.300 877.700 18.630 11/1/93 363.200 4.200 1025.800 1604.500 4520.000 396.100 937.700 17.430 12/1/93 373.100 4.555 1054.400 1645.200 4679.000 427.700 937.000 15.480 1/4/94 394.100 5.200 1114.500 1733.500 5196.000 463.000 993.700 14.670 2/1/94 381.600 5.190 1245.700 1865.200 5835.000 509.300 994.500 15.920 3/1/94 381.300 5.340 1286.000 1848.000 5822.000 459.800 948.000 14.670 4/5/94 384.700 5.580 1289.000 1888.000 5539.000 442.100 935.500 15.740 5/3/94 375.100 5.240 1302.500 1951.000 5541.000 458.500 929.200 16.890 6/1/94 386.300 5.400 1313.500 2200.000 6101.000 499.000 952.200 18.210 7/1/94 384.600 5.350 1463.200 2365.500 6121.000 545.100 952.200 19.530 8/1/94 383.800 5.295 1444.600 2421.000 6112.000 587.100 946.300 20.550 9/1/94 386.000 5.425 1537.000 2498.500 6350.000 602.000 1006.500 17.450
- --------------- (1) Expressed in dollars per ounce. (2) Expressed in dollars per tonne. (3) Expressed in dollars per barrel. S-21 22 FORM OF SECURITIES CONVERSION OPTION The Securities will initially be evidenced by certificates in fully registered form (each, a "Certificate"). One hundred and eighty 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 May , 1995, through July , 1995. 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 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 S-22 23 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 face 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 substitution for and upon cancellation of the mutilated Certificate, or in lieu of the lost, stolen or destroyed Certificate, a new Certificate of like tenor and representing an equivalent 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. Payments 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. 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 Underwriter), 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- S-23 24 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 Settlement Amount 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 Settlement Amount 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 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 $50,000, and $10,000 increments in excess 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 will be made to list the Securities on the Luxembourg Stock Exchange under the symbol " ." CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES In the opinion of Simpson Thacher & Bartlett, special counsel to Holdings, the following discussion is an accurate summary of 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 by initial purchasers as capital assets and does not deal with special situations, such as those of dealers in securities or currencies, financial institutions, life insurance companies, persons holding Securities as part of a hedging or conversion transaction S-24 25 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, as amended (the "Code"), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in federal income tax consequences different from those discussed below. 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. 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. GENERAL There are no regulations, cases or rulings directly addressing the treatment of securities similar to the Security other than the proposed regulations discussed below. Although not free from doubt, Holdings believes that the Securities should be treated as debt of Holdings for federal income tax purposes. Accordingly, Holdings intends to treat the Securities as debt for U.S. federal income tax purposes and file information returns with the Internal Revenue Service (the "IRS") consistent with such treatment. The discussion that follows is based on such approach. UNITED STATES HOLDERS Taxation of the Settlement Amount Under general principles of U.S. federal income tax law, interest is included in income as ordinary income when paid or accrued, in accordance with a holder's regular method of accounting. Moreover, in accordance with such principles, "contingent interest" on debt is generally not includable in income before the amount of such interest becomes fixed. Accordingly, Holdings intends to treat amounts payable at Maturity in excess of the principal amount of the Securities, if any, as contingent interest includable in income by United States Holders as ordinary income at such time. There are no regulations, cases or rulings directly applicable to the treatment of the Securities. The IRS may contend, however, that the Securities should be treated differently for U.S. federal income tax purposes from the treatment described above. Moreover, there can be no assurance that regulations that would apply different rules to the Securities from those described above will not come into effect and apply retroactively to the Securities. In such cases, the timing and character of a United States Holder's income could be affected. For example, under certain proposed regulations (the "Bifurcation Regulations"), a Security could be treated for federal income tax purposes as two separate instruments: (1) a debt instrument of Holdings with a stated redemption price at maturity equal to its principal amount (the "noncontingent debt instrument") and (2) a cash settlement option based upon the value of the Basket that must be exercised by delivering the Security (the "property right"). If the Bifurcation Regulations were to apply to the Securities, the timing of income could be significantly accelerated. Moreover, the IRS may contend that rules similar to proposed regulations which were released to replace the Bifurcation Regulations, but which were withdrawn (the "Withdrawn Regulations"), should apply to the Securities. Under the Withdrawn Regulations, United States Holders would be required to accrue some minimum amount of interest income currently over the life of the Security (based on the estimated value of the Basket) with the result that all or a portion of amounts realized by a United States Holder at Maturity or on sale of a Security would be treated as ordinary income and not capital gain. As described above, however, Holdings intends to treat the Securities as requiring no accrual of contingent interest by United States Holders until such amounts are fixed and Holdings will file information returns with the IRS consistent with such treatment. S-25 26 Sale or 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 any amounts previously included in income by the United States Holder. Upon the sale or exchange of a Security, a United States Holder will recognize gain or loss equal to the difference between the amount realized and the adjusted tax basis of the Security. Although the matter is not free from doubt, under current law such gain or loss should be treated as capital gain or loss. It is possible, however, that the IRS could promulgate regulations that treat all or part of such gain or loss as ordinary and that such regulations could apply retroactively to the Securities. 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 Holdings or any paying agent of the Settlement Amount 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 Holdings 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 Holdings 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 Holdings entitled to vote within the meaning of section 871(h)(3) of the Code and provided that the Settlement Amount 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 Holdings with a statement to the effect that the beneficial owner is not a United States 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 United States person, citizen or resident (which certification may be made on an IRS Form W-8 (or successor form)) or (2) a financial institution holding the 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 Holdings with a properly executed (1) IRS Form 1001 (or successor form) claiming an exemption from withholding under the benefit of a tax treaty or (2) IRS 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 payment of the Settlement Amount on a Security and to the proceeds of sale of a Security made to United States Holders other than certain exempt S-26 27 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. No information reporting or backup withholding will be required with respect to payment of the Settlement Amount by Holdings or any paying agent to Non-United States Holders if a statement described above 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 payment of the Settlement Amount 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 United States 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 United States 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 payment of the Settlement Amount 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. Payment of the Settlement Amount 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 IRS. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement dated as of November , 1994 (the "Underwriting Agreement"), Holdings has agreed to sell to Lehman Brothers Inc. (the "Underwriter"), and the Underwriter has agreed to purchase, $50,000,000 principal amount of the Securities. Holdings has been advised that the Underwriter proposes 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 % of the principal amount. The Underwriter may allow and such dealers may reallow a concession not in excess of % of the principal amount to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed. Lehman Brothers Inc. is a wholly owned subsidiary of Holdings. The participation of Lehman Brothers Inc. in the offer and sale of the Securities complies with the requirements of Schedule E of the By Laws of the National Association of Securities Dealers, Inc. regarding underwriting securities of an affiliate. The Underwriter has advised Holdings that it intends to make a market in the Securities but the Underwriter is 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 Underwriter against certain liabilities, including liabilities under the Securities Act of 1933. S-27 28 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. "Contract" means any of the Aluminum Contract, the Copper Contract, the Crude Oil Contract, the Lead Contract, the Nickel Contract and the Zinc Contract. "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. "Maturity" of any Security means the date on which the Settlement Amount 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. "Trading Day" shall mean a calendar day on which the NYMEX, the LME, the LBM and any other exchange, the trading prices of which will be used to determine the Market Price of any Commodity, is scheduled to be open for business and all of the Commodities are scheduled to be available for trading. In addition, definitions for the following terms are set forth in this Prospectus Supplement at the pages indicated:
DEFINED TERM PAGE --------------------------------------------------------------------------- ------ Acceleration Value......................................................... S-17 Aluminum Contract.......................................................... S-14 Basket..................................................................... S-4 Basket Maturity Value...................................................... S-10 Basket Value............................................................... S-4 Bifurcation Regulations.................................................... S-25 Calculation Agent.......................................................... S-4 Calculation Initiation Date................................................ S-3 CEDE....................................................................... S-23 Certificate................................................................ S-22 CIS........................................................................ S-15 Code....................................................................... S-25 Commodity.................................................................. S-13 Commodity Investments...................................................... S-7 Conversion Option Period................................................... S-22 Copper Contract............................................................ S-14 Crude Oil Contract......................................................... S-14 Depository................................................................. S-23 Determination Day.......................................................... S-8 Determination Period....................................................... S-3 DTC........................................................................ S-23 Fixing Prices.............................................................. S-20 Global Security............................................................ S-23 Hedging Transactions....................................................... S-6 Holdings................................................................... S-3 indirect participants...................................................... S-23 IRS........................................................................ S-25 Lead Contract.............................................................. S-15 LBM........................................................................ S-4
S-28 29
DEFINED TERM PAGE --------------------------------------------------------------------------- ------ LME........................................................................ S-3 LME Metal.................................................................. S-12 Market Disruption Event.................................................... S-12 Market Price............................................................... S-10 Multiplier................................................................. S-3 Nickel Contract............................................................ S-15 noncontingent debt instrument.............................................. S-25 Non-United States Holder................................................... S-25 NYMEX...................................................................... S-3 participants............................................................... S-23 Precious Metal............................................................. S-12 property right............................................................. S-25 registered holder.......................................................... S-22 Sectors.................................................................... S-18 Securities................................................................. S-3 Security Register.......................................................... S-22 Settlement Amount.......................................................... S-3 Settlement Price........................................................... S-10 SIB........................................................................ S-19 Stated Maturity Date....................................................... S-3 Underwriter................................................................ S-27 Underwriting Agreement..................................................... S-27 United States Holder....................................................... S-25 Withdrawn Regulations...................................................... S-25 WTI........................................................................ S-14 Zinc Contract.............................................................. S-16
S-29 30 LEHMAN BROTHERS HOLDINGS INC. DEBT SECURITIES, DEBT WARRANTS, CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE WARRANTS ------------------------ Lehman Brothers Holdings Inc. ("Holdings"), may offer from time to time (i) unsecured debt securities (the "Debt Securities") consisting of debentures, notes and/or other evidences of indebtedness, (ii) warrants to purchase Debt Securities ("Debt Warrants"), (iii) warrants entitling the holders thereof to receive from Holdings, upon exercise, the cash value of the right to purchase ("Currency Call Warrants") and to sell ("Currency Put Warrants" and, together with the Currency Call Warrants, the "Currency Warrants") a certain amount of one currency or currency unit for a certain amount of a different currency or currency unit, all as shall be designated by Holdings at the time of offering, (iv) warrants entitling the holders thereof to receive from Holdings, upon exercise, an amount in cash determined by reference to decreases ("Index Put Warrants") or increases ("Index Call Warrants") in the level of a specified index (an "Index") which may be based on one or more U.S. or foreign stocks, bonds or other securities, one or more U.S. or foreign interest rates, one or more currencies or currency units, or any combination of the foregoing, or determined by reference to the differential between any two Indices ("Index Spread Warrants" and, together with the Index Put Warrants and the Index Call Warrants, the "Index Warrants") and (v) warrants entitling the holders thereof to receive from Holdings, upon exercise, an amount in cash determined by reference to decreases ("Interest Rate Put Warrants") or increases ("Interest Rate Call Warrants" and, together with the Interest Rate Put Warrants, the "Interest Rate Warrants") in the yield or closing price of one or more specified debt instruments issued either by the United States government or by a foreign government (the "Debt Instrument"), in the interest rate or interest rate swap rate established from time to time by one or more specified financial institutions (the "Rate") or in any specified combination of Debt Instruments and/or Rates, for aggregate proceeds of up to U.S.$618,062,720, or the equivalent thereof in one or more foreign currencies or foreign currency units (such amount being the aggregate proceeds to Holdings from all Debt Securities, Debt Warrants, Currency Warrants, Index Warrants and Interest Rate Warrants (collectively, the "Securities") issued and the exercise price of any Debt Securities issuable upon the exercise of any Debt Warrants). The Securities may be offered either together or separately and in one or more series in amounts, at prices and on terms to be determined at the time of the offering. Unless otherwise specified in an applicable Prospectus Supplement, the Securities will be sold for, and the Debt Warrants, Currency Warrants, Index Warrants or Interest Rate Warrants (collectively, the "Warrants") will be exercisable in, United States dollars, and the principal of and interest, if any, on the Debt Securities and the cash payments, if any, in respect of the Currency Warrants, the Index Warrants and the Interest Rate Warrants will be payable in United States dollars. If this Prospectus is being delivered in connection with the offering and sale of Debt Securities, the specific designation, priority, aggregate principal amount, the currency or currency unit for which the Debt Securities may be purchased, the currency or currency unit in which the principal and interest, if any, is payable, the rate (or method of calculation) and time of payment of interest, if any, authorized denominations, maturity, any redemption terms, any listing on a securities exchange and the initial public offering price, a discussion of certain United States federal income tax, accounting or other special considerations applicable thereto and any other terms in connection with such offering and sale are set forth in an applicable Prospectus Supplement. If this Prospectus is being delivered in connection with the offering and sale of Warrants, the specific designation, aggregate number of warrants, the currency or currency unit for which the warrants may be purchased, the currency or currency unit in which the cash settlement value or the exercise price, if applicable, is payable, the method of calculation of the cash settlement value, if applicable, the date on which such warrants become exercisable and the expiration date, provisions, if any, for the automatic exercise and/or cancellation prior to the expiration date, the initial public offering price, a discussion of certain United States federal income tax, accounting or other special considerations applicable thereto and any other terms in connection with such offering and sale will be set forth in an applicable Prospectus Supplement. The Debt Securities and the Debt Warrants may be issued in registered form or bearer form with, in the case of Debt Securities, coupons attached. The Currency Warrants, Index Warrants and Interest Rate Warrants will be issued in registered form only. In addition, all or a portion of the Securities of a series may be issued in global form. Debt Securities in bearer form will be offered only outside the United States to non-United States persons and to offices located outside the United States of certain United States financial institutions. See "Description of Debt Securities -- Limitations on Issuance of Bearer Securities." Discussions of certain United States federal income taxation consequences to holders of Securities and certain of the risks associated with an investment in Securities will be set forth in the applicable Prospectus Supplement. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COM- MISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The Securities will be sold either through underwriters, dealers or agents, or directly by Holdings. The applicable Prospectus Supplement sets forth the names of any underwriters or agents (which may include Lehman Brothers Inc., a subsidiary of Holdings ("Lehman Brothers")) involved in the sale of the Securities in respect of which this Prospectus is being delivered, the proposed amounts, if any, to be purchased by underwriters and the compensation, if any, of such underwriters or agents. This Prospectus together with the applicable Prospectus Supplement may also be used by Lehman Brothers, in connection with offers and sales of Securities related to market making transactions, by and through Lehman Brothers, at negotiated prices related to prevailing market prices at the time of sale or otherwise. Lehman Brothers may act as principal or agent in such transactions. ------------------------ October 14, 1994 31 AVAILABLE INFORMATION Holdings is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "SEC"). Such reports and information may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the SEC: New York Regional Office, 7 World Trade Center, New York, New York 10048; and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500 W. Madison Street, Chicago, Illinois 60661-2511; and copies of such material can be obtained from the Public Reference Section of the SEC, Washington, D.C. 20549, at prescribed rates. Holdings' Common Stock and 8 3/4% Notes Due 2002 are listed on the New York Stock Exchange, Inc. (the "Exchange") and Holdings' $55 Million Serial Zero Coupon Senior Notes Due May 16, 1998, FT-SE Eurotrack 200 Index Call Warrants Expiring June 4, 1996, Japanese Yen Bear Warrants Expiring September 15, 1995, 7 1/4% Oracle Yield Enhanced Equity Linked Debt SecuritiesSM Due 1996, 6 1/2% Amgen Yield Enhanced Equity Linked Debt Securities Due 1997, Japanese Yen Bear Warrants Expiring March 5, 1996, Global Telecommunications Stock Upside Note SecuritiesSM Due 2000 and 9 1/8% Micron Yield Enhanced Equity Linked Debt Securities Due 1997 are listed on the American Stock Exchange, Inc. and reports and other information concerning Holdings may also be inspected at the offices of the Exchange at 20 Broad Street, New York, New York 10005 and at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006. Holdings has filed with the SEC a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information, reference is hereby made to the Registration Statement. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE The following documents previously filed by Holdings with the SEC pursuant to the Exchange Act are hereby incorporated by reference in this Prospectus: (1) Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 1993. (2) Holdings' Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994. (3) Holdings' Current Reports on Form 8-K dated February 24, 1994, April 14, 1994, April 26, 1994, June 7, 1994, June 15, 1994, July 29, 1994, September 2, 1994 and September 22, 1994. Each document filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Securities offered by an applicable Prospectus Supplement shall be deemed to be incorporated by reference into this Prospectus from the date of filing of such document. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of the Registration Statement and this Prospectus to the extent that a statement contained herein, in an applicable Prospectus Supplement or in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement or this Prospectus. Holdings will provide without charge to each person, including any beneficial owner of any Security, to whom a copy of this Prospectus is delivered, upon the written or oral request of any such person, a copy of any or all of the documents which are incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to Mary J. Capko, the Controller's Office, Lehman Brothers Holdings Inc., 3 World Financial Center, 27th Floor, New York, New York 10285 (telephone (212) 526-0660). 2 32 THE COMPANY Lehman Brothers Holdings Inc. (together with its consolidated subsidiaries hereinafter referred to as the "Company" unless the context otherwise requires) is one of the leading global investment banks serving institutional, corporate, government and high net worth individual clients and customers. The Company's worldwide headquarters in New York and regional headquarters in London and Tokyo are complemented by offices in additional locations in the United States, Europe, the Middle East, Latin America and the Asia Pacific region. The Company's business includes capital raising for clients through securities underwriting and direct placements; corporate finance and strategic advisory services; merchant banking; securities sales and trading; institutional asset management; research; and the trading of foreign exchange, derivative products and certain commodities. The Company acts as a market maker in all major equity and fixed income products in both the domestic and international markets. Lehman Brothers is a member of all principal securities and commodities exchanges in the United States, as well as the National Association of Securities Dealers, Inc. ("NASD"), and holds memberships or associate memberships on several principal international securities and commodities exchanges, including the London, Tokyo, Hong Kong, Frankfurt and Milan stock exchanges. Holdings was incorporated in Delaware on December 29, 1983. Holdings' principal executive offices are located at 3 World Financial Center, New York, New York 10285 (telephone (212) 526-7000). USE OF PROCEEDS Except as otherwise may be set forth in an applicable Prospectus Supplement accompanying this Prospectus, Holdings intends to apply the net proceeds from the sale of the Securities for general corporate purposes. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges of the Company for each of the five years in the period ended December 31, 1993 and for six months ended June 30, 1994:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, - ----------------------------------------- ------------------ 1989 1990 1991 1992 1993 1994 - ----- ----- ----- ----- ----- ------------------ 1.01 * 1.03 * 1.00 1.04
- --------------- * Earnings were inadequate to cover fixed charges and would have had to increase approximately $766 million and $247 million in order to cover the deficiencies for the periods ended December 31, 1990 and December 31, 1992, respectively. In computing the ratio of earnings to fixed charges, "earnings" consist of earnings from continuing operations before income taxes and fixed charges. "Fixed charges" consist principally of interest expense and one-third of office rentals and one-fifth of equipment rentals, which are deemed to be representative of the interest factor. 3 33 DESCRIPTION OF DEBT SECURITIES The Debt Securities will constitute either Senior Debt (as defined below) or Subordinated Debt (as defined below) of Holdings. The Debt Securities constituting Senior Debt will be issued under an indenture, dated as of September 1, 1987, between Holdings and Citibank, N.A., Trustee, as supplemented and amended by Supplemental Indentures dated as of November 25, 1987, as of November 27, 1990, as of September 13, 1991 and as of October 4, 1993 (the "Senior Indenture"), and the Debt Securities constituting Subordinated Debt will be issued under an indenture between Holdings and Chemical Bank, Trustee (the "Subordinated Indenture"). The Senior Indenture and the Subordinated Indenture are hereinafter collectively referred to as the "Indentures" and, individually, as an "Indenture". Each Indenture will incorporate by reference certain Standard Multiple-Series Indenture Provisions, filed with the SEC on July 30, 1987 and as amended and refiled with the SEC on November 16, 1987. This Prospectus contains descriptions of all material provisions of the Indentures. The summary of such provisions of the Indentures does not purport to be complete; copies of such Indentures are filed as exhibits to the Registration Statement of which this Prospectus is a part. All articles and sections of the applicable Indenture, and all capitalized terms set forth below, have the meanings specified in the applicable Indenture. GENERAL Neither Indenture limits the amount of debentures, notes or other evidences of indebtedness which may be issued thereunder. Each Indenture provides that Debt Securities may be issued from time to time in one or more series. Since Holdings, as a holding company, does not have any significant assets other than the equity securities of its subsidiaries, its cash flow and consequent ability to service its debt, including the Debt Securities, are dependent upon the earnings of its subsidiaries and the distribution of those earnings to Holdings, or upon loans or other payments of funds by those subsidiaries to Holdings. Holdings' subsidiaries, including Lehman Brothers, are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any interest or principal on the Debt Securities or to make any funds available therefor, whether by dividends, loans or other payments. Dividends, loans and other payments by Lehman Brothers are restricted by net capital and other rules of various regulatory bodies. See "Capital Requirements." The payment of dividends by Holdings' subsidiaries is contingent upon the earnings of those subsidiaries and is subject to various business considerations in addition to net capital requirements and contractual restrictions. Since the Debt Securities will be obligations of a holding company, the ability of holders of the Debt Securities to benefit from any distribution of assets of any subsidiary upon the liquidation or reorganization of such subsidiary is subordinate to the prior claims of present and future creditors of such subsidiary. Reference is made to the applicable Prospectus Supplement for the following terms and other information with respect to the Debt Securities being offered thereby: (1) the title of such Debt Securities and whether such Debt Securities will be Senior Debt or Subordinated Debt; (2) any limit on the aggregate principal amount of such Debt Securities; (3) whether the Debt Securities are to be issuable as Registered Securities or Bearer Securities or both, and if Bearer Securities are issued, whether Bearer Securities may be exchanged for Registered Securities and the circumstances and places for such exchange, if permitted; (4) whether the Debt Securities are to be issued in whole or in part in the form of one or more temporary or permanent global Debt Securities ("Global Securities") in registered or bearer form and, if so, the identity of the depositary, if any, for such Global Security or Securities; (5) the date or dates (or manner of determining the same) on which such Debt Securities will mature; (6) the rate or rates (or manner of determining the same) at which such Debt Securities will bear interest, if any, and the date or dates from which such interest will accrue; (7) the dates (or manner of determining the same) on which such interest will be payable and the Regular Record Dates for such Interest Payment Dates for Debt Securities which are Registered Securities, and the extent to which, or the manner in which, any interest payable on a temporary or permanent global Debt Security on an Interest Payment Date will be paid if other than in the manner described under "Global Securities" below; (8) any mandatory or optional sinking fund or analogous provisions; (9) each office or agency where, subject to the terms of the applicable Indenture as described below under "Payment and Paying Agents", the principal of and premium, if any, and interest, if any, on the Debt Securities will be payable and each office or agency where, subject to the terms of the applicable Indenture as described below under 4 34 "Denominations, Registration and Transfer," the Debt Securities may be presented for registration of transfer or exchange; (10) the date, if any, after which, and the price or prices in the currency or currency unit in which, such Debt Securities are payable pursuant to any optional or mandatory redemption provision; (11) any provisions for payment of additional amounts for taxes and any provision for redemption, in the event the Company must comply with reporting requirements in respect of a Debt Security or must pay such additional amounts in respect of any Debt Security; (12) the terms and conditions, if any, upon which the Debt Securities of such series may be repayable prior to maturity at the option of the holder thereof (which option may be conditional) and the price or prices in the currency or currency unit in which such Debt Securities are payable; (13) the denominations in which any Debt Securities which are Registered Securities will be issuable if other than denominations of $1,000 and any integral multiple thereof, and the denomination or denominations in which any Debt Securities which are Bearer Securities will be issuable if other than the denomination of $5,000; (14) the currency, currencies or currency units for which such Debt Securities may be purchased and the currency, currencies or currency units in which the principal of and interest, if any, on such Debt Securities may be payable; (15) any index used to determine the amount of payments of principal of and premium, if any, and interest, if any, on such Debt Securities; and (16) other terms of the Debt Securities. (Section 301). If any of the Debt Securities are sold for foreign currencies or foreign currency units or if the principal of or interest, if any, on any series of Debt Securities is payable in foreign currencies or foreign currency units, the restrictions, elections, tax consequences, specific terms and other information with respect to such issue of Debt Securities and such currencies or currency units will be set forth in an applicable Prospectus Supplement relating thereto. One or more series of Debt Securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which at the time of issuance is below market rates. Federal income tax consequences and special considerations applicable to any such series will be in an applicable Prospectus Supplement. SENIOR DEBT The Debt Securities constituting part of the senior debt of Holdings (the "Senior Debt") will rank equally with all other unsecured debt of Holdings except Subordinated Debt. SUBORDINATED DEBT The Debt Securities constituting part of the subordinated debt of Holdings (the "Subordinated Debt") will be subordinate and junior in the right of payment, to the extent and in the manner set forth in the Subordinated Indenture, to all present or future Senior Debt. "Senior Debt" is defined to mean (a) any indebtedness for money borrowed or evidenced by bonds, notes, debentures or similar instruments, (b) indebtedness under capitalized leases, (c) any indebtedness representing the deferred and unpaid purchase price of any property or business, and (d) all deferrals, renewals, extensions and refundings of any such indebtedness or obligation; except that the following does not constitute Senior Debt: (i) indebtedness evidenced by the Subordinated Debt, (ii) indebtedness which is expressly made equal in right of payment with the Subordinated Debt or subordinate and subject in right of payment to the Subordinated Debt, (iii) indebtedness for goods or materials purchased in the ordinary course of business or for services obtained in the ordinary course of business or indebtedness consisting of trade payables or (iv) indebtedness which is subordinated to any obligation of Holdings of the type specified in clauses (a) through (d) above. The effect of clause (iv) is that Holdings may not issue, assume or guaranty any indebtedness for money borrowed which is junior to the Senior Debt and senior to the Subordinated Debt. (Subordinated Indenture Section 1401). Upon the failure to pay the principal or premium, if any, on Senior Debt when due or upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, all principal thereof, interest thereon, if any, and other amounts due in connection therewith shall first be paid in full, before any payment is made on account of the principal, premium, if any, or interest, if any, on the Subordinated Debt or to acquire any of the Subordinated Debt or on account of the redemption, sinking fund or analogous provisions in the Subordinated 5 35 Indenture. (Subordinated Indenture Section 1402). Upon any distribution of assets of Holdings pursuant to any dissolution, winding up, liquidation or reorganization of Holdings, payment of the principal, premium, if any, and interest, if any, on the Subordinated Debt will be subordinated, to the extent and in the manner set forth in the Subordinated Indenture, to the prior payment in full of all Senior Debt. (Subordinated Indenture Section 1403). By reason of such subordination, in the event of insolvency, creditors of Holdings who are holders of Senior Debt may recover more ratably than the holders of Subordinated Debt. DENOMINATIONS, REGISTRATION AND TRANSFER Unless otherwise provided with respect to a series of Debt Securities, the Debt Securities will be issuable as Registered Securities without coupons and in denominations of $1,000 or any integral multiple thereof. Debt Securities of a series may be issuable in whole or in part in the form of one or more Global Securities, as described below under "Global Securities." One or more Global Securities will be issued in a denomination or aggregate denominations equal to the aggregate principal amount of Debt Securities of the series to be represented by such Global Security or Securities. If so provided with respect to a series of Debt Securities, Debt Securities of such series will be issuable solely as Bearer Securities with coupons attached or as both Registered Securities and Bearer Securities. (Section 201). In connection with the sale during the "restricted period" as defined in Section 1.163-5(c)(2)(i)(D)(7) of the United States Treasury Regulations (generally, the first 40 days after the closing date and, with respect to unsold allotments, until sold) no Bearer Security shall be mailed or otherwise delivered to any location in the United States (as defined under "Limitations on Issuance of Bearer Securities"). A Bearer Security in definitive form (including interests in a permanent Global Security) may be delivered only if the Person entitled to receive such Bearer Security furnishes written certification, in the form required by the applicable Indenture, to the effect that such Bearer Security is not owned by or on behalf of a United States person (as defined under "Limitations on Issuance of Bearer Securities"), or, if a beneficial interest in such Bearer Security is owned by or on behalf of a United States person, that such United States person (i) acquired and holds the Bearer Security through a foreign branch of a United States financial institution, (ii) is a foreign branch of a United States financial institution purchasing for its own account or resale (and in either case, (i) or (ii), such financial institution agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder) or (iii) is a financial institution purchasing for resale during the restricted period only to non-United States persons outside the United States (Sections 303, 304). See "Global Securities -- Bearer Debt Securities" and "Limitations on Issuance of Bearer Securities." Registered Securities of any series (other than a Global Security) will be exchangeable for other Registered Securities of the same series and of a like aggregate principal amount and tenor of different authorized denominations. In addition, if Debt Securities of any series are issuable as both Registered Securities and as Bearer Securities, at the option of the Holder upon request confirmed in writing, and subject to the terms of the applicable Indenture, Bearer Securities (with all unmatured coupons, except as provided below, and all matured coupons in default) of such series will be exchangeable into Registered Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor. Unless otherwise indicated in an applicable Prospectus Supplement, any Bearer Security surrendered in exchange for a Registered Security between a Regular Record Date or a Special Record Date and the relevant date for payment of interest shall be surrendered without the coupon relating to such date for payment of interest and interest will not be payable in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the terms of the applicable Indenture. (Section 305). Except as provided in an applicable Prospectus Supplement, Bearer Securities will not be issued in exchange for Registered Securities. Debt Securities may be presented for exchange as provided above, and Registered Securities (other than a Global Security) may be presented for registration of transfer (with the form of transfer endorsed thereon duly executed), at the office of the Security Registrar or at the office of any transfer agent designated by Holdings for such purpose with respect to any series of Debt Securities and referred to in an applicable Prospectus Supplement, without service charge and upon payment of any taxes and other governmental 6 36 charges as described in each Indenture. Such transfer or exchange will be effected upon the Security Registrar or such transfer agent, as the case may be, being satisfied with the documents of title and identity of the person making the request. Holdings has appointed each Trustee as Security Registrar under the applicable Indenture. (Section 305). If a Prospectus Supplement refers to any transfer agents (in addition to the Security Registrar) initially designated by Holdings with respect to any series of Debt Securities, Holdings may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that, if Debt Securities of a series are issuable only as Registered Securities, Holdings will be required to maintain a transfer agent in each Place of Payment for such series and, if Debt Securities of a series are issuable as Bearer Securities, Holdings will be required to maintain (in addition to the Security Registrar) a transfer agent in a Place of Payment for such series located outside the United States. Holdings may at any time designate additional transfer agents with respect to any series of Debt Securities. (Section 1002). In the event of any redemption in part, Holdings shall not be required to (i) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before any selection of Debt Securities of that series to be redeemed and ending at the close of business on (A) if Debt Securities of the series are issuable only as Registered Securities, the day of mailing of the relevant notice of redemption and (B) if Debt Securities of the series are issuable as Bearer Securities, the day of the first publication of the relevant notice of redemption or, if Debt Securities of the series are also issuable as Registered Securities and there is no publication, the mailing of the relevant notice of redemption; (ii) register the transfer of or exchange any Registered Security, or portion thereof, called for redemption, except the unredeemed portion of any Registered Security being redeemed in part; or (iii) exchange any Bearer Security called for redemption, except to exchange such Bearer Security for a Registered Security of that series and like tenor which is immediately surrendered for redemption. (Section 305). PAYMENT AND PAYING AGENTS Unless otherwise indicated in an applicable Prospectus Supplement, payment of principal of (and premium, if any) and any interest on Bearer Securities will be payable, subject to any applicable laws and regulations, at the offices of such Paying Agents outside the United States as Holdings may designate from time to time, at the option of the Holder, by check or by transfer to an account maintained by the payee with a bank located outside the United States. (Sections 307 and 1002). Unless otherwise indicated in an applicable Prospectus Supplement, payment of interest on Bearer Securities on any Interest Payment Date will be made only against surrender of the coupon relating to such Interest Payment Date. (Section 1001). No payment of interest on a Bearer Security will be made unless on the earlier of the date of the first such payment by Holdings or the delivery by Holdings of the Bearer Security in definitive form (including interests in a permanent Global Security) (the "Certification Date"), a written certificate in the form and to the effect described under "Denominations, Registration and Transfer" is provided to Holdings. No payment with respect to any Bearer Security will be made at any office or agency of Holdings in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States. Notwithstanding the foregoing, payment of principal of (and premium, if any) and interest on Bearer Securities denominated and payable in U.S. dollars will be made at the office of Holdings' Paying Agent in the Borough of Manhattan, The City of New York if, and only if, payment of the full amount thereof in U.S. dollars at all offices or agencies outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions. (Section 1002). Unless otherwise indicated in an applicable Prospectus Supplement, payment of principal of (and premium, if any) and any interest on Registered Securities (other than a Global Security) will be made at the office of such Paying Agent or Paying Agents as Holdings may designate from time to time, except that at the option of Holdings payment of any interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer to an account maintained by the Person entitled thereto as specified in the Security Register. (Sections 305, 307, 1002). Unless otherwise indicated in an applicable Prospectus Supplement, payment of any instalment of interest on 7 37 Registered Securities will be made to the Person in whose name such Registered Security is registered at the close of business on the Regular Record Date for such interest payment. (Section 307). Unless otherwise indicated in an applicable Prospectus Supplement, the principal office of each Trustee under the applicable Indenture in The City of New York will be designated as Holdings' sole Paying Agent for payments with respect to Debt Securities which are issuable solely as Registered Securities and as Holdings' Paying Agent in the Borough of Manhattan, The City of New York, for payments with respect to Debt Securities (subject to the limitations described above in the case of Bearer Securities) which may be issuable as Bearer Securities. Any Paying Agents outside the United States and any other Paying Agents in the United States initially designated by Holdings for the Debt Securities will be named in an applicable Prospectus Supplement. Holdings may at any time designate additional Paying Agents or rescind the designation of any Paying Agents or approve a change in the office through which any Paying Agent acts, except that, if Debt Securities of a series are issuable only as Registered Securities, Holdings will be required to maintain a Paying Agent in each Place of Payment for such series, and if Debt Securities of a series may be issuable as Bearer Securities, Holdings will be required to maintain (i) a Paying Agent in the Borough of Manhattan, The City of New York for payments with respect to any Registered Securities of the series (and for payments with respect to Bearer Securities of the series in the circumstances described above, but not otherwise), and (ii) a Paying Agent in a Place of Payment located outside the United States where Debt Securities of such series and any coupons appertaining thereto may be presented and surrendered for payment; provided that if the Debt Securities of such series are listed on The Luxembourg Stock Exchange (the "Stock Exchange") or any other stock exchange located outside the United States and such stock exchange shall so require, Holdings will maintain a Paying Agent in Luxembourg or any other required city located outside the United States, as the case may be, for the Debt Securities of such series. (Section 1002). All moneys paid by Holdings to a Paying Agent for the payment of principal of (and premium, if any) or interest on any Debt Security which remain unclaimed at the end of two years after such principal, premium or interest shall have become due and payable will be repaid to Holdings and the Holder of such Debt Security or any coupon will thereafter look only to Holdings for payment thereof. (Section 1003). LIMITATION ON LIENS So long as any Debt Securities remain outstanding, unless an applicable Prospectus Supplement relating thereto provides otherwise, Holdings will not, and will not permit any Designated Subsidiary (as defined below), directly or indirectly, to create, issue, assume, incur or guarantee any indebtedness for money borrowed which is secured by a mortgage, pledge, lien, security interest or other encumbrance of any nature on any of the present or future common stock of a Designated Subsidiary unless the Debt Securities and, if Holdings so elects, any other indebtedness of Holdings ranking at least pari passu with the Debt Securities, shall be secured equally and ratably with (or prior to) such other secured indebtedness for money borrowed so long as it is outstanding. (Section 1005). The term "Designated Subsidiary" means any present or future consolidated subsidiary of Holdings, the consolidated net worth of which constitutes at least 5% of the consolidated net worth of Holdings. As of July 31, 1994, Holdings' Designated Subsidiaries were Lehman Brothers, Lehman Commercial Paper Inc., Lehman Government Securities Inc., Lehman Brothers Holdings PLC, Lehman Brothers UK Holdings Limited, Lehman Brothers International (Europe), Lehman Brothers Japan Inc., Lehman Funding Corp., Lehman Brothers Financial Products Inc., and LB I Group Inc. EVENTS OF DEFAULT Except as may otherwise be set forth in an applicable Prospectus Supplement relating to a series of Debt Securities, the following are Events of Default under the Indenture with respect to Debt Securities of such series: (a) failure to pay principal of or premium, if any, on any Debt Security of that series when due; (b) failure to pay interest, if any, on any Debt Security of that series and any related coupons when due, continued for 30 days; (c) failure to deposit any sinking fund payment or analogous obligation, when due, continued for 30 days, in respect of any Debt Security of that series; (d) failure to perform any other covenant 8 38 of Holdings in the Indenture (other than a covenant included in the applicable Indenture solely for the benefit of a series of Debt Securities other than that series), continued for 90 days after written notice as provided in the Indenture; (e) certain events in bankruptcy, insolvency or reorganization in respect of Holdings; and (f) any other Event of Default provided with respect to Debt Securities of that series. (Section 501). An Event of Default with respect to a particular series of Debt Securities does not necessarily constitute an Event of Default with respect to any other series of Debt Securities issued under the same or another Indenture. The Trustee may withhold notice to the Holders of any series of Debt Securities of any default with respect to such series (except in the payment of principal, premium or interest, if any) if it considers such withholding to be in the interests of such Holders. (Section 602). If an Event of Default with respect to Debt Securities of any series at the time outstanding occurs and is continuing, unless the principal of all of the Debt Securities of such series shall have already become due and payable, either the Trustee or the Holders of at least 25% in principal amount of the outstanding Debt Securities of that series may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of the series) of all the Debt Securities of that series to be due and payable immediately. At any time after a declaration of acceleration with respect to Debt Securities of any series has been made, but before a judgment or decree based on acceleration has been obtained and entered, the Holders of a majority in principal amount of the outstanding Debt Securities of that series may, under certain circumstances, rescind and annul such acceleration. (Section 502). For information as to waiver of defaults, see "Meetings, Modification and Waiver." Each Indenture provides that the Trustee will be under no obligation, subject to the duty of the Trustee during default to act with the required standard of care, to exercise any of its rights or powers under such Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 603). Subject to such provisions for indemnification of the Trustee, the Holders of a majority in principal amount of the outstanding Debt Securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Debt Securities of that series. (Section 512). Holdings will be required to furnish to each Trustee annually a statement as to the performance by Holdings of certain of its obligations under the applicable Indenture and as to any default in such performance. (Section 1006). SATISFACTION AND DISCHARGE Except as may otherwise be set forth in an applicable Prospectus Supplement relating to a series of Debt Securities, each Indenture provides that Holdings shall be discharged from its obligations under the Debt Securities of such series (with certain exceptions) at any time prior to the Stated Maturity or redemption thereof when (a) Holdings has irrevocably deposited with the applicable Trustee, in trust, (i) sufficient funds in the currency or currency unit in which the Debt Securities of such series are payable to pay the principal of (and premium, if any), and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of such series, or (ii) such amount of direct obligations of, or obligations the principal of and interest, if any, on which are fully guaranteed by, the government which issued the currency in which the Debt Securities of such series are payable, and which are not subject to prepayment, redemption or call, as will, together with the predetermined and certain income to accrue thereon without consideration of any reinvestment thereof, be sufficient to pay when due the principal of (and premium, if any), and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of such series, or (iii) such combination of such funds and securities as described in (i) and (ii), respectively, as will, together with the predetermined and certain income to accrue on any such securities as described in (ii), be sufficient to pay when due the principal of (and premium, if any), and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of such series and (b) Holdings has paid all other sums payable with respect to the Debt Securities of such series and (c) certain other conditions are met. Upon such discharge, the Holders of the Debt Securities of such series shall no longer be entitled to the benefits of the Indenture, except for certain rights, including registration of transfer 9 39 and exchange of the Debt Securities of such series and replacement of lost, stolen or mutilated Debt Securities, and shall look only to such deposited funds or obligations for payment. (Sections 401 and 403). DEFEASANCE OF CERTAIN OBLIGATIONS If the terms of the Debt Securities of any series so provide, Holdings may omit to comply with the restrictive covenants in Section 801 ("Company May Consolidate, Etc., Only on Certain Terms"), Section 1005 ("Limitations on Liens on Common Stock of Designated Subsidiaries") and any other specified covenant and any such omission with respect to such Sections shall not be an Event of Default with respect to the Debt Securities of such series, if (a) Holdings has irrevocably deposited with the applicable Trustee, in trust, (i) sufficient funds in the currency or currency unit in which the Debt Securities of such series are payable to pay the principal of (and premium, if any), and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of such series, or (ii) such amount of direct obligations of, or obligations the principal of and interest, if any, on which are fully guaranteed by, the government which issued the currency in which the Debt Securities of such series are payable and which are not subject to prepayment, redemption or call, as will, together with the predetermined and certain income to accrue thereon without consideration of any reinvestment thereof, be sufficient to pay when due the principal of (and premium, if any), and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of such series or, (iii) such combination of such funds and securities as described in (i) and (ii), respectively, as will, together with the predetermined and certain income to accrue on any such securities as described in (ii), be sufficient to pay when due the principal of (and premium, if any), and interest, if any, to Stated Maturity (or redemption) on, the Debt Securities of such series and (b) certain other conditions are met. The obligations of Holdings under the Indenture with respect to the Debt Securities of such series, other than with respect to the covenants referred to above shall remain in full force and effect. (Section 1009). MEETINGS, MODIFICATION AND WAIVER Modifications and amendments of either Indenture may be made by Holdings and the applicable Trustee with the consent of the Holders of not less than 66 2/3% in principal amount of the Outstanding Debt Securities of each series issued under such Indenture affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each Outstanding Debt Security affected thereby, (a) change the Stated Maturity of the principal of, or any instalment of principal of or interest, if any, on, any Debt Security, (b) reduce the principal amount of, or the premium, if any, or interest, if any, on, any Debt Security, (c) change any obligation of Holdings to pay additional amounts, (d) reduce the amount of principal of an Original Issue Discount Security payable upon acceleration of the Maturity thereof, (e) adversely affect the right of repayment or repurchase, if any, at the option of the Holder, (f) reduce the amount, or postpone the date fixed for, any payment under any sinking fund or analogous provision, (g) change the currency or currency unit of payment of principal of or premium, if any, or interest, if any, on any Debt Security, (h) change or eliminate the right, if any, to elect payment in a coin or currency or currency unit other than that in which Debt Securities which are Registered Securities are denominated or stated to be payable, (i) impair the right to institute suit for the enforcement of any payment on or with respect to any Debt Security, (j) reduce the percentage in principal amount of Outstanding Debt Securities of any series, the consent of the Holders of which is required for modification or amendment of the applicable Indenture or for waiver of compliance with certain provisions of the applicable Indenture or for waiver of certain defaults, (k) reduce the requirements contained in either Indenture for quorum or voting, or (l) change any obligation of Holdings to maintain an office or agency in the places and for the purposes required in the applicable Indenture. (Section 902). The Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series may on behalf of the Holders of all Debt Securities of that series waive, insofar as that series is concerned, compliance by Holdings with certain restrictive provisions of the applicable Indenture. (Section 1007). The Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series may on behalf of the Holders of all Debt Securities of that series and any coupons appertaining thereto waive any past default under the applicable Indenture with respect to that series, except a default in the 10 40 payment of the principal of or premium, if any, or interest, if any, on any Debt Security of that series or in the payment of any sinking fund instalment or analogous obligation or in respect of a provision which under the applicable Indenture cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security of that series affected. (Section 513). Each Indenture contains provisions for convening meetings of the Holders of Debt Securities of a series if Debt Securities of that series are issuable as Bearer Securities. A meeting may be called at any time by the applicable Trustee, and also, upon request, by Holdings or Holders of at least 10% in principal amount of the Outstanding Debt Securities of such series, in any such case upon notice given in accordance with "Notices" below. (Section 1302). Except as limited by the proviso in the second preceding paragraph, any resolution presented at a meeting or adjourned meeting at which a quorum is present may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Debt Securities of that series; provided, however, that, except as limited by the proviso in the second preceding paragraph, any resolution with respect to any consent or waiver which may be given by the Holders of not less than 66 2/3% in principal amount of the Outstanding Debt Securities of a series may be adopted at a meeting or an adjourned meeting at which a quorum is present only by the affirmative vote of 66 2/3% in principal amount of the Outstanding Debt Securities of that series; and provided, further, that, except as limited by the proviso in the second preceding paragraph, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of Outstanding Debt Securities of a series may be adopted at a meeting or adjourned meeting duly reconvened at which a quorum is present by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Debt Securities of that series. Any resolution passed or decision taken at any meeting of Holders of Debt Securities of any series duly held in accordance with the applicable Indenture will be binding on all Holders of Debt Securities of that series and the related coupons. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will be persons holding or representing a majority in principal amount of the Outstanding Debt Securities of a series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which may be given by the Holders of not less than 66 2/3% in principal amount of the Outstanding Debt Securities of a series, the persons holding or representing 66 2/3% in principal amount of the Outstanding Debt Securities of such series will constitute a quorum (Section 1304). CONSOLIDATION, MERGER AND SALE OF ASSETS Holdings may, without the consent of any Holders of Outstanding Debt Securities, consolidate or merge with or into, or transfer or lease its assets substantially as an entirety to, any Person, and any other Person may consolidate or merge with or into, or transfer or lease its assets substantially as an entirety to, Holdings, provided that (i) the Person (if other than Holdings) formed by such consolidation or into which Holdings is merged or which acquires or leases the assets of Holdings substantially as an entirety is organized under the laws of any United States jurisdiction and assumes Holdings' obligations on the Debt Securities and under the Indenture, (ii) after giving effect to the transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing, and (iii) certain other conditions are met. (Section 801). NOTICES Except as may otherwise be set forth in an applicable Prospectus Supplement relating to a series of Debt Securities, notices to Holders of Bearer Securities will be given by publication in a daily newspaper in the English language of general circulation in The City of New York and in London, and so long as such Bearer Securities are listed on the Stock Exchange and the Stock Exchange shall so require, in a daily newspaper of general circulation in Luxembourg or, if not practical, elsewhere in Western Europe. Such publication is expected to be made in The Wall Street Journal, the Financial Times and the Luxemburger Wort. Notices to Holders of Registered Securities will be given by mail to the addresses of such Holders as they appear in the Security Register. (Sections 101 and 106). 11 41 TITLE Title to any temporary global Debt Security or permanent global Debt Security in bearer form or any Bearer Securities and any coupons appertaining thereto will pass by delivery. Holdings, each Trustee and any agent of Holdings or the applicable Trustee may treat the bearer of any Bearer Security and the bearer of any coupon and the registered owner of any Registered Security as the absolute owner thereof (whether or not such Debt Security or coupon shall be overdue and notwithstanding any notice to the contrary) for the purpose of making payment and for all other purposes. (Section 308). REPLACEMENT OF DEBT SECURITIES AND COUPONS Any mutilated Debt Security or a Debt Security with a mutilated coupon appertaining thereto will be replaced by Holdings at the expense of the Holder upon surrender of such Debt Security to the applicable Trustee. Debt Securities or coupons that become destroyed, stolen or lost will be replaced by Holdings at the expense of the Holder upon delivery to the applicable Trustee of the Debt Security and coupons or evidence of the destruction, loss or theft thereof satisfactory to Holdings and the applicable Trustee; in the case of any coupon which becomes destroyed, stolen or lost, such coupon will be replaced by issuance of a new Debt Security in exchange for the Debt Security to which such coupon appertains. In the case of a destroyed, lost or stolen Debt Security or coupon an indemnity satisfactory to the applicable Trustee and Holdings may be required at the expense of the Holder of such Debt Security or coupon before a replacement Debt Security will be issued. (Section 306). CONCERNING THE TRUSTEES Business and other relationships (including other trusteeships) between, on the one hand, Holdings and its affiliates and, on the other hand, the Trustee under the Indenture pursuant to which any of the Debt Securities to which an applicable Prospectus Supplement accompanying this Prospectus relates are described in such Prospectus Supplement. LIMITATIONS ON ISSUANCE OF BEARER SECURITIES In compliance with United States federal tax laws and regulations, Bearer Securities may not be offered or sold during the restricted period (as defined under "Denominations, Registration and Transfer"), or delivered in definitive form in connection with a sale during the restricted period, in the United States or to United States persons other than to (a) the United States office of (i) an international organization (as defined in Section 7701 (a)(18) of the Code), (ii) a foreign central bank (as defined in Section 895 of the Code), or (iii) any underwriter, agent, or dealer offering or selling Bearer Securities during the restricted period (a "Distributor") pursuant to a written contract with the issuer or with another Distributor, that purchases Bearer Securities for resale or for its own account and agrees to comply with the requirements of Section 165 (j)(3)(A), (B), or (C) of the Code, or (b) the foreign branch of a United States financial institution purchasing for its own account or for resale, which institution agrees to comply with the requirements of Section 165 (j)(3)(A), (B), or (C) of the Code. In addition, a sale of a Bearer Security may be made during the restricted period to a United States person who acquired and holds the Bearer Security on the Certification Date through a foreign branch of a United States financial institution that agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Code. Any Distributor (including an affiliate of a Distributor) offering or selling Bearer Securities during the restricted period must agree not to offer or sell Bearer Securities in the United States or to United States persons (except as discussed above) and must employ procedures reasonably designed to ensure that its employees or agents directly engaged in selling Bearer Securities are aware of these restrictions. Bearer Securities and their interest coupons will bear a legend substantially to the following effect: "Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Section 165(j) and 1287(a) of the Internal Revenue Code." 12 42 Purchasers of Bearer Securities may be affected by certain limitations under United States tax laws. See the applicable Prospectus Supplement for a summary of material U.S. federal income tax consequences to United States persons investing in Bearer Securities. As used herein, "United States person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States and an estate or trust the income of which is subject to United States federal income taxation regardless of its source, and "United States" means the United States of America (including the States and the District of Columbia) and its possessions including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. The term "Non-United States Holder" means any Holder which is not an United States person. DESCRIPTION OF WARRANTS The Debt Warrants, Currency Warrants, Index Warrants and Interest Rate Warrants are to be issued under separate warrant agreements (each a "Warrant Agreement" and respectively a "Debt Warrant Agreement", a "Currency Warrant Agreement", an "Index Warrant Agreement" and an "Interest Rate Warrant Agreement") to be entered into between Holdings and one or more banks or trust companies, as warrant agent (each a "Warrant Agent" and respectively a "Debt Warrant Agent", a "Currency Warrant Agent", an "Index Warrant Agent" and an "Interest Rate Warrant Agent"), all as shall be set forth in the Prospectus Supplement relating to the Warrants being offered thereby. A form of each type of Warrant Agreement, including a form of warrant certificate representing each type of Warrant (each a "Warrant Certificate" and respectively a "Debt Warrant Certificate", a "Currency Warrant Certificate", an "Index Warrant Certificate" and an "Interest Rate Warrant Certificate"), reflecting the alternative provisions that may be included in the Warrant Agreements to be entered into with respect to particular offerings of Warrants, are incorporated by reference as exhibits to the Registration Statement of which this Prospectus is a part. The descriptions contained herein of the Warrant Agreements and the Warrant Certificates and summaries of certain provisions of the Warrant Agreements and the Warrant Certificates do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the applicable Warrant Agreements and the Warrant Certificates, including the definitions therein of certain terms not otherwise defined in this Prospectus. Wherever particular sections of, or terms defined in, the Warrant Agreements are referred to, such sections or defined terms are incorporated herein by reference. The particular terms of each issue of Warrants, as well as any modifications or additions to the general terms of the applicable Warrant Agreement or Warrant Certificate, will be described in the Prospectus Supplement relating to such Warrants. Accordingly, for a description of the terms of a particular issue of Warrants, reference must be made to the Prospectus Supplement relating thereto and to the descriptions set forth below. DEBT WARRANTS Holdings may issue, together with Debt Securities, Currency Warrants, Index Warrants or Interest Rate Warrants, or separately, Debt Warrants for the purchase of Debt Securities. If any of the Debt Warrants are sold for foreign currencies or foreign currency units or if any series of Debt Warrants is exercisable in foreign currencies or foreign currency units, the restrictions, elections, tax consequences, specific terms and other information with respect to such issue of Debt Warrants and such currencies or currency units will be set forth in an applicable Prospectus Supplement relating thereto. If so specified in the applicable Prospectus Supplement, the Debt Warrants may, in certain circumstances, be cancelled by Holdings prior to their expiration date and the holders thereof will be entitled to receive only the applicable Cancellation Amount. The Cancellation Amount may be either a fixed amount or an amount that varies during the term of the Debt Warrants in accordance with a schedule or formula. 13 43 General The Prospectus Supplement will describe the terms of any Debt Warrants offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and the Debt Warrant Certificates representing such Debt Warrants, including the following: (1) the title of such Debt Warrants; (2) the aggregate amount of such Debt Warrants; (3) the initial offering price of such Debt Warrants; (4) the exercise price; (5) the currency or currency unit in which the initial offering price and/or the exercise price of such Debt Warrants is payable; (6) whether the Debt Warrants are to be issuable in registered or bearer form or both, and if in bearer form, whether such Debt Warrants may be exchanged for Debt Warrants in registered form and the circumstances and places for such exchange, if permitted; (7) if applicable, the title and terms of related Debt Securities with which such Debt Warrants are issued, the number of such Debt Warrants issued with each such Debt Security and the date, if any, on and after which such Debt Warrants and such Debt Securities will be separately transferable; (8) the title, aggregate principal amount and terms of the Debt Securities purchasable upon exercise of all of such Debt Warrants; (9) the principal amount of Debt Securities purchasable upon exercise of each Debt Warrant and the price at which such principal amount of Debt Securities may be purchased upon such exercise; (10) the date on which the right to exercise such Debt Warrants shall commence and the date (the "Debt Warrant Expiration Date") on which such right shall expire; (11) any minimum number of Debt Warrants which must be exercised at any one time, other than upon automatic exercise; (12) the maximum number, if any, of such Debt Warrants that may, subject to election by Holdings, be exercised by all owners (or by any person or entity) on any day; (13) any provisions for the automatic exercise of such Debt Warrants; (14) whether and under what circumstances such Debt Warrants may be cancelled by Holdings prior to expiration; (15) any other procedures and conditions relating to the exercise of such Debt Warrants; (16) the identity of the Debt Warrant Agent; (17) any national securities exchange on which such Debt Warrants will be listed; (18) provisions, if any, for issuing such Debt Warrants in certificated form; (19) if applicable, a discussion of certain United States federal income tax, accounting or other special considerations applicable thereto; and (20) any other terms of the Debt Warrants. Debt Warrant Certificates will be exchangeable for new Debt Warrant Certificates of different denominations and, if in registered form, may be presented for registration of transfer and Debt Warrants may be exercised at the corporate trust office of the Debt Warrant Agent or any other office indicated in the Prospectus Supplement relating thereto (Section 3.1). Prior to the exercise of Debt Warrants, holders of Debt Warrants will not be entitled to payments of principal of (or premium, if any) or interest, if any, on the Debt Securities purchasable upon such exercise, or to enforce any of the covenants in the applicable Indenture (Section 4.1). Exercise of Debt Warrants Unless otherwise provided in the Prospectus Supplement, each Debt Warrant will entitle the holder thereof to purchase for cash such principal amount of Debt Securities at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the Prospectus Supplement relating to the Debt Warrants offered thereby (Sections 2.1). Debt Warrants may be exercised at any time up to the close of business on the Debt Warrant Expiration Date specified in the Prospectus Supplement relating to the Debt Warrants offered thereby. After the close of business on the Debt Warrant Expiration Date (or such later date to which such Debt Warrant Expiration Date may be extended by Holdings), unexercised Debt Warrants will become void (Section 2.2). Debt Warrants may be exercised as set forth in the Prospectus Supplement relating to the Debt Warrants offered thereby. Upon receipt of payment and the Debt Warrant Certificate properly completed and duly executed at the corporate trust office of the Debt Warrant Agent or any other office indicated in the Prospectus Supplement, Holdings will, as soon as practicable, forward to the person entitled thereto the Debt Securities purchasable upon such exercise. If fewer than all of the Debt Warrants represented by such Debt Warrant Certificate are exercised, a new Debt Warrant Certificate will be issued for the remaining amount of Debt Warrants (Section 2.3). 14 44 Other Information Other important information concerning Debt Warrants is set forth below under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger, Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a Holding Company". CURRENCY WARRANTS Holdings may issue, together with Debt Securities, Debt Warrants, Index Warrants or Interest Rate Warrants, or separately, Currency Warrants (a) in the form of Currency Put Warrants, entitling the owners thereof to receive from Holdings the Currency Warrant Cash Settlement Value (as shall be defined in the Prospectus Supplement) of the right to sell a specified amount of one currency (whether U.S. dollars or a foreign currency or foreign currency unit) (a "Base Currency") for a specified amount of a different currency (whether U.S. dollars or a foreign currency or foreign currency unit) (a "Reference Currency"), (b) in the form of Currency Call Warrants, entitling the owners thereof to receive from Holdings the Currency Warrant Cash Settlement Value of the right to purchase a specified amount of a Base Currency for a specified amount of a Reference Currency, or (c) in such other form as shall be specified in the related Prospectus Supplement. The Prospectus Supplement for an issue of Currency Warrants will set forth the formula pursuant to which the Currency Warrant Cash Settlement Value will be determined, including any multipliers, if applicable. The Prospectus Supplement will describe the terms of any Currency Warrants offered thereby, the Currency Warrant Agreement relating to such Currency Warrants and the Currency Warrant Certificates representing such Currency Warrants, including the following: (1) the title of such Currency Warrants; (2) the aggregate amount of such Currency Warrants; (3) the initial offering price of such Currency Warrants; (4) the exercise price, if any; (5) the currency or currency unit in which the initial offering price, the exercise price, if any, and the Currency Warrant Cash Settlement Value of such Currency Warrants is payable; (6) the Base Currency and the Reference Currency for such Currency Warrants; (7) whether such Currency Warrants shall be Currency Put Warrants, Currency Call Warrants or otherwise; (8) the formula for determining the Currency Warrant Cash Settlement Value, if applicable, of each Currency Warrant; (9) whether and under what circumstances a minimum and/or maximum expiration value is applicable upon the expiration or exercise of such Currency Warrants; (10) the effect or effects, if any, of the occurrence of a Market Disruption Event or Force Majeure Event; (11) the date on which the right to exercise such Currency Warrants shall commence and the date (the "Currency Warrant Expiration Date") on which such right shall expire; (12) any minimum number of Currency Warrants which must be exercised at any one time, other than upon automatic exercise; (13) the maximum number, if any, of such Currency Warrants that may, subject to election by Holdings, be exercised by all owners (or by any person or entity) on any day; (14) any provisions for the automatic exercise of such Currency Warrants other than at expiration; (15) whether and under what circumstances such Currency Warrants may be cancelled by Holdings prior to their expiration date; (16) any other procedures and conditions relating to the exercise of such Currency Warrants; (17) the identity of the Currency Warrant Agent; (18) any national securities exchange on which such Currency Warrants will be listed; (19) provisions, if any, for issuing such Currency Warrants in certificated form; (20) if such Currency Warrants are not issued in book-entry form, the place or places at which payments in respect of such Currency Warrants are to be made by Holdings; (21) if applicable, a discussion of certain United States federal income tax, accounting or other special considerations applicable thereto; and (22) any other terms of the Currency Warrants. Other important information concerning Currency Warrants is set forth below under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger, Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a Holding Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and Interest Rate Warrants -- Exercise of Warrants", "-- Market Disruption and Force Majeure Events" and "-- Settlement Currency", "-- Listing". 15 45 INDEX WARRANTS Holdings may issue, together with Debt Securities, Debt Warrants, Currency Warrants or Interest Rate Warrants, or separately, Index Warrants (a) in the form of Index Put Warrants, entitling the owners thereof to receive from Holdings the Index Cash Settlement Value (as shall be defined in the Prospectus Supplement) in cash, which amount will be determined by reference to the amount, if any, by which the Fixed Amount (as shall be defined in the Prospectus Supplement) at the time of exercise exceeds the Index Value (as shall be defined in the Prospectus Supplement), (b) in the form of Index Call Warrants, entitling the owners thereof to receive from Holdings the Index Cash Settlement Value in cash, which amount will be determined by reference to the amount, if any, by which the Index Value at the time of exercise exceeds the Fixed Amount, (c) in the form of Index Spread Warrants, entitling the owners thereof to receive from Holdings the Index Cash Settlement Value in cash, which amount will be determined by reference to the amount, if any, by which the Reference Index Value (as shall be defined in the Prospectus Supplement) at the time of exercise exceeds the Base Index Value (as shall be defined in the Prospectus Supplement) or (d) in such other form as shall be specified in the related Prospectus Supplement. The Prospectus Supplement for an issue of Index Warrants will set forth the formula pursuant to which the Index Cash Settlement Value will be determined, including any multipliers, if applicable. The Prospectus Supplement will describe the terms of Index Warrants offered thereby, the Index Warrant Agreement relating to such Index Warrants and the Index Warrant Certificate representing such Index Warrants, including the following: (1) the title of such Index Warrants; (2) the aggregate amount of such Index Warrants; (3) the initial offering price of such Index Warrants; (4) the exercise price, if any; (5) the currency or currency unit in which the initial offering price, the exercise price, if any, and the Index Cash Settlement Value of such Index Warrants is payable; (6) the Index or Indices for such Index Warrants, which may be based on one or more U.S. or foreign stocks, bonds, or other securities, one or more U.S. or foreign interest rates, one or more currencies or currency units, or any combination of the foregoing, and may be a preexisting U.S. or foreign index compiled and published by a third party or an index based on one or more securities, interest rates or currencies selected by Holdings solely in connection with the issuance of such Index Warrants, and certain information regarding such Index or Indices and the underlying securities, interest rates or currencies (including, to the extent possible, the policies of the publisher of the Index with respect to additions, deletions and substitutions of such securities, interest rates or currencies); (7) whether such Index Warrants shall be Index Put Warrants, Index Call Warrants, Index Spread Warrants or otherwise; (8) the method of providing for a substitute Index or Indices or otherwise determining the amount payable in connection with the exercise of such Index Warrants if any Index changes or ceases to be made available by its publisher; (9) the formula for determining the Index Cash Settlement Value, if applicable, of each Index Warrant; (10) whether and under what circumstances a minimum and/or maximum expiration value is applicable upon the expiration or exercise of such Index Warrants; (11) the effect or effects, if any, of the occurrence of a Market Disruption Event or Force Majeure Event; (12) the date on which the right to exercise such Index Warrants shall commence and the date (the "Index Warrant Expiration Date") on which such right shall expire; (13) any minimum number of Index Warrants which must be exercised at any one time, other than upon automatic exercise; (14) the maximum number, if any, of such Index Warrants that may, subject to election by Holdings, be exercised by all owners (or by any person or entity) on any day; (15) any provisions for the automatic exercise of such Index Warrants other than at expiration; (16) whether and under what circumstances such Index Warrants may be cancelled by Holdings prior to their expiration date; (17) any provisions permitting a Holder to condition any notice of exercise on the absence of certain specified changes in the Index Value, the Base Index Value or the Reference Index Value after the date of exercise; (18) any other procedures and conditions relating to the exercise of such Index Warrants; (19) the identity of the Index Warrant Agent; (20) any national securities exchange on which such Index Warrants will be listed; (21) provisions, if any, for issuing such Index Warrants in certificated form; (22) if such Index Warrants are not issued in book-entry form, the place or places at which payments in respect of such Index Warrants are to be made by Holdings; (23) if applicable, a discussion of certain United States federal income tax, accounting or other special considerations applicable thereto; and (24) any other terms of such Index Warrants. 16 46 Other important information concerning Index Warrants is set forth below under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger, Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a Holding Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and Interest Rate Warrants -- Exercise of Warrants", "-- Market Disruption and Force Majeure Events", "-- Settlement Currency", "-- Listing". INTEREST RATE WARRANTS Holdings may issue, together with Debt Securities, Debt Warrants, Currency Warrants or Index Warrants or, separately, Interest Rate Warrants (a) in the form of Interest Rate Put Warrants, entitling the owners thereof to receive from Holdings the Interest Rate Cash Settlement Value (as shall be defined in the Prospectus Supplement) in cash, which amount will be determined by reference to the amount, if any, by which the Spot Amount (as shall be defined in the Prospectus Supplement) is less than the Strike Amount (as shall be defined in the Prospectus Supplement) on the applicable valuation date following exercise, (b) in the form of Interest Rate Call Warrants, entitling the owners thereof to receive from Holdings the Interest Rate Cash Settlement Value in cash, which amount will be determined by reference to the amount, if any, by which the Spot Amount on the applicable valuation date following exercise exceeds the Strike Amount or (c) in such other form as shall be specified in the related Prospectus Supplement. The Prospectus Supplement for an issue of Interest Rate Warrants will set forth the formula pursuant to which the Interest Rate Cash Settlement Value will be determined, including any multipliers, if applicable. The Strike Amount may either be a fixed yield, price or rate of a Debt Instrument, a Rate or any combination of Debt Instruments and/or Rates or a yield, price or rate that varies during the term of the Interest Rate Warrants in accordance with a schedule or formula. The Debt Instrument will be one or more instruments specified in the applicable Prospectus Supplement issued either by the United States government or by a foreign government. The Rate will be one or more interest rates or interest rate swap rates established from time to time by one or more financial institutions specified in the applicable Prospectus Supplement. The Prospectus Supplement will describe the terms of Interest Rate Warrants offered thereby, the Interest Rate Warrant Agreement relating to such Interest Rate Warrants and the Interest Rate Warrant Certificate representing such Interest Rate Warrants, including the following: (1) the title of such Interest Rate Warrants, (2) the aggregate amount of such Interest Rate Warrants; (3) the initial offering price of such Interest Rate Warrants; (4) the exercise price, if any; (5) the currency or currency unit in which the initial offering price, the exercise price, if any, and the Interest Rate Cash Settlement Value of such Interest Rate Warrants is payable; (6) the Debt Instrument (which may be one or more debt instruments issued either by the United States government or by a foreign government), the Rate (which may be one or more interest rates or interest rate swap rates established from time to time by one or more specified financial institutions) or the other yield, price or rate utilized for such Interest Rate Warrants, and certain information regarding such Debt Instrument or Rate; (7) whether such Interest Rate Warrants shall be Interest Rate Put Warrants, Interest Rate Call Warrants or otherwise; (8) the Strike Amount, the method of determining the Spot Amount and the method of expressing movements in the yield or closing price of the Debt Instrument or in the level of the Rate as a cash amount in the currency in which the Interest Rate Cash Settlement Value of such Warrants is payable; (9) the formula for determining the Interest Rate Cash Settlement Value, if applicable, of each Interest Rate Warrant; (10) whether and under what circumstances a minimum and/or maximum expiration value is applicable upon the expiration or exercise of such Interest Rate Warrants; (11) the effect or effects, if any, of the occurrence of a Market Disruption Event or Force Majeure Event; (12) the date on which the right to exercise such Interest Rate Warrants shall commence and the date (the "Interest Rate Warrant Expiration Date") on which such right shall expire; (13) any minimum number of Interest Rate Warrants which must be exercised at any one time, other than upon automatic exercise; (14) the maximum number, if any, of such Interest Rate Warrants that may, subject to election by Holdings, be exercised by all owners (or by any person or entity) on any day; (15) any provisions for the automatic exercise of such Interest Rate Warrants other than at expiration; (16) whether and under what circumstances such Interest Rate Warrants may be cancelled by Holdings prior to their expiration date; (17) any provisions permitting a Holder to condition any notice of exercise on the absence of certain specified changes in the Spot Amount after the date 17 47 of exercise; (18) any other procedures and conditions relating to the exercise of such Interest Rate Warrants; (19) the identity of the Interest Rate Warrant Agent; (20) any national securities exchange on which such Interest Rate Warrants will be listed; (21) provisions, if any, for issuing such Interest Rate Warrants in certificated form; (22) if such Interest Rate Warrants are not issued in book-entry form, the place or places at which payments in respect of such Interest Rate Warrants are to be made by Holdings; (23) if applicable, a discussion of certain United States federal income tax, accounting or other special considerations applicable thereto; and (24) any other terms of such Interest Rate Warrants. Other important information concerning Interest Rate Warrants is set forth below under "Certain Items Applicable to All Warrants -- Modifications", "-- Merger, Consolidation, Sale or Other Dispositions", "-- Enforceability of Rights by Beneficial Owner; Governing Law" and "-- Unsecured Obligations of a Holding Company" and "Certain Items Applicable to Currency Warrants, Index Warrants and Interest Rate Warrants -- Exercise of Warrants", "-- Market Disruption and Force Majeure Events", "-- Settlement Currency", "-- Listing". CERTAIN ITEMS APPLICABLE TO ALL WARRANTS Modifications Each Warrant Agreement and the terms of each issue of Warrants may be amended by Holdings and the applicable Warrant Agent, without the consent of the beneficial owners or the registered holders, for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective or inconsistent provision contained therein, or in any other manner which Holdings may deem necessary or desirable and which will not adversely affect the interests of the beneficial owners of the then outstanding unexercised Warrants in any material respect (Section 6.1). Holdings and each Warrant Agent also may modify or amend the applicable Warrant Agreement and the terms of the related Warrants, with the consent of the beneficial owners of not less than a majority in number of the then outstanding unexercised Warrants affected, provided that no such modification or amendment that reduces the amount receivable upon exercise, cancellation or expiration, shortens the period of time during which the Warrants may be exercised or otherwise materially and adversely affects the exercise rights of the beneficial owners of the Warrants or reduces the percentage number of outstanding Warrants the consent of whose beneficial owners is required for modification or amendment of the applicable Warrant Agreement or the terms of the Warrants may be made without the consent of the beneficial owners affected thereby (Section 6.1). Merger, Consolidation, Sale or Other Dispositions If at any time there is a merger or consolidation involving Holdings or a sale, transfer, conveyance or other disposition of all or substantially all of the assets of Holdings, then in any such event the successor or assuming corporation shall succeed to and be substituted for Holdings, with the same effect as if it had been named in the applicable Warrant Agreement and in the applicable Warrants as Holdings. Holdings shall thereupon be relieved of any further obligation under such Warrant Agreement or under such Warrants, and, in the event of any such merger, consolidation, sale, transfer, conveyance or other disposition, Holdings as the predecessor corporation may thereupon or at any time thereafter be dissolved, wound up or liquidated (Section 6.2 of the Debt Warrant Agreement and Section 3.2 of each other Warrant Agreement). Enforceability of Rights by Beneficial Owner; Governing Law Each Warrant Agent will act solely as an agent of Holdings in connection with the issuance and exercise of the applicable Warrants and will not assume any obligation or relationship of agency or trust for or with any owner of a beneficial interest in any Warrant or with the registered holder thereof (Section 5.2). A Warrant Agent shall have no duty or responsibility in case of any default by Holdings in the performance of its obligations under the applicable Warrant Agreement or Warrant Certificate including, without limitation, any duty or responsibility to initiate any proceedings at law or otherwise or to make any demand upon Holdings (Section 5.2). Beneficial owners may, without the consent of the applicable Warrant Agent, enforce by 18 48 appropriate legal action, on their own behalf, their right to exercise their Warrants, to receive Debt Securities, in the case of Debt Warrants, and to receive payment, if any, for their Warrants, in the case of Currency Warrants, Index Warrants or Interest Rate Warrants (Section 4.2 of the Debt Warrant Agreement and Section 3.1 of each other Warrant Agreement). Except as may otherwise be provided in the Prospectus Supplement relating thereto, each issue of Warrants and the applicable Warrant Agreement will be governed by and construed in accordance with the law of the State of New York (Section 6.5). Unsecured Obligations of a Holding Company The Warrants are unsecured obligations of Holdings and, therefore, changes in the perceived creditworthiness of Holdings may be expected to affect trading prices in Warrants. Since Holdings, as a holding company, does not have any significant assets other than the equity securities of its subsidiaries, its cash flow and consequent ability to satisfy its financial obligations, including Warrants, are dependent upon the earnings of its subsidiaries and the distribution of those earnings to Holdings, or upon loans or other payments of funds by those subsidiaries to Holdings. Holdings' subsidiaries, including Lehman Brothers, are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amount in respect of Warrants or to make any funds available therefor, whether by dividends, loans or other payments. Dividends, loans and other payments by Lehman Brothers are restricted by net capital and other rules of various regulatory bodies. See "Capital Requirements." The payment of dividends by Holdings' subsidiaries is contingent upon the earnings of those subsidiaries and is subject to various business considerations in addition to net capital requirements and contractual restrictions. Additionally, since Warrants will be obligations of a holding company, the ability of holders of Warrants to benefit from any distribution of assets of any subsidiary upon the liquidation or reorganization of such subsidiary is subordinate to the prior claims of present and future creditors of such subsidiary. CERTAIN ITEMS APPLICABLE TO CURRENCY WARRANTS, INDEX WARRANTS AND INTEREST RATE WARRANTS Exercise of Warrants Except as may otherwise be provided in the applicable Prospectus Supplement relating thereto, (a) each Currency Warrant, Index Warrant and Interest Rate will entitle the owner, upon payment of the exercise price, if any, to the applicable Cash Settlement Value of such Warrant, on the applicable Exercise Date, in each case as such terms will further be defined in the applicable Prospectus Supplement relating thereto (Section 2.2) and (b) if not exercised prior to 1:30 p.m., New York City time, on the Business Day preceding the applicable Warrant Expiration Date, the Warrants will be deemed automatically exercised on such Warrant Expiration Date (Section 2.3). As described below, Currency Warrants, Index Warrants and Interest Rate Warrants may also be deemed to be automatically exercised if they are delisted. Procedures for exercise of the Currency Warrants, Index Warrants and Interest Rate Warrants will be set out in the applicable Prospectus Supplement. Market Disruption and Force Majeure Events If so specified in the applicable Prospectus Supplement, following the occurrence of a Market Disruption Event or Force Majeure Event (as each term shall be defined therein), the Cash Settlement Value of a Currency Warrant, an Index Warrant or an Interest Rate Warrant may be determined on a different basis than under normal exercise of a Warrant or the determination of the applicable Cash Settlement Value. In addition, if so specified in the applicable Prospectus Supplement, Currency Warrants, Index Warrants and Interest Rate Warrants may, in certain circumstances, be cancelled by Holdings prior to their expiration date and the holders thereof will be entitled to receive only the applicable Cancellation Amount. The Cancellation Amount may be either a fixed amount or an amount that varies during the term of the Warrants in accordance with a schedule or formula. 19 49 Settlement Currency Currency Warrants, Index Warrants and Interest Rate Warrants will be settled only in U.S. dollars (unless settlement in a foreign currency is specified in the applicable Prospectus Supplement and is permissible under applicable) law and accordingly will not require or entitle an owner to sell, deliver, purchase or take delivery of the currency, security or other instrument underlying such Warrants. If any of the Currency Warrants, Index Warrants or Interest Rate Warrants are sold for, or if the exercise price, if any, is payable in, foreign currencies or foreign currency units or if the amount payable by Holdings in respect of any series of Currency Warrants, Index Warrants or Interest Rate Warrants is payable in foreign currencies or foreign currency units, the restrictions, elections, tax consequences, specific terms and other information with respect to such issue of Warrants and such currencies or currency units will be set forth in an applicable Prospectus Supplement relating thereto. Listing Unless otherwise provided in the Prospectus Supplement, each issue of Currency Warrants, Index Warrants and Interest Rate Warrants will be listed on a national securities exchange, as specified in the applicable Prospectus Supplement, subject only to official notice of issuance, as a pre-condition to the sale of any such Warrants. It may be necessary in certain circumstances for such national securities exchange to obtain the approval of the SEC in connection with any such listing. In the event that the such Warrants are delisted from, or permanently suspended from trading on, such exchange, and, at or prior to such delisting or suspension, such Warrants shall not have been listed on another national securities exchange, any such Warrants not previously exercised will be deemed automatically exercised on the date such delisting or permanent trading suspension becomes effective (Section 2.3). The applicable Cash Settlement Value to be paid in such event will be as set forth in the applicable Prospectus Supplement. Holdings will notify holders of such Warrants as soon as practicable of such delisting or permanent trading suspension. The applicable Warrant Agreement will contain a covenant of Holdings not to seek delisting of such Warrants from, or permanent suspension of their trading on, such exchange (Section 2.4 of the Currency Warrant Agreement and the Interest Rate Warrant Agreement and Section 2.5 of the Index Warrant Agreement). GLOBAL SECURITIES The Securities of a series may be issued in whole or in part in the form of one or more Global Securities that will be deposited with or on behalf of a depository (a "Depository") identified in the Prospectus Supplement relating to such series. Global Securities representing Debt Securities or Debt Warrants may be issued in either registered or bearer form. Global Securities representing Currency Warrants, Index Warrants or Interest Rate Warrants will be issued in registered form only. Global Securities may be issued in either temporary or permanent form. The specific terms of the depository arrangement with respect to any Securities of a series will be described in the Prospectus Supplement relating to such series. The Company anticipates that the following provisions will apply to all depository arrangements. Unless otherwise specified in an applicable Prospectus Supplement, Securities which are to be represented by a Global Security in registered form to be deposited with or on behalf of a Depository will be registered in the name of such Depository or its nominee. Upon the issuance of a Global Security in registered form, the Depository for such Global Security will credit the respective principal amounts, in the case of Debt Securities, and the respective number of warrants, in the case of Warrants represented by such Global Security to the accounts of institutions that have accounts with such Depository or its nominee ("participants"). The accounts to be credited shall be designated by the underwriters or agents of such Securities or by Holdings, if such Securities are offered and sold directly by Holdings. Ownership of beneficial interests in such Global Securities will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests by participants in such Global Securities will be shown on, and the transfer of that ownership interest will be effected only through, records maintained by the Depository or its nominee for such Global Security. Ownership of beneficial interests in Global Securities by persons that hold through participants will be shown on, and the transfer of that ownership interest within such participant will be effected only through, records maintained by such participant. The laws of some jurisdictions require that 20 50 certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Security. So long as the Depository for a Global Security in registered form, or its nominee, is the registered owner of such Global Security, such Depository or such nominee, as the case may be, will be considered the sole owner or holder of the Securities represented by such Global Security for all purposes under the applicable Indenture, in the case of Debt Securities, or under the applicable warrant agreement, in the case of Warrants, governing such Securities. Except as set forth below, owners of beneficial interests in such Global Security will not be entitled to have Securities of the series represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of Securities of such series in definitive form and will not be considered the owners or holders thereof under the applicable Indenture, in the case of Debt Securities, or under the applicable warrant agreement, in the case of Warrants. Payments in respect of Securities registered in the name of or held by a Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the registered owner or the holder of the Global Security. None of Holdings, the applicable Trustee or Warrant agent, any Paying Agent or any Security Registrar for such Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Holdings expects that the Depository for a permanent Global Security in registered form, upon receipt of any payment in respect of a permanent Global Security, will credit immediately participants' accounts with payments in amounts proportionate to their respective beneficial interests in such Global Security as shown on the records of such Depository. Holdings also expects that payments by participants to owners of beneficial interests in such Global Security held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. A Global Security in registered form may not be transferred except as a whole by the Depository for such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any such nominee to a successor of such Depository or a nominee of such successor. If a Depository for a permanent Global Security in registered form is at any time unwilling or unable to continue as Depository and a successor Depository is not appointed by Holdings within 90 days, Holdings will issue Securities in definitive registered form in exchange for the Global Security representing such Securities. In addition, Holdings may at any time and in its sole discretion determine not to have any Securities in registered form represented by one or more Global Securities and, in such event, will issue Securities in definitive form in exchange for all of the Global Securities representing such Securities. Further, if Holdings so specifies with respect to the Securities of a series, an owner of a beneficial interest in a Global Security representing Securities of such series may, on terms acceptable to Holdings and the Depository for such Global Security, receive Securities of such series in definitive form. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in definitive form of Securities of the series represented by such Global Security equal in principal amount, in the case of Debt Securities, or number, in the case of Warrants, to such beneficial interest and to have such Securities registered in its name (if the Securities of such series are issuable as registered securities). Unless otherwise specified by Holdings, Securities of such series so issued in definitive form will be issued either as registered or bearer securities (if the Securities of such series are issuable in such form) and in authorized denominations, in the case of Debt Securities, or in authorized numbers, in the case of Warrants, as specified in the applicable Prospectus Supplement. See, however, "Description of Debt Securities -- Limitations on Issuance of Bearer Securities" above for a description of certain restrictions on the issuance of a Bearer Security in definitive form in exchange for an interest in a Global Security. BEARER DEBT SECURITIES If so specified in an applicable Prospectus Supplement, pending the availability of a permanent Global Security, all or any portion of the Debt Securities of a series which may be issuable as bearer securities will 21 51 initially be represented by one or more temporary Global Securities, without interest coupons, to be deposited with a common depositary in London for Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euro-clear System ("Euro-clear") and Centrale de Livraison de Valeurs Mobilieres, S.A. ("CEDEL") for credit to the designated accounts. The interests of the beneficial owner or owners in such a temporary Global Security in bearer form will be exchangeable for definitive Debt Securities (including interests in a permanent Global Security in bearer form), representing Debt Securities having the same interest rate and Stated Maturity, but only upon written certification in the form and to the effect described under "Description of Debt Securities-Denominations, Registration and Transfer" unless such certification has been provided on an earlier interest payment date. The beneficial owner of a Debt Security represented by a temporary Global Security in bearer form or a permanent Global Security in bearer form may, on or after the applicable exchange date and upon 30 days' notice to the applicable Trustee given through Euro-clear or CEDEL, exchange its interest for definitive bearer Debt Securities or, if specified in an applicable Prospectus Supplement, definitive registered Debt Securities of any authorized denomination. No bearer Debt Security delivered in exchange for a portion of a temporary Global Security or a permanent Global Security shall be mailed or otherwise delivered to any location in the United States in connection with such exchange. Unless otherwise specified in an applicable Prospectus Supplement, interest in respect of any portion of such a temporary Global Security in bearer form payable in respect of an Interest Payment Date occurring prior to the issuance of a permanent Global Security in bearer form will be paid to each of Euro-clear and CEDEL with respect to the portion of the temporary Global Security in bearer form held for its account. Each of Euro-clear and CEDEL will undertake in such circumstances to credit such interest received by it in respect of a temporary Global Security in bearer form to the respective accounts for which it holds such temporary Global Security in bearer form as of the relevant Interest Payment Date, but only upon receipt in each case of written certification, in the form and to the effect described under "Description of Debt Securities-Denomination, Registration and Transfer." UNITED STATES TAXATION A summary of the material U.S. federal income tax consequences to U.S. persons investing in Securities will be set forth in the applicable Prospectus Supplement. The summary of U.S. federal income tax consequences contained in the Prospectus Supplement will be presented for informational purposes only, however, and will not be intended as legal or tax advice to prospective purchasers. Prospective purchasers of Securities are urged to consult their own tax advisors prior to any acquisition of Securities. CAPITAL REQUIREMENTS As registered broker-dealers, Lehman Brothers and certain of Holdings' other subsidiaries (the "Regulated Subsidiaries") are subject to the SEC's net capital rule (Rule 15c3-1, the "Net Capital Rule"), promulgated under the Exchange Act. The Exchange monitors the application of the Net Capital Rule by Lehman Brothers. The Exchange or the NASD, as the case may be, monitors the application of the Net Capital Rule by the Regulated Subsidiaries. Lehman Brothers and such Regulated Subsidiaries compute net capital under the alternative method of the Net Capital Rule which requires the maintenance of minimum net capital, as defined. A broker-dealer may be required to reduce its business if its net capital is less than 4% of aggregate debit balances and may also be prohibited from expanding its business or paying cash dividends if resulting net capital would be less than 5% of aggregate debit balances. In addition, the Net Capital Rule does not allow withdrawal of subordinated capital if net capital would be less than 5% of such debit balances. The Net Capital Rule also limits the ability of broker-dealers to transfer large amounts of capital to parent companies and other affiliates. Under the Net Capital Rule equity capital can not be withdrawn from a broker-dealer without the prior approval of the SEC when net capital after the withdrawal would be less than 25% of its securities positions haircuts (which are deductions from capital of certain specified percentages of the market value of securities to reflect the possibility of a market decline prior to disposition). In addition, the Net Capital Rule requires broker-dealers to notify the SEC and the appropriate self-regulatory organization two business days before a withdrawal of excess net capital if the withdrawal would exceed the greater of 22 52 $500,000 or 30% of the broker-dealer's excess net capital, and two business days after a withdrawal that exceeds the greater of $500,000 or 20% of excess net capital. Finally, the Net Capital Rule authorizes the SEC to order a freeze on the transfer of capital if a broker-dealer plans a withdrawal of more than 30% of its excess net capital and the SEC believes that such a withdrawal would be detrimental to the financial integrity of the firm or would jeopardize the broker-dealer's ability to pay its customers. Compliance with the Net Capital Rule could limit those operations of Lehman Brothers and the Regulated Subsidiaries that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances, and also could restrict Holdings' ability to withdraw capital from Lehman Brothers and the Regulated Subsidiaries which in turn could limit Holdings' ability to pay dividends, repay debt and redeem or purchase shares of its outstanding capital stock. The Company is subject to other domestic and international regulatory requirements with which it is required to comply. PLAN OF DISTRIBUTION Holdings may sell Securities in any one or more of the following ways: (i) through, or through underwriting syndicates managed by, Lehman Brothers alone or with one or more other underwriters; (ii) through one or more dealers or agents (which may include Lehman Brothers); or (iii) directly to one or more purchasers. The specific managing underwriter or underwriters or agent or agents with respect to the offer and sale of Securities are set forth on the cover of a Prospectus Supplement relating to such Securities and the members of the underwriting syndicate, if any, are named in such Prospectus Supplement. Only the underwriters or agents so named in a Prospectus Supplement are underwriters or agents, respectively, in connection with such Securities. The applicable Prospectus Supplement also describes the discounts and commissions to be allowed or paid to the underwriters or agents, all other items constituting underwriting or agency compensation, the discounts and commissions to be allowed or paid to dealers, if any, and the exchanges, if any, on which such Securities will be listed. Securities acquired by any underwriter will be acquired for its own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The obligations of the underwriters to purchase such Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all such Securities if any of such Securities are purchased. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. To the extent, if any, that Securities to be purchased by Lehman Brothers, as underwriter, are not resold by it or are not resold at the public offering price set forth in an applicable Prospectus Supplement, the funds derived from such offering by the Company on a consolidated basis may be reduced. If so indicated in an applicable Prospectus Supplement, Holdings will authorize the underwriters named therein to solicit offers by certain institutional investors to purchase Securities providing for payment and delivery on a future date specified in an applicable Prospectus Supplement. There may be limitations on the minimum amount which may be purchased by any such institutional investor or on the portion of the aggregate proceeds to Holdings of the particular Securities which may be sold pursuant to such arrangements. Institutional investors to which such offers may be made, when authorized, include commercial and savings banks, insurance companies, pension funds, educational charitable institutions and such other institutions as may be approved by Holdings. The obligations of any such purchasers pursuant to such delayed delivery and payment arrangements will not be subject to any conditions except (i) the purchase by an institution of the particular Securities shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject, and (ii) Holdings shall have sold to such underwriters all of such Securities less the amount of such securities covered by such arrangements. Underwriters named therein will not have any responsibility in respect of the validity of such arrangements or the performance of Holdings or such institutional investors thereunder. 23 53 Each distributor of Bearer Securities will agree that it will not offer or sell during the restricted period, directly or indirectly, Bearer Securities in the United States or to United States persons (other than as discussed under "Description of Debt Securities -- Limitations on Issuance of Bearer Securities") and in connection with the sale of Bearer Securities during the restricted period, will not deliver definitive Bearer Securities within the United States. See "Description of Debt Securities -- Limitations on Issuance of Bearer Securities." Each underwriter or agent will represent and agree that (i) it has not offered or sold and will not offer or sell in the United Kingdom, by means of any document, any Securities other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent (except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985); (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the Securities if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988. The underwriters and agents named in an applicable Prospectus Supplement may be entitled under agreements entered into with Holdings to indemnification by Holdings against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the underwriters and agents may be required to make in respect thereof. The underwriters and agents may engage in transactions with, or perform services for, Holdings in the ordinary course of business. Holdings has been advised by Lehman Brothers that Lehman Brothers may from time to time purchase and sell Securities in the secondary market. Each offering of Securities and any market-making activities by Lehman Brothers with respect to Securities will be conducted in compliance with the requirements of Schedule E of the By-Laws of the NASD regarding an NASD member firm's participation in distributing its affiliate's securities. Lehman Brothers may act as principal or agent in such transactions. This Prospectus may be used by Lehman Brothers in connection with such transactions. Such sales, if any, will be made at varying prices related to prevailing market prices at the time of sale. Lehman Brothers is not obligated to make a market in any Securities and may discontinue any market-making activities at any time without notice. No assurance can be given that there will be a secondary market for the Securities. ERISA MATTERS Each of Holdings and Lehman Brothers may be considered a "party in interest" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and a "disqualified person" under corresponding provisions of the Code, with respect to certain employee benefit plans. Certain transactions between an employee benefit plan and a party in interest or disqualified person may result in "prohibited transactions" within the meaning of ERISA and the Code. ANY EMPLOYEE BENEFIT PLAN PROPOSING TO INVEST IN THE SECURITIES SHOULD CONSULT WITH ITS LEGAL COUNSEL. LEGAL OPINIONS Unless otherwise indicated in an applicable Prospectus Supplement relating to offered Securities, the validity of the Securities offered hereby will be passed upon for Holdings by David Marcus, Esq., General Counsel of Holdings and for the underwriters or agents by Simpson Thacher & Bartlett (a partnership which includes professional corporations), 425 Lexington Avenue, New York, New York 10017. Simpson Thacher & Bartlett acts as counsel in various matters for Holdings, Lehman Brothers and certain of their subsidiaries. 24 54 INDEPENDENT ACCOUNTANTS The consolidated financial statements and schedules of the Company for the years ended December 31, 1993, December 31, 1992 and December 31, 1991, appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1993 have been audited by Ernst & Young, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements and schedules are, and audited financial statements included in subsequently filed documents will be, incorporated herein by reference in reliance upon the reports of Ernst & Young pertaining to such financial statements (to the extent covered by consents filed with the Securities and Exchange Commission) given upon the authority of such firm as experts in accounting and auditing. 25 55 - ------------------------------------------------------ - ------------------------------------------------------ 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-18 Form of Securities.................... S-22 Certain United States Federal Income Tax Consequences.................... S-24 Underwriting.......................... S-27 Glossary.............................. S-28 PROSPECTUS Available Information................. 2 Documents Incorporated by Reference... 2 The Company........................... 3 Use of Proceeds....................... 3 Ratio of Earnings to Fixed Charges.... 3 Description of Debt Securities........ 4 Description of Warrants............... 13 Global Securities..................... 20 United States Taxation................ 22 Capital Requirements.................. 22 Plan of Distribution.................. 23 ERISA Matters......................... 24 Legal Opinions........................ 24 Independent Accountants............... 25
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $50,000,000 LEHMAN BROTHERS HOLDINGS INC. INDUSTRIAL COMMODITY BASKET NOTES DUE 1996 --------------------------- PROSPECTUS SUPPLEMENT NOVEMBER , 1994 --------------------------- LEHMAN BROTHERS - ------------------------------------------------------ - ------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----