-----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, KUjEwWc5CDl5q0r4zqddtLNcgczz1iO02oSDuN4JnTtJ+rUEEA9Jfgvl6djeW/tW BAYSTtWYK8KZSmLYLLZjjA== 0000950123-94-001940.txt : 19941130 0000950123-94-001940.hdr.sgml : 19941130 ACCESSION NUMBER: 0000950123-94-001940 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19941129 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEHMAN BROTHERS HOLDINGS INC CENTRAL INDEX KEY: 0000806085 STANDARD INDUSTRIAL CLASSIFICATION: 6211 IRS NUMBER: 133216325 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-53651 FILM NUMBER: 94562539 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 424B2 1 FINAL PROSPECTUS SUPPLEMENT 1 Filed pursuant to Rule 424(b)(2) Registration No. 33-58548 PROSPECTUS SUPPLEMENT (To Prospectus dated October 14, 1994) 1,000,000 SUNS(SM) LEHMAN BROTHERS HOLDINGS INC. REGIONAL BANK STOCK UPSIDE NOTE SECURITIES(SM) DUE 1996 ------------------------ The Regional Bank Stock Upside Note Securities Due 1996 (the "Securities" or "SUNS") of Lehman Brothers Holdings Inc. ("Holdings") are being offered at an issue price (the "Issue Price") of $25 per SUNS. The Stated Maturity of the Securities is December 5, 1996. The amount payable at Stated Maturity will be calculated based on the change in the value of a basket of equity securities of United States bank holding companies (the "Basket"). The Securities are to be issued as a series of Debt Securities under the Senior Indenture described in the accompanying Prospectus and will constitute "Senior Debt" of Holdings as described in the accompanying Prospectus. The Securities may not be redeemed prior to Stated Maturity and are not subject to any sinking fund. The amount payable at Maturity (the "Maturity Payment Amount") will equal the product of (a) the Issue Price and (b) the sum of (i) one and (ii) a specified percentage (the "Participation Percentage") of the difference between the Basket Maturity Value (as defined herein) and the Original Basket Value of 100, divided by the Original Basket Value of 100; provided that, the Maturity Payment Amount will not be less than $23.75. In the event the Basket Maturity Value is greater than 100, the Participation Percentage will be 95%. If the Basket Maturity Value is equal to or less than 100, the Participation Percentage will be 100%. There will be no payments with respect to the Securities prior to Maturity. For information as to the calculation of the Maturity Payment Amount, the composition of the Basket and certain tax consequences to holders of the securities, see "Description of Securities," "Certain United States Federal Income Tax Consequences" and "The Basket" in this Prospectus Supplement. PURCHASERS OF SECURITIES SHOULD BE PREPARED TO SUSTAIN A LOSS OF UP TO 5% OF THE PRINCIPAL AMOUNT OF THEIR SECURITIES IF THE BASKET MATURITY VALUE IS LESS THAN 100. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "SPECIAL CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT. The Securities will originally be issued as certificates in registered form. Forty-five calendar days after the closing of the offering, each registered holder will have the option to convert the form of such holder's Securities from certificated to book-entry form within a forty-five calendar day period as described herein. Ownership of converted Securities will be maintained in book-entry form by or through the Depository. Beneficial owners of Securities in book-entry form will not have the right to receive physical certificates evidencing their ownership except under the limited circumstances described herein. The SUNS have been approved for listing on the American Stock Exchange (the "AMEX"), subject to notice of issuance, under the symbol "BKG". Lehman Brothers Inc., a wholly owned subsidiary of Holdings, may, but is not obligated to, purchase and sell the Securities for its own account for the purpose of making a market in the Securities. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- UNDERWRITING DISCOUNTS PROCEEDS TO PRICE TO PUBLIC AND COMMISSIONS(1) HOLDINGS(2) - ----------------------------------------------------------------------------------------------------- Per Security.................... $25.00 $0.43 $24.57 - ----------------------------------------------------------------------------------------------------- Total(3)........................ $25,000,000 $430,000 $24,570,000 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
(1) Holdings has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting other expenses payable by Holdings estimated at $100,000. (3) Holdings has granted the Underwriters a 30-day option to purchase up to an additional 150,000 SUNS solely to cover over-allotments. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Holdings, before deducting expenses, will be $28,750,000, $494,500 and $28,255,500, respectively. See "Underwriting." ------------------------ The Securities offered by this Prospectus Supplement are offered by the Underwriters subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain further conditions. The Underwriters reserve the right to reject orders in whole or in part. It is expected that delivery of the Securities will be made at the offices of Lehman Brothers Inc., New York, New York, on or about December 5, 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 relating 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 KEMPER SECURITIES, INC. OPPENHEIMER & CO., INC. November 28, 1994 2 "SUNS" and "Stock Upside Note Securities" are service marks of Lehman Brothers Inc. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 3 SUMMARY The following summary does not purport to be complete and is qualified in its entirety by the more detailed information set forth elsewhere or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus. Issuer..................... Lehman Brothers Holdings Inc. ("Holdings"). Securities Offered......... 1,000,000 Regional Bank Stock Upside Note Securities Due 1996 (the "Securities" or "SUNS"). The Securities are to be issued as a series of Debt Securities under the Senior Indenture described in the accompanying Prospectus and will constitute Senior Debt of Holdings. Issue Price................ $25 per SUNS. Denominations.............. $25 and integral multiples thereof. Stated Maturity............ December 5, 1996 (the "Stated Maturity"). Interest................... There will be no payments with respect to the Securities prior to Maturity. Maturity Payment Amount.... At Stated Maturity each Holder will be entitled to receive an amount (the "Maturity Payment Amount") with respect to each $25 principal amount of Securities equal to the following: Basket Maturity Value - 100 $25 X [ 1 + ( --------------------------- X Participation )] 100 Percentage
provided that, the Maturity Payment Amount will not be less than $23.75. The Participation Percentage will be 95% if the Basket Maturity Value is greater than 100 and 100% if the Basket Maturity Value is equal to or less than 100. The basket maturity value (the "Basket Maturity Value"), will be determined by Lehman Brothers Inc., an affiliate of Holdings (the "Calculation Agent"), and, subject to certain exceptions described herein, will equal the sum of the products of the Average Market Prices and the applicable Multipliers for the securities in the Basket (each a "Basket Security" and collectively the "Basket Securities"). The average market price (the "Average Market Price") of a Basket Security will equal the average (mean) of the Market Prices (determined as described herein) of such Basket Security determined on the first ten Calculation Days occurring during the period beginning on the twentieth Trading Day prior to Stated Maturity, and on each succeeding Trading Day up to and including the eleventh Trading Day prior to Stated Maturity (the "Calculation Period"). If there are fewer than ten Calculation Days with respect to a Basket Security, then the Average Market Price will equal the average (mean) of the Market Prices on such Calculation Days, and if there is only one Calculation Day, the Average Market Price will equal the Market Price on such Calculation Day. The multiplier (the "Multiplier") relating to each Basket Security is specified under the caption "Description of Securities -- Basket Securities" below and indicates the number of shares (or the fraction of one share) of such Basket Security included in the calculation of the Basket Maturity Value. The Multipliers will remain constant for the term of the Securities unless adjusted for certain corporate events such as stock splits, reverse stock splits or stock dividends. In the event of a merger or consolidation of an issuer of a Basket Security in which such issuer is not the surviving entity, the value of such Basket Security will be based on the value of the consideration received in exchange for such Basket Security, as adjusted for the accrual of interest. See "Description of Securities -- Adjustments to the Multiplier and Basket" and "Description of Securities -- Maturity Payment Amount." See also "Description of Securities -- Events of Default and Acceleration" for a description of payments upon any acceleration of the maturity of the Securities. Regional Bank Basket....... The Regional Bank Basket (the "Basket") is made up of the stocks of 20 corporations operating as bank holding companies in the United States, 19 of which operate regional banks and one of which operates a national S-3 4 bank. Ownership of the Securities will not entitle Holders to receive Basket Securities. The Basket Securities have significantly different levels of market value (i.e., the number of shares outstanding of a security multiplied by the current price of such security). The original Multipliers will be determined so that each Basket Security represents an equal percentage of the Original Basket Value (as defined below) on the date the Securities are priced for initial sale to the public. See "Description of Securities -- Basket Securities" in this Prospectus Supplement. The inclusion of a Basket Security in the Basket is not a recommendation to buy or sell such Basket Security, and neither Holdings nor any of its affiliates make any representation as to the performance of the Basket or any Basket Securities. Basket Value............... The basket value (the "Basket Value") for any day will equal the sum of the products of the most recently available Market Prices and the applicable Multipliers for the Basket Securities. The Basket Maturity Value, however, is calculated based on Average Market Prices for certain days. As long as SUNS are listed on the AMEX, the AMEX intends to calculate and disseminate the value of the Basket based on the most recently reported prices at approximately 15 second intervals during AMEX business hours and the Basket Value at the end of such day to vendors via the facilities of the AMEX Tape under the symbol "BXK." See "Description of Securities -- Maturity Payment Amount" in this Prospectus Supplement. Original Basket Value...... Based on the individual prices of the Basket Securities on the date that the Securities are priced for initial offering to the public, the Multiplier for each Basket Security will be initially set so that the Basket Value on such date (the "Original Basket Value") will equal 100. Special Considerations..... The Securities are subject to certain special considerations. Investors should be aware that if the Basket Maturity Value is less than 100, at Maturity Holders will receive a Maturity Payment Amount that is up to 5% less than the Issue Price, even if the value of the Basket as of some interim period or periods prior to the Calculation Period may have exceeded 100, because the Maturity Payment Amount is calculated on the basis of the Basket Maturity Value only. The Basket Maturity Value does not reflect the payment of dividends on the Basket Securities and therefore the yield based on the appreciation of the Basket, if any, for the period from the date of determination of the Original Basket Value through the end of the Calculation Period will not produce the same yield as if the Basket Securities were purchased and held for a similar period. Moreover, there can be no assurance as to how the Securities will trade in the secondary market or whether such market will be liquid. The price at which a Holder will be able to sell Securities prior to Maturity may be at a discount from the principal amount thereof, if, among other things, the Basket Value at such time is below, equal to or not sufficiently above the Original Basket Value. It is expected that the secondary market for the Securities will be affected by a number of factors, including changes in interest rates, the volatility of the Basket Value, the time remaining to Stated Maturity and changes in dividend rates. See "Special Considerations" herein. Holders of the Securities will receive the Maturity Payment Amount at Maturity and will not have any right at any time to receive any of the Basket Securities or any ownership right or interest in such Basket Securities, even though the return on the investment in the Securities is based on the value of the Basket. 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 risks specific to the banking industry. See "The Basket -- The Banking Industry" in this Prospectus Supplement. 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-4 5 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 Maturity Payment Amount (described below under "Description of Securities -- Maturity Payment Amount"). SPECIAL CONSIDERATIONS PAYMENT AT MATURITY If the Basket Maturity Value is less than 100, the Maturity Payment Amount with respect to the Securities will be up to 5% less than the Issue Price. This will be true even though the value of the Basket as of some interim period or periods prior to the Calculation Period may have exceeded 100, because the Maturity Payment Amount is calculated on the basis of the Basket Maturity Value only. PURCHASERS OF SECURITIES SHOULD BE PREPARED TO SUSTAIN A LOSS OF UP TO 5% OF THE PRINCIPAL AMOUNT OF THEIR SECURITIES. Even if the principal of the Securities is fully returned, such return of principal will not reflect any opportunity cost implied by inflation and other factors relating to the time value of money. The Basket Maturity Value does not reflect the payment of dividends on the Basket Securities and therefore the yield based on the appreciation of the Basket, if any, for the period from the date of determination of the Original Basket Value through the end of the Calculation Period will not produce the same yield as if the Basket Securities were purchased and held for a similar period. TRADING The Securities have been approved for listing on the AMEX, subject to notice of issuance. There can be no assurance as to how the Securities will trade in the secondary market or whether such market will be liquid. It is expected that the secondary market for the Securities will be affected by a number of factors. The trading value of the Securities is expected to depend primarily on the extent of the appreciation, if any, of the Basket Value over the Original Basket Value of 100. However, the price at which a Holder will be able to sell Securities prior to Maturity may be at a discount from the principal amount thereof if, at such time, the Basket Value is below, equal to or not sufficiently above 100. A discount could also result from increased interest rates, increased dividends or decreased volatility of the Basket Securities. Before selling Securities, a Holder of Securities should carefully consider, among other things, (i) the trading price of the Securities, (ii) the Basket Value at the time, (iii) the time remaining to Stated Maturity, (iv) prevailing interest rates and (v) any related transaction costs. The trading value of the Securities may be affected by a number of interrelated factors, including those listed below. The relationship among these factors 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, if U.S. interest rates increase, the value of the Securities is expected to decrease. If U.S. interest rates decrease, the value of the Securities is expected to increase. Volatility of the Basket Value. If the volatility of the Basket Value increases, the trading value of the Securities is expected to increase. If the volatility of the Basket Value decreases, the trading value of the Securities is expected to decrease. Time Remaining to Stated Maturity. The Securities may trade at a value other than that which may be inferred from the level of interest rates and the Basket Value. This difference may be due to expectations concerning interest rates, volatility and the value of the Basket Value during the period prior to Stated Maturity. As the time remaining to Stated Maturity decreases, this difference in value is expected to decrease. S-5 6 Dividend Rates. If dividend rates on the stocks comprising the Basket Securities increase, the value of the Securities is expected to decrease. Conversely, if dividend rates on the Basket Securities decrease, the value of the Securities is expected to increase. OTHER CONSIDERATIONS It is suggested that prospective investors who consider purchasing the Securities should reach an investment decision only after carefully considering with their advisers the suitability of the Securities in the light of their particular circumstances. Investors should also consider the risks specific to the banking industry. See "The Basket -- The Banking Industry" in this Prospectus Supplement. 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-6 7 DESCRIPTION OF SECURITIES GENERAL The Securities are to be issued as a series of Debt Securities under the Senior Indenture, which is more fully described in the accompanying Prospectus. The following description of the particular terms of the Securities offered hereby supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Debt Securities set forth under the heading "Description of Debt Securities" in the accompanying Prospectus. For a description of the rights attaching to different series of Debt Securities under the Senior Indenture, see "Description of Debt Securities" in the accompanying Prospectus. The Securities constitute "Senior Debt" as defined in the accompanying Prospectus. Certain capitalized terms used herein have the meanings ascribed thereto in the accompanying Prospectus. Reference is also made to the Glossary for certain defined terms used herein and the locations of other defined terms used herein. The aggregate number of SUNS to be issued will be 1,000,000, subject to the over-allotment option granted by Holdings to the Underwriters (see "Underwriting" in this Prospectus Supplement). The Securities will be issued at 100% of their principal amount in denominations of $25 and integral multiples thereof. The Securities will mature on December 5, 1996. The Securities are not redeemable by Holdings or repayable at the option of any Holder prior to Stated Maturity and are not subject to any sinking fund. Upon the occurrence of an Event of Default with respect to the Securities, Holders of the Securities may accelerate the Maturity of the Securities, as described under "Description of Securities -- Events of Default and Acceleration" in this Prospectus Supplement and "Description of Debt Securities -- Events of Default" in the accompanying Prospectus. There will be no payments with respect to the Securities prior to Maturity. MATURITY PAYMENT AMOUNT At Stated Maturity each Holder will be entitled to receive an amount with respect to each $25 principal amount of Securities equal to the following: Basket Maturity Value - 100 $25 X [ 1 + ( --------------------------- X Participation )] 100 Percentage
provided that, the Maturity Payment Amount will not be less than $23.75. The Participation Percentage will be 95% if the Basket Maturity Value is greater than 100 and 100% if the Basket Maturity Value is equal to or less than 100. The Basket Maturity Value will be determined by Lehman Brothers Inc. as Calculation Agent. The Basket Maturity Value, subject to certain exceptions described herein, will equal the sum of the products of the Average Market Prices and the applicable Multipliers for each Basket Security. The Average Market Price of a Basket Security will equal the average (mean) of the Market Prices (determined as described herein) of such Basket Security determined on the first ten Calculation Days occurring during the period beginning on the twentieth Trading Day prior to Stated Maturity and on each succeeding Trading Day up to and including the eleventh Trading Day prior to Stated Maturity. If there are fewer than ten Calculation Days with respect to a Basket Security, then the Average Market Price will equal the average (mean) of the Market Prices on such Calculation Days, and if there is only one Calculation Day, the Average Market Price will equal the Market Price on such Calculation Day. The Multiplier relating to each Basket Security is specified under the caption "Description of Securities -- Basket Securities" below and indicates the number of shares (or the fraction of one share) of such Basket Security included in the calculation of the Basket Maturity Value. The Multipliers will remain constant for the term of the Securities unless adjusted for certain corporate events such as stock splits, reverse stock splits or stock dividends. See "Description of Securities -- Basket Securities -- Adjustments to the Multiplier and Basket" in this Prospectus Supplement. "Calculation Day" with respect to a Basket Security means any Trading Day during the Calculation Period on which a Market Disruption Event has not occurred. If a Market Disruption Event occurs on all Trading Days during S-7 8 the Calculation Period then the eleventh scheduled Trading Day prior to Stated Maturity will be deemed a Calculation Day, notwithstanding the Market Disruption Event. "Market Price," which will be determined by the Calculation Agent based on information reasonably available to it, means for a Calculation Day the following: (i) If the Basket Security is listed on a national securities exchange or is a NASDAQ National Market System ("NASDAQ NMS") security, Market Price means the last reported sale price at 4:00 p.m., New York City time, regular way, on such day on the principal securities exchange registered under the Securities Exchange Act of 1934 on which such Basket Security is listed or admitted to trading or NASDAQ NMS, as the case may be. (ii) If the Basket Security is not listed on a national securities exchange or is not a NASDAQ NMS security, Market Price means the last reported sale price on the over-the-counter market. As used herein, "Trading Day" shall mean a day on which trading is generally conducted on the New York Stock Exchange ("NYSE"), AMEX and NASDAQ NMS and in the over-the-counter market for equity securities as determined by the Calculation Agent. "Market Disruption Event" with respect to a Basket Security means any of the following events as determined by the Calculation Agent: (i) the suspension or material limitation in the trading of such Basket Security for more than two hours of trading or during the period one-half hour prior to the time that such Basket Security is to be priced (for purposes of this definition, limitations pursuant to NYSE Rule 80A (or any applicable rule or regulation enacted or promulgated by the NYSE, any other self regulatory organization or the Securities and Exchange Commission of similar scope as determined by the Calculation Agent) on trading during significant market fluctuations shall be considered "material"), (ii) the suspension or material limitation (whether by reason of movements in price otherwise exceeding levels permitted by the relevant exchange or otherwise) in the trading of option contracts related to a Basket Security traded on any exchange for more than two hours of trading or during the period one-half hour prior to the time that such Basket Security is to be priced, or (iii) a banking moratorium has been declared by federal or any state authorities. For the purposes of this definition, a limitation on the hours in a trading day and/or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the relevant exchange. All percentages resulting from any calculation on the Securities will be rounded to the nearest one hundred-thousandth of a percentage point, with five one millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation will be rounded to the nearest cent with one-half cent being rounded upwards. S-8 9 BASKET SECURITIES The stocks listed below will be used to calculate the value of the Basket. Holders of the Securities will not have any right to receive the Basket Securities. The following table sets forth the Basket Securities, the primary exchange on which the Basket Securities are traded, the market capitalization of the respective issuers of the Basket Securities and the initial Multipliers. Each Basket Security will initially represent 5.0% of the Original Basket Value.
APPROXIMATE MARKET VALUE PRIMARY OF ISSUER OF ISSUER OF THE EXCHANGE OF BASKET INITIAL BASKET SECURITY BASKET SECURITY SECURITY(1) MULTIPLIER --------------------------------------------------------------- ----------------- ------------ ----------- ($MM) 1. Bancorp Hawaii, Inc. .......................................... NYSE 1,071.64 0.1970443 2. Barnett Banks, Inc. ........................................... NYSE 3,806.38 0.1273885 3. Baybanks, Inc. ................................................ NASDAQ NMS 1,004.61 0.0945626 4. Citizens Bancorp............................................... NASDAQ NMS 395.48 0.1886792 5. City National Corporation...................................... NYSE 434.72 0.5194805 6. CoreStates Financial Corp. .................................... NYSE 3,535.92 0.1990050 7. First American Corporation..................................... NASDAQ NMS 715.71 0.1826484 8. First Chicago Corporation...................................... NYSE 4,286.67 0.1078167 9. Hibernia Corporation........................................... NYSE 761.47 0.6349206 10. Mercantile Bancorporation Inc.................................. NYSE 1,352.44 0.1600000 11. Michigan National Corporation.................................. NASDAQ NMS 1,152.45 0.0664452 12. Midlantic Corporation.......................................... NASDAQ NMS 1,364.99 0.1923077 13. North Fork Bancorporation, Inc. ............................... NYSE 203.77 0.3539823 14. Provident Bankshares Corporation............................... NASDAQ NMS 151.09 0.2409639 15. Summit Bancorporation.......................................... NASDAQ NMS 574.26 0.2631579 16. U.S. Bancorp................................................... NASDAQ NMS 2,252.05 0.2185792 17. UJB Financial Corp. ........................................... NYSE 1,339.70 0.2051282 18. Union Planters Corporation..................................... NYSE 531.00 0.2395210 19. UST Corp. ..................................................... NASDAQ NMS 179.51 0.4878049 20. Vermont Financial Services Corp. .............................. NASDAQ NMS 92.55 0.2469136
- --------------- (1) The approximate total market value of the issuer of a Basket Security was calculated by multiplying the most recent publicly available number of outstanding shares of the Basket Security of such issuer by the Market Price for such shares on November 28, 1994. The initial Multiplier relating to each Basket Security will indicate the number of shares (or the fraction of one share) of such Basket Security, given the market price of such Basket Security, required to be included in the calculation of the Original Basket Value so that each Basket Security represents an equal percentage (i.e., 5.0%) of the Original Basket Value. The price of each Basket Security used to calculate the initial Multiplier relating to each such Basket Security will be the closing price of such Basket Security on the date that the Securities are priced by Holdings for initial sale to the public. The respective Multipliers will remain constant for the term of the Securities unless adjusted for certain corporate events, as described below. The Basket Value, for any day, will equal the sum of the products of the most recently available Market Prices for the most recent Trading Day with respect to each Basket Security and the applicable Multipliers for the Basket Securities. The Basket Maturity Value, however, is calculated based on the average Market Prices for certain days. The AMEX has informed Holdings that, as long as SUNS are listed on the AMEX, it intends to calculate and disseminate the value of the Basket based on the most recently reported prices at approximately 15 second intervals during AMEX business hours and the Basket Value at the end of such day to vendors via the facilities of the AMEX Tape under the symbol "BXK." In the event a Basket Security is converted into a Cash Component (as defined below), the interest that has accrued on any given day will only be reflected in the Basket Value quoted by the AMEX at the end of such day and not in the values disseminated at interim periods during the day. S-9 10 ADJUSTMENTS TO THE MULTIPLIER AND BASKET The Multiplier with respect to any Basket Security and the Basket will be adjusted by the Calculation Agent as follows: 1. If a Basket Security is subject to a stock split or reverse stock split then once such split has become effective, the Multiplier relating to such Basket Security will be adjusted to equal the product of the number of shares outstanding after such split has become effective with respect to each share of such Basket Security outstanding immediately prior to the effectiveness of such split and the prior Multiplier. 2. If a Basket Security is subject to an extraordinary stock dividend or extraordinary stock distribution (i.e., issuance of additional shares of the Basket Security other than in lieu of an ordinary cash dividend) that is given equally to all holders of shares of the issuer of such Basket Security, then once such Basket Security is trading ex-dividend, the Multiplier will be adjusted so that the new Multiplier shall equal the former Multiplier plus the product of the number of shares of such Basket Security issued with respect to one such share of Basket Security and the prior Multiplier. 3. If the issuer of a Basket Security is being liquidated or dissolved or is subject to a proceeding under any applicable bankruptcy, insolvency or other similar law such Basket Security will continue to be included in the Basket so long as a Market Price for such Basket Security is available. Subject to paragraph 7 below, if a Market Price is no longer available for a Basket Security for whatever reason, including the liquidation or dissolution of the issuer of such Basket Security or the subjection of the issuer of such Basket Security to a proceeding under any applicable bankruptcy, insolvency or other similar law, then the value of such Basket Security will equal zero in connection with calculating the Basket Value and the Basket Maturity Value for so long as no Market Price is available, and no attempt will be made to find a replacement stock or increase the value of the Basket to compensate for the deletion of such Basket Security. 4. If the issuer of a Basket Security has been subject to a merger or consolidation and is not the surviving entity and holders of such Basket Security are entitled to receive cash or securities in exchange for such Basket Security, then a value for such Basket Security will be determined (i) in the case of cash, at the time of receipt by such holders and will equal the amount of such cash consideration, and (ii) in the case of securities, on the first Trading Day on which such securities are traded regular way, and will equal the Market Price of such securities (in each case (i) and (ii), the "Cash Component"); provided, that if such securities do not have a Market Price, the Cash Component shall be the fair market value of such securities, as determined by the Calculation Agent. The Cash Component, as adjusted for the accrual of interest described below, will be constant for the remaining term of the Securities. No adjustment will be made to the Multiplier of such Basket Security. The Cash Component will accrue interest at a rate equal to the London Inter-Bank Offered Rate ("LIBOR") with a term equal to the period of time from the Interest Commencement Date (as defined below) to December 5, 1996 (the "Specified Maturity"), determined and fixed (i) in the case of cash, on the first Business Day that is immediately following the date of determination of such Cash Component and (ii) in the case of securities, on the fourth Business Day following the date of determination of such Cash Component (in each case (i) and (ii), the "LIBOR Determination Date"). LIBOR will accrue on such Cash Component commencing on the second London Business Day following such LIBOR Determination Date (the "Interest Commencement Date") up to and including the Specified Maturity. LIBOR, will be determined by the Calculation Agent in accordance with the following provisions: (i) On the relevant LIBOR Determination Date, LIBOR will be determined through the application of linear interpolation by reference to the offered rates for deposits of not less than U.S.$1,000,000 having a maturity immediately before and immediately after the Specified Maturity, commencing on the Interest Commencement Date, which appear either (a) if the Specified Maturity is one year or less from the relevant LIBOR Determination Date, on the display designated as Page 3750 on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service for the purpose of displaying London Interbank offered rates of major banks) ("Telerate S-10 11 Page 3750"), or (b) if the Specified Maturity is more than one year from the relevant LIBOR Determination Date, on each of Telerate Page 3750 and on the display designated as page "SWAP" on the Reuter Monitor Money Rates Service (or such other page as may replace the SWAP page on that service for the purpose of displaying London Interbank offered rates of major banks) ("Reuters-SWAP"), in each case as of 11:00 A.M., London time; provided that if there is an offered rate for the Specified Maturity, then LIBOR will be such offered rate. If such offered rates do not appear, LIBOR with respect to such LIBOR Determination Date will be determined as described in (ii) below. (ii) With respect to a LIBOR Determination Date on which no such offered rates appear on Telerate Page 3750 or Reuters SWAP as described in (i) above, LIBOR will be determined on the basis of the rates at approximately 11:00 A.M., London time, on such LIBOR Determination Date, at which deposits in U.S. dollars having the Specified Maturity are offered to prime banks in the London Interbank market by four major banks in the London Interbank market selected by the Calculation Agent commencing on the Interest Commencement Date and in a principal amount equal to an amount not less than U.S.$1,000,000 that in the Calculation Agent's judgment is representative for a single transaction in such market at such time (a "Representative Amount"). The Calculation Agent will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, LIBOR with respect to such LIBOR Determination Date will be calculated by reference to the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR with respect to such LIBOR Determination Date will be calculated by reference to the arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City time, on such LIBOR Determination Date by three major banks in The City of New York, selected by the Calculation Agent, for loans in U.S. dollars to leading European banks having the Specified Maturity commencing on the Interest Commencement Date and in a Representative Amount; provided, however, that if fewer than three banks selected as aforesaid by the Calculation Agent are quoting as mentioned in this sentence, LIBOR with respect to such Cash Component will be the LIBOR as last in effect. "London Business Day" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. The value of any Basket Security converted into a Cash Component as of any given day will equal the sum of the Cash Component and all interest accrued thereon as of such day. The interest that has accrued on any given day will only be reflected in the Basket Value quoted by the AMEX at the end of such day and not in the values disseminated at interim periods during the day. For purposes of calculating the Basket Maturity Value, the value of any such Basket Security will equal the sum of the Cash Component and all interest accrued up to and including the Specified Maturity. Interest will not be compounded. 5. If all the Basket Securities of any class or series of an issuer are converted into or exchanged for the same or a different number of shares of any class or classes of equity security other than such Basket Security, whether by capital reorganization, recapitalization, reclassification or otherwise, (other than pursuant to paragraph 4 above) then, once such conversion has become effective, the former Basket Security will be removed from the Basket and such new equity securities will be added to the Basket as new Basket Securities. The Multiplier for each such new Basket Security will equal the product of the last value of the Multiplier with respect to the former Basket Security and the number of shares of such new Basket Security issued with respect to one share of the former Basket Security. 6. If the issuer of a Basket Security issues to all of its shareholders equity securities of an issuer other than the issuer of the Basket Security, then such new equity securities will be added to the Basket as a new Basket Security. The Multiplier for such new Basket Security will equal the product of the last value of the Multiplier with respect to the Basket Security for which the new Basket Security is being S-11 12 issued (the "Original Basket Security") and the number of shares of the new Basket Security issued with respect to one share of the Original Basket Security. 7. If a Basket Security is subject to an extraordinary dividend or an extraordinary distribution (including upon liquidation or dissolution) of cash or other property of any kind (other than any such dividend or distribution otherwise addressed in the preceding paragraphs) which is received equally by all holders of such Basket Securities, then the Calculation Agent shall determine the fair market value, if any, of such cash or other property received in respect of each share of such Basket Security and the Basket shall thereafter be deemed to include an amount equal to the product of the Multiplier on such date and such fair market value. No adjustments of any Multiplier of a Basket Security will be required unless such adjustment would require a change of at least 1% in the Multiplier then in effect. The Multiplier resulting from any of the adjustments specified above will be rounded to the nearest one thousandth with five ten-thousandths being rounded upward. S-12 13 THE BASKET GENERAL While the Basket consists of stocks of issuers that operate as bank holding companies in the United States, the Basket is not intended to provide an indication of the pattern of price movements of common stocks of bank holding companies generally. Nineteen of the 20 bank holding companies whose stocks comprise the Basket are engaged in the regional banking business and one is engaged in the national banking business. Each of the issuers of a Basket Security files certain information reports with the Securities and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934. Such reports generally contain a description of the business of the issuer, financial statements and certain other information which may be material to potential investors in the Securities. THE INCLUSION OF A BASKET SECURITY IN THE BASKET IS NOT A RECOMMENDATION TO BUY OR SELL SUCH BASKET SECURITY, AND NEITHER HOLDINGS NOR ANY OF ITS AFFILIATES MAKE ANY REPRESENTATION TO ANY PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF THE BASKET OR ANY BASKET SECURITY. THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE SUNS OFFERED HEREBY AND DOES NOT RELATE TO THE BASKET SECURITIES. ALL DISCLOSURES CONTAINED IN THIS PROSPECTUS SUPPLEMENT REGARDING THE ISSUERS OF THE BASKET SECURITIES ARE DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH. NEITHER HOLDINGS NOR THE UNDERWRITERS HAVE VERIFIED EITHER THE ACCURACY OR THE COMPLETENESS OF THE INFORMATION CONCERNING THE ISSUERS OF THE BASKET SECURITIES INCLUDED THEREIN. THUS, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR TO THE DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH) THAT WOULD AFFECT THE TRADING PRICE OF THE BASKET SECURITIES HAVE BEEN PUBLICLY DISCLOSED. BECAUSE THE AMOUNT PAYABLE AT MATURITY IS RELATED TO THE TRADING PRICE OF THE BASKET SECURITIES, SUCH EVENTS, IF ANY, WOULD ALSO AFFECT THE TRADING PRICE OF THE SUNS. HOLDINGS DOES NOT INTEND TO FURNISH TO HOLDERS OF SUNS SUBSEQUENT INFORMATION WITH RESPECT TO THE ISSUERS OF THE BASKET SECURITIES. Holdings or its affiliates may presently or from time to time engage in business with one or more of the issuers of the Basket Securities or with persons seeking to acquire such issuers, including providing advisory services to such issuers or other persons, including merger and acquisition advisory services. In the course of such business, Holdings or its affiliates may acquire non-public information with respect to such issuers and, in addition, one or more affiliates of Holdings may publish research reports with respect to such issuers. The actions described in the preceding sentences, including merger and acquisition advisory services, may directly adversely effect the Market Prices of the Basket Securities. Holdings does not make any representation to any purchaser of a Security with respect to any matters whatsoever relating to such issuers. Any prospective purchaser of a Security should undertake an independent investigation of the issuers of the Basket Securities as in its judgment is appropriate to make an informed decision with respect to an investment in the Securities. THE BANKING INDUSTRY The commercial banking industry in the United States is (i) subject to intense competition, (ii) extensively regulated, (iii) facing significant economic, regulatory and political risks and (iv) undergoing extensive consolidation -- each of which affects the prices of the equity securities of commercial banks and their holding companies, including the stocks in the Basket. Most commercial banking organizations and their affiliates face intense competition across many product lines from other commercial banks, savings banks, savings and loan associations, investment advisory firms, finance companies, mutual funds, insurance firms, brokerage firms and credit unions, many of which are not subject to the same or even similar regulatory burdens and restrictions and some of which for a variety of reasons are larger and have significantly more resources. The activities of commercial banks and their holding companies and affiliates are subject to extensive regulation under both federal and state law. The activities of such organizations are typically limited to those S-13 14 expressly provided for by law or otherwise considered necessary or incidental to carrying on the business of banking or closely related thereto, precluding such organizations in many cases from unrestricted participation in the financial services industry, particularly in the insurance and securities areas. Not only does such regulation restrict the types of activities in which such entities are engaged and the services offered, such regulation also imposes substantial restrictions on the manner in which such services and products are provided. Such restrictions include, for example, limitations on places of business and extensive customer disclosure requirements. Although the geographical restrictions that were historically imposed on the locations of offices of commercial banks have undergone substantial relaxation over the past ten years and, as a result of recently enacted federal interstate banking legislation, will be further relaxed over the next several years, as a result of these restrictions many commercial banking organizations, including many of those in the Basket, operate in a relatively small geographic area in contrast to many of their non-bank competitors. In addition, commercial banking organizations are subject to various affirmative regulatory obligations not otherwise imposed upon many of their competitors. These include capital requirements, obligations to pay deposit insurance premiums and maintain certain non-interest bearing reserves with the Federal Reserve and requirements under various community reinvestment type laws. Most commercial banks face various economic, regulatory and political risks. Most of the significant assets of a commercial banking organization are financial assets the underlying value of which may fluctuate with changes in interest rates or the underlying credit-worthiness of the obligor or borrower. Many commercial banking organizations operate in a relatively small geographic area, resulting in concentration risks and subjecting the performance and financial condition of the organization in many cases directly to the status of the local economies in which it operates. Commercial banks also face the ongoing regulatory and political risk of even more expansive and costly regulation as well as the risk of potentially significant regulatory sanctions should they be found to have serious operational deficiencies or impaired results of operations or financial condition. The imposition of such sanctions can have a significantly adverse effect on a bank's results of operations and financial condition. As a result of significant overcapacity in the industry, the relaxation of geographic restrictions, economies of scale and a variety of other factors, the commercial banking industry in the United States has undergone extensive consolidation during the last ten years and this process is expected to continue in the near future. HISTORICAL INFORMATION The following table sets forth the high and low price for each of the Basket Securities as reported on the exchange in which it trades, during 1991, 1992, 1993 and during 1994 (through November 28, 1994), and the closing price on December 31, 1991, 1992, and 1993 and on November 28, 1994. The historical prices of the Basket Securities should not be taken as an indication of future performance, and no assurance can be given that the prices of the Basket Securities will increase sufficiently to cause the beneficial owners of the Securities to receive an amount greater than the Minimum Maturity Payment Amount at Stated Maturity. The historical stock prices set forth herein have been adjusted to reflect certain corporate events that affected the prices of the Basket Securities, including, but not limited to, scrips issues, rights issues, stock splits, reverse splits, stock dividends, spin-offs and extraordinary dividends. Certain adjustments to the Multiplier and the Basket will be made by the Calculation Agent as set forth under "Description of Securities -- Adjustments to the Multiplier and Basket;" such adjustments may not correspond to the adjustments made in determining the historical stock prices set forth herein.
BASKET SECURITIES HIGH LOW LAST - ----------------------------------------------------------------- ------ ------ ------ Bancorp Hawaii, Inc. 1991........................................................... $31.83 $18.89 $30.00 1992........................................................... 34.67 26.83 29.33 1993........................................................... 35.92 26.67 27.33 1994 (through November 28)..................................... 34.75 24.13 25.38 Barnett Banks, Inc. 1991........................................................... 36.38 15.50 33.50 1992........................................................... 43.63 31.00 41.25 1993........................................................... 50.38 37.38 41.50 1994 (through November 28)..................................... 48.13 37.25 39.25
S-14 15
BASKET SECURITIES HIGH LOW LAST - ----------------------------------------------------------------- ------ ------ ------ Baybanks, Inc. 1991........................................................... $20.00 $ 9.25 $19.13 1992........................................................... 41.00 18.50 40.75 1993........................................................... 52.25 37.75 50.75 1994 (through November 28)..................................... 65.25 49.25 52.88 Citizens Bancorp 1991........................................................... 21.00 14.75 16.25 1992........................................................... 22.75 15.75 22.75 1993........................................................... 31.75 21.75 27.00 1994 (through November 28)..................................... 31.50 25.00 26.50 City National Corporation 1991........................................................... 15.75 8.63 11.88 1992........................................................... 16.00 4.63 6.63 1993........................................................... 11.63 6.38 7.50 1994 (through November 28)..................................... 12.13 7.13 9.63 CoreStates Financial Corp. 1991........................................................... 24.31 12.00 23.94 1992........................................................... 28.94 21.00 28.56 1993........................................................... 30.19 25.13 26.13 1994 (through November 28)..................................... 29.13 22.88 25.13 First American Corporation 1991........................................................... 18.25 6.00 18.00 1992........................................................... 28.13 18.00 27.50 1993........................................................... 34.50 25.25 32.00 1994 (through November 28)..................................... 35.00 26.38 27.38 First Chicago Corporation 1991........................................................... 28.75 15.63 24.63 1992........................................................... 37.75 22.88 36.75 1993........................................................... 50.63 35.50 43.25 1994 (through November 28)..................................... 55.50 41.13 46.38 Hibernia Corporation 1991........................................................... 8.25 2.00 2.75 1992........................................................... 7.00 2.50 5.88 1993........................................................... 9.13 5.50 7.75 1994 (through November 28)..................................... 9.13 7.25 7.88 Mercantile Bancorporation Inc. 1991........................................................... 25.17 12.67 25.08 1992........................................................... 32.17 23.17 32.17 1993........................................................... 37.67 29.08 30.08 1994 (through November 28)..................................... 39.25 29.75 31.25 Michigan National Corporation 1991........................................................... 42.00 14.25 41.50 1992........................................................... 52.50 40.25 51.25 1993........................................................... 65.00 49.75 57.50 1994 (through November 28)..................................... 82.50 54.63 75.25
S-15 16
BASKET SECURITIES HIGH LOW LAST - ----------------------------------------------------------------- ------ ------ ------ Midlantic Corporation 1991........................................................... $ 9.38 $ 2.88 $ 4.50 1992........................................................... 21.88 4.38 19.88 1993........................................................... 28.63 17.50 25.50 1994 (through November 28)..................................... 31.88 24.25 26.00 North Fork Bancorporation, Inc. 1991........................................................... 10.75 3.75 4.75 1992........................................................... 9.50 4.25 8.13 1993........................................................... 13.38 7.63 12.88 1994 (through November 28)..................................... 16.88 12.50 14.13 Provident Bankshares Corporation 1991........................................................... 8.13 2.75 6.75 1992........................................................... 14.50 6.25 14.25 1993........................................................... 22.00 12.00 19.25 1994 (through November 28)..................................... 27.75 18.25 20.75 Summit Bancorporation 1991........................................................... 12.96 7.05 11.14 1992........................................................... 19.32 11.14 19.09 1993........................................................... 22.50 16.82 19.32 1994 (through November 28)..................................... 21.71 17.27 19.00 U.S. Bancorp 1991........................................................... 23.75 11.75 22.38 1992........................................................... 26.63 19.88 26.38 1993........................................................... 28.88 22.00 25.00 1994 (through November 28)..................................... 28.63 22.25 22.88 UJB Financial Corp. 1991........................................................... 17.50 6.88 14.63 1992........................................................... 24.50 14.00 24.25 1993........................................................... 33.50 21.50 24.00 1994 (through November 28)..................................... 29.25 23.50 24.38 Union Planters Corporation 1991........................................................... 16.88 6.50 14.38 1992........................................................... 24.88 13.50 24.25 1993........................................................... 30.00 22.38 25.13 1994 (through November 28)..................................... 28.88 20.38 20.88 UST Corp. 1991........................................................... 9.05 5.24 6.88 1992........................................................... 10.50 6.50 9.50 1993........................................................... 12.50 7.38 10.63 1994 (through November 28)..................................... 14.38 9.25 10.25 Vermont Financial Services Corp. 1991........................................................... 12.00 4.25 9.50 1992........................................................... 19.50 9.00 15.50 1993........................................................... 23.00 14.50 17.25 1994 (through November 28)..................................... 24.25 16.25 20.25
EVENTS OF DEFAULT AND ACCELERATION In case an Event of Default with respect to any Securities shall have occurred and be continuing, the amount payable to a Holder of a Security upon any acceleration permitted under the Senior Indenture will be equal to the Maturity Payment Amount calculated as though the date of acceleration was the Stated Maturity. S-16 17 See "Description of Securities -- Maturity Payment Amount" herein. If a bankruptcy proceeding is commenced in respect of Holdings, the claim of the Holder of a Security may be limited, under Section 502(b)(2) of Title 11 of the United States Code, to the principal amount of the Security, calculated as though the commencement of the proceeding was the Stated Maturity. CALCULATION AGENT All determinations made by the Calculation Agent shall be at the sole discretion of the Calculation Agent and, in the absence of manifest error, shall be conclusive for all purposes and binding on Holdings and the Holders of the Securities and the Calculation Agent shall have no liability therefor. FORM OF SECURITIES CONVERSION OPTION The Securities will initially be evidenced by certificates in fully registered form (each, a "Certificate"). Forty-five calendar days after the closing of the offering, each Holder will have the option to convert the form of such Holder's Securities from certificated to book-entry form within a forty-five calendar day period (the "Conversion Option Period"). In order to be exchanged for Securities in book-entry form (represented by a beneficial interest in the Global Security described below), a Certificate must be delivered to the Depository in the manner referred to below. The Conversion Option Period is expected to run from January 19, 1995, through March 4, 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." S-17 18 CERTIFICATES FOR SECURITIES The Trustee will maintain a register (the "Security Register") for registering the ownership of and transfers of Securities represented by Certificates. Prior to due presentment for registration of transfer, Holdings, the Trustee, and any agent of either of them may deem and treat the person in whose name a Certificate is registered (the "registered holder") as the absolute owner of the Securities evidenced by such Certificate for any purpose whatsoever, and as the person entitled to exercise the rights represented by the Securities evidenced thereby, and neither Holdings, the Trustee, nor any agent of either of them shall be affected by any notice to the contrary. Accordingly, if a beneficial owner of a Security evidenced by a Certificate is not the registered holder thereof (for example, if it holds the Certificate through a broker holding such Certificate in nominee or "street" name), it may exercise its rights as a Holder only through the registered holder. The Trustee shall from time to time register the transfer of any outstanding Certificates upon surrender thereof at the Trustee's office, duly endorsed, or accompanied by a written instrument or instruments of transfer in form satisfactory to the Trustee duly executed by the registered holder thereof, by the duly appointed legal representative thereof or by its duly authorized attorney, such signature to be guaranteed by a bank or trust company located, or with a correspondent office, in The City of New York or by a broker or dealer which is a member of a national securities exchange. A new Certificate shall be issued to the transferee upon any such registration of transfer. At the option of a Holder, Certificates may be exchanged for other Certificates, representing a like principal amount of Securities upon surrender to the Trustee at the Trustee's office of the Certificates to be exchanged. Holdings shall thereupon execute, and the Trustee shall countersign and deliver, one or more new Certificates representing a like principal amount of Securities. If any Certificate is mutilated, lost, stolen or destroyed, Holdings may in its discretion execute, and the Trustee may countersign and deliver, in exchange and substitute for and upon cancellation of the mutilated Certificate, or in lieu of the lost, stolen or destroyed Certificate, a new Certificate of like tenor and representing an equivalent principal amount of Securities, but only (in the case of loss, theft or destruction) upon receipt of evidence satisfactory to Holdings and the Trustee of such loss, theft or destruction of such Certificate and security or indemnity, if requested, also satisfactory to them. Applicants for substitute Certificates must also comply with such other reasonable regulations and pay such other reasonable charges as Holdings or the Trustee may prescribe. The Maturity Payment Amount 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 Underwriters), banks and trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Persons who are not participants may beneficially own securities held by DTC only through participants or indirect participants. DTC's nominee for all purposes will be considered the sole owner or holder of the Securities which are held in book-entry form. Holders which own Securities in book-entry form will not be entitled to have Securities registered in their names, will not be considered the holders thereof under the Senior Indenture, and S-18 19 will not be entitled to exchange their book-entry Securities for definitive form Certificates, except under the limited circumstances described below. A Holder that is not a participant will have its ownership of a Security in book-entry form recorded on or through the records of the brokerage firm or other entity that maintains such Holder's account. In turn, the total number of Securities in book-entry form held by an individual brokerage firm for its clients will be maintained on the records of the Depository in the name of such brokerage firm (or in the name of a participant that acts as agent for the Holder's brokerage firm if such firm is not a participant). Therefore, a Holder must rely upon the foregoing procedures to evidence such Holder's ownership of a Security in book-entry form. Transfer of ownership of a Security in book-entry form may be effected only through the Depository, and, if applicable, the brokerage firm or other entity that maintains the selling Holder's book-entry account. The laws of some states of the United States may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits on transfer and such laws may impair the ability to own, transfer or pledge securities in book-entry form. Neither Holdings nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made to beneficial owners of book-entry securities or for maintaining, supervising or reviewing any records relating to such beneficial owners. Holdings understands that under existing industry practices, in the event that Holdings requests any action of Holders or that Holders which own Securities in book-entry form desire to give or take any action which Holders are entitled to give or take under the Senior Indenture, the Depository would authorize the participants to give or take such action, and such participants would authorize Holders owning through such participants to give or take such action or would otherwise act upon the instructions of Holders owning through them. Accordingly, each Holder which owns a Security in book-entry form must rely on the procedures of the Depository and, if such Holder is not a participant, on the procedures of the participant through which such Holder owns its Security, to exercise any rights of a Holder under the Senior Indenture. Payment of the principal of Securities registered in the name of the Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the holder of the Global Securities representing such Securities. None of Holdings, the Trustee or any other agent of Holdings or any agent of the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests or for supervising or reviewing any records relating to such beneficial ownership interests. Holdings expects that the Depository, upon receipt of any payment of principal or any interest payment in respect of a Global Security, will credit the accounts of the participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interest in such Global Security as shown on the records of the Depository. Holdings also expects that payments by participants to Holders will be governed by standing customer instructions and customary practices, as is now the case with Securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such participants. If at any time (i) the Depository notifies Holdings that it is unwilling or unable to continue as Depository or (ii) Holdings becomes aware that the Depository shall no longer be eligible under the Senior Indenture, Holdings shall appoint a successor Depository. If a successor Depository for the Securities is not appointed by Holdings within 90 days after any such event, Holdings will issue, and the Trustee will authenticate and deliver, Securities in definitive form in an aggregate principal amount equal to the aggregate principal amount of the Global Securities, in denominations of $25 and integral multiples thereof. Such definitive Securities shall be registered in such name or names as the Depository shall instruct the Trustee. It is expected that such instructions will be based upon directions received by the Depository from participants with respect to ownership of beneficial interests in such Global Securities. LISTING The SUNS have been approved for listing on the AMEX, subject to notice of issuance, under the symbol "BKG". S-19 20 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 the material United States federal income tax consequences of the ownership and disposition of the Securities. The following summary describes certain United States federal income tax consequences of the ownership of Securities as of the date hereof. Except where noted, it deals only with Securities held 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 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 Maturity Payment 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 Issue Price, if any, as contingent interest includable in income by United States Holders as ordinary income at such time. If the amounts payable at Maturity are less than the Issue Price, the Holder should treat such difference as a capital loss. 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, but not its aggregate amount. For example, under proposed regulations issued in 1991 (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 S-20 21 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"). The Bifurcation Regulations, however, would not apply to the Securities if the Issue Price exceeds the minimum Maturity Payment Amount by more than an "insubstantial amount." The Bifurcation Regulations do not define the term "insubstantial amount." 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. 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. 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 Maturity Payment 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 Maturity Payment 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 S-21 22 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 Maturity Payment Amount on a Security and to the proceeds of sale of a Security made to United States Holders other than certain exempt recipients (such as corporations). A 31 percent backup withholding tax will apply to such payments if the United States Holder fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. No information reporting or backup withholding will be required with respect to payment of the Maturity Payment 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 Maturity Payment 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 Maturity Payment 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 Maturity Payment 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. S-22 23 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement dated as of November 28, 1994 (the "Underwriting Agreement"), Holdings has agreed to sell to each of the underwriters named below (the "Underwriters"), and each of the Underwriters has severally agreed to purchase, the number of SUNS set forth opposite its name below.
UNDERWRITERS NUMBER OF SUNS ------------ -------------- Lehman Brothers Inc. ....................................... 334,000 Kemper Securities, Inc. .................................... 333,000 Oppenheimer & Co., Inc. .................................... 333,000 -------------- Total............................................. 1,000,000 =============
Holdings has been advised that the Underwriters propose initially to offer the Securities to the public at the public offering price set forth on the cover page of this Prospectus Supplement, and to certain dealers at such price less a concession not in excess of $0.35 per Security. The Underwriters may allow and such dealers may reallow a concession not in excess of $0.10 per Security to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed. Holdings has granted an option to the Underwriters, exercisable within 30 days of the date of this Prospectus Supplement, to purchase up to an additional 150,000 SUNS to cover over-allotments, if any, at the price to public less the underwriting discounts and commissions specified on the cover page of this Prospectus Supplement. Lehman Brothers Inc. is a wholly owned subsidiary of Holdings. The participation of Lehman Brothers Inc. in the offer and sale of the SUNS complies with the requirements of Schedule E of the By Laws of the National Association of Securities Dealers regarding underwriting securities of an affiliate. The Underwriters have advised Holdings that they intend to make a market in the Securities but the Underwriters are not obligated to do so and may discontinue market making without notice at any time for any reason, including, without limitation, as a result of their respective investment banking businesses. No assurance can be given as to the liquidity of the trading market for the Securities. 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. Holdings has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. VALIDITY OF THE SECURITIES The validity of the Securities will be passed upon for Holdings by Karen Muller, Esq., Deputy General Counsel of Holdings and for the Underwriters by Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. The Underwriters are being advised as to certain matters 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. S-23 24 GLOSSARY Set forth below are definitions of some of the terms used in this Prospectus Supplement and not defined in the accompanying Prospectus. "Business Day" means a day of the week which is not a day on which banking institutions in New York, New York, are authorized or required by law to close. "Maturity" of any Security means the date on which the principal of such Security becomes due and payable as provided therein or in the Senior Indenture, whether at Stated Maturity or by declaration of acceleration or otherwise. "Holder" means, with respect to any certificated Security, the Person in whose name the certificate is registered in the Security Register and, with respect to any Global Security, any Beneficial Holder thereof to the extent of such Beneficial Holder's interest therein. In addition, definitions for the following terms are set forth in this Prospectus Supplement at the pages indicated:
DEFINED TERM PAGE ------ AMEX................................................................................. Cover Average Market Price................................................................. S-3 Basket............................................................................... Cover Basket Maturity Value................................................................ S-3 Basket Securities.................................................................... S-3 Basket Security...................................................................... S-3 Basket Value......................................................................... S-4 Calculation Agent.................................................................... S-3 Calculation Day...................................................................... S-7 Calculation Period................................................................... S-3 Cash Component....................................................................... S-10 CEDE................................................................................. S-18 Certificate.......................................................................... S-17 Code................................................................................. S-20 Conversion Option Period............................................................. S-17 Depository........................................................................... S-18 DTC.................................................................................. S-18 Global Security...................................................................... S-18 Holdings............................................................................. Cover indirect participants................................................................ S-18 IRS.................................................................................. S-20 Issue Price.......................................................................... Cover LIBOR................................................................................ S-10 LIBOR Determination Date............................................................. S-10 London Business Day.................................................................. S-11 Market Disruption Event.............................................................. S-8 Market Price......................................................................... S-8 Maturity Payment Amount.............................................................. S-3 Multiplier........................................................................... S-3 NASDAQ NMS........................................................................... S-8 NYSE................................................................................. S-8 Non-United States Holder............................................................. S-20 Original Basket Value................................................................ S-4
S-24 25
DEFINED TERM PAGE ------ Original Basket Security............................................................. S-12 participants......................................................................... S-18 Participation Percentage............................................................. Cover registered holder.................................................................... S-18 SEC.................................................................................. S-13 Securities........................................................................... Cover Security Register.................................................................... S-18 Specified Maturity................................................................... S-10 Stated Maturity...................................................................... S-3 SUNS................................................................................. Cover Trading Day.......................................................................... S-8 Underwriters......................................................................... S-23 Underwriting Agreement............................................................... S-23 United States Holder................................................................. S-20 Withdrawn Regulations................................................................ S-21
S-25 26 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 27 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 28 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 29 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 30 "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 31 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 32 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 33 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 34 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 35 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 36 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 37 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 38 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 39 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 40 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 41 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 42 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 43 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 44 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 45 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 46 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 47 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 48 $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 49 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 50 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 51 - ------------------------------------------------------ - ------------------------------------------------------ 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-5 Special Considerations................ S-5 Description of Securities............. S-7 The Basket............................ S-13 Form of Securities.................... S-17 Certain United States Federal Income Tax Consequences.................... S-20 Underwriting.......................... S-23 Validity of the Securities............ S-23 Glossary.............................. S-24 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 - -------------------------------------------- - --------------------------------------------
- ------------------------------------------------------ - ------------------------------------------------------ 1,000,000 SUNS LEHMAN BROTHERS HOLDINGS INC. REGIONAL BANK STOCK UPSIDE NOTE SECURITIES DUE 1996 --------------------- PROSPECTUS SUPPLEMENT NOVEMBER 28, 1994 --------------------- LEHMAN BROTHERS KEMPER SECURITIES, INC. OPPENHEIMER & CO., INC. - ------------------------------------------------------ - ------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----