424B2 1 mtng035.txt MTNG035 RANGE NOTE Rule 424(b)(2) Registration No. 333-60474 PRICING SUPPLEMENT NO. 35 dated January 7, 2003 to Prospectus Supplement dated June 14, 2001 and Prospectus dated June 14, 2001 LEHMAN BROTHERS HOLDINGS INC. Medium-Term Notes, Series G Due Nine Months or More From the Date of Issue CUSIP No.: 52517PTE1 ISIN: US52517PTE15 Specified Currency: US Dollars Principal Amount: US$3,000,000.00 Total Per Note Issue Price: US$3,000,000.00 100% Agent's Commission: US$ 0.00 0% Proceeds to Lehman Brothers Holdings: US$3,000,000.00 100% Agent: Lehman Brothers Inc. Agent's Capacity: [ ] As agent [X ] As principal (See "Underwriting" below.) Trade Date: January 7, 2003 Original Issue Date: January 16, 2003 Stated Maturity Date: January 16, 2013 The Notes, along with the Medium-Term Notes, Series G, described in Pricing Supplement No. 33 dated December 23, 2002, will form a single tranche and will be in the aggregate principal amount of $8,000,000. These Notes will have the same Stated Maturity Date, the same CUSIP number, will settle on the same date and will trade interchangeably. Amortizing Note: [ ] Yes [X ] No Amortization Schedule: Not applicable [X ] Fixed Rate Note [ ] Floating Rate Note [ ] CD Rate [ ] Commercial Paper Rate [ ] Federal Funds Rate [ ] LIBOR Telerate [ ] LIBOR Reuters [ ] Treasury Rate: Constant Maturity [ ] Yes [ ] No [ ] Prime Rate [ ] J.J. Kenny Rate [ ] Eleventh District Cost of Funds Rate [ ] Other: _________________________ Interest Rate per Annum: Subject to "Interest Accrual" provisions, as described below: * from the Original Issue Date to January 16, 2005, 6.00%; * from January 16, 2005 to January 16, 2007, 7.00%; * from January 16, 2007 to January 16, 2009, 8.00%; * from January 16, 2009 to January 16, 2011, 9.00%; * from January 16, 2011 to the Stated Maturity Date, 10.00%. Interest Payment Dates: Each July 16, October 16, January 16, and April 16, commencing on April 16, 2003. Interest Accrual: Interest will accrue on each day on which 3-Month LIBOR for the relevant LIBOR Observation Date is within the applicable LIBOR Range. If the value of 3-Month LIBOR (stated as a percent per annum) on the relevant LIBOR Observation Date is equal to or greater than the applicable LIBOR Range minimum and less than or equal to the applicable LIBOR Range maximum indicated below for LIBOR Observation Dates occurring during the periods indicated, interest will accrue on the Notes for the related day at the applicable Interest Rate per Annum. If, however, the value of 3-Month LIBOR is less than the applicable LIBOR Range minimum or greater than the applicable LIBOR Range maximum on the relevant LIBOR Observation Date, then no interest will accrue on the related day. See "Risk Factors" below for certain relevant considerations. 3-Month LIBOR: For any LIBOR Observation Date, the offered rates for deposits in U.S. dollars for a period of three months, commencing on such LIBOR Observation Date, which appears on Moneyline Telerate, on page 3750 (or any successor service or page for the purpose of displaying the London interbank offered rates of major banks) as of 11:00 a.m., London time, on that LIBOR Observation Date. If 3-Month LIBOR cannot be determined on a LIBOR Observation Date as described above, then the calculation agent will determine LIBOR based on quotations from reference banks in the manner described in the Prospectus Supplement for deposits in U.S. dollars for a period of three months, commencing on such LIBOR Observation Date. LIBOR Range: Period LIBOR Range January 16, 2003- Stated Maturity 0.00% to 7.00% LIBOR Observation Date: With respect to each LIBOR Business Day that does not occur during the LIBOR Suspension Period, that LIBOR Business Day. With respect to each day that is not a LIBOR Business Day not occurring during the LIBOR Suspension Period, the last preceding LIBOR Business Day. With respect to each day occurring during the LIBOR Suspension Period, the LIBOR Observation Date will be the last LIBOR Business Day preceding the first day of such LIBOR Suspension Period. LIBOR Suspension Period: The period beginning on the fifth New York Business Day prior to but excluding each Interest Payment Date commencing April 16, 2003 (including the Stated Maturity Date). LIBOR Business Day: Any day that is a day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. New York Business Day: Any day that is not a Saturday or Sunday and that, in New York City, is not a day on which banking institutions generally are authorized or obligated by law or executive order to be closed. Interest Computation: Interest will be computed on the basis of the actual number of days in the year and the actual number of days elapsed. "Accrue to Pay": [ ] Yes [X ] No Interest Rate Calculation Agent: Citibank, N.A. Optional Redemption: The Notes may be redeemed prior to Stated Maturity at the option of Lehman Brothers Holdings in whole or in part at a price equal to 100% of the principal amount being redeemed, from time to time on each Interest Payment Date, commencing on April 16, 2003. Notice of redemption will be given not less than five New York Business Days prior to the redemption date. Optional Repayment: The holder of the Note may not elect repayment of the Note by Lehman Brothers Holdings prior to Stated Maturity. Extension of Maturity: Lehman Brothers Holdings may not extend the Stated Maturity Date of the Note. Form of Note: [X ] Book-entry only (global) [ ] Certificated Depository: The Depository Trust Company Authorized Denominations: $1,000 or any larger whole multiple Issuer Rating: Long-term senior unsecured debt of Lehman Brothers Holdings is currently rated A by Standard & Poor's, A2 by Moody's Investors Service and A+ by Fitch IBCA. RISK FACTORS An investment in the Notes entails certain risks not associated with an investment in conventional fixed rate medium-term notes. See "Risk Factors" generally in the Prospectus Supplement. The interest rate of the Notes will be fixed, subject to the "Interest Accrual" provisions as described above. Investors should consider the risk that the Interest Accrual provisions applicable to the Notes may result in less interest being payable on the Notes than on a conventional fixed rate debt security issued by Lehman Brothers Holdings at the same time. Investors should also consider the risk that 3-Month LIBOR, determined on a daily basis, may be less than the LIBOR Range minimum or exceed the LIBOR Range maximum on one or more LIBOR Business Days during the applicable period, in which event no interest will accrue for the related days during the period. The secondary market for, and the market value of, the Notes will be affected by a number of factors independent of the creditworthiness of Lehman Brothers Holdings, including the level and direction of interest rates, the Interest Accrual provisions applicable to the Notes, the anticipated level and potential volatility of 3-Month LIBOR, the method of calculating 3-Month LIBOR, the time remaining to the maturity of the Notes, the right of Lehman Brothers Holdings to redeem all or a portion of the Notes from time to time, the aggregate principal amount of the Notes and the availability of comparable instruments. The level of 3-Month LIBOR depends on a number of interrelated factors, including economic, financial and political events, over which Lehman Brothers Holdings has no control. The following table, showing the historical level of 3-Month LIBOR in effect for the hypothetical LIBOR Observation Dates listed below, illustrates the variability of that rate: Historical Levels of 3-Month LIBOR Hypothetical LIBOR Hypothetical LIBOR Observation Date 3-Month LIBOR Observation Date 3-Month LIBOR January 16, 1991 7.625 January 16, 1997 5.562 April 16, 1991 6.125 April 16, 1997 5.844 July 16, 1991 6.125 July 16, 1997 5.719 October 16, 1991 5.438 October 16, 1997 5.781 January 16, 1992 4.312 January 16, 1998 5.625 April 16, 1992 4.125 April 16, 1998 5.688 July 16, 1992 3.438 July 16, 1998 5.688 October 16, 1992 3.438 October 16, 1998 5.219 January 15, 1993 3.312 January 15, 1999 4.970 April 16, 1993 3.250 April 16, 1999 5.000 July 16, 1993 3.250 July 16, 1999 5.310 October 15, 1993 3.375 October 15, 1999 6.192 January 14, 1994 3.250 January 14, 2000 6.040 April 15, 1994 4.062 April 14, 2000 6.281 July 15, 1994 4.750 July 14, 2000 6.730 October 14, 1994 5.562 October 16, 2000 6.774 January 16, 1995 6.250 January 16, 2001 5.739 April 14, 1995 6.250 April 16, 2001 4.779 July 14, 1995 5.875 July 16, 2001 3.760 October 16, 1995 5.938 October 16, 2001 2.420 January 16, 1996 5.562 January 16, 2002 1.716 April 16, 1996 5.500 April 16, 2002 1.970 July 16, 1996 5.625 July 16, 2002 1.855 October 16, 1996 5.531 October 16, 2002 1.822 The historical experience of 3-Month LIBOR should not be taken as an indication of the future performance of 3-Month LIBOR during the term of the Notes. Fluctuations in the level of 3-Month LIBOR make the Notes' effective interest rate difficult to predict and can result in effective interest rates to investors that are lower than anticipated. In addition, historical interest rates are not necessarily indicative of future interest rates. Fluctuations in interest rates and interest rate trends that have occurred in the past are not necessarily indicative of fluctuations that may occur in the future, which may be wider or narrower than those that have occurred historically. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES Treatment of Notes as Contingent Payment Debt Instruments Lehman Brothers Holdings intends to treat the Notes as "contingent payment debt instruments." As such, Lehman Brothers Holdings intends to report interest deductions with respect to the Notes based on this treatment and will, upon written request, provide holders of Notes with a projected payment schedule. Under such characterization, holders of the Notes will accrue original issue discount based on the "comparable yield" of the Notes (generally, the rate at which Lehman Brothers Holdings would issue a fixed rate debt instrument with terms and conditions similar to the Notes), and if the actual payments made on the Notes differ from the projected payments, positive or negative adjustments will be made for such differences for tax purposes. In addition, any gain or loss on the sale, exchange or retirement of the Notes generally will be treated as ordinary income or loss. Based on the current interest rate environment, Lehman Brothers Holdings estimates that the comparable yield of the Notes would be an annual rate of approximately 5.15%, compounded quarterly. Lehman Brothers Holdings will not determine the actual comparable yield of the Notes, however, until they are issued. Any positive adjustment, for the amount by which an actual payment exceeds a projected contingent payment, will be treated as additional interest. Negative adjustments will be treated as follows: (i) first, any negative adjustment will reduce the amount of interest required to be accrued in the current year, (ii) second, any negative adjustments that exceed the amount of interest accrued in the current year will be treated as ordinary loss to the extent that the holder's total interest inclusions exceed the total amount of net negative adjustments treated as ordinary loss in prior taxable years, and (iii) third, any excess negative adjustments will be carried forward to offset future income or amount realized on disposition. Holders of Notes can obtain the comparable yield of the Notes and the projected payment schedule by submitting a written request for them to Lehman Brothers Holdings at the following address (which replaces the address provided in the accompanying Prospectus): Controller's Office Lehman Brothers Holdings Inc. 745 Seventh Avenue New York, New York 10019 (212) 526-7000 By purchasing a Note, a holder agrees to be bound by the determination of Lehman Brothers Holdings of the comparable yield and the projected payment schedule. For United States federal income tax purposes, a holder of Notes must use the comparable yield and projected payment schedule in determining its original issue discount accruals, and the adjustments thereto described above, in respect of the Notes. The comparable yield and projected payment schedule are not provided for any purpose other than the determination of a holder's original issue discount and adjustments thereto in respect of the Notes and do not constitute a projection or representation regarding the actual amount of the payments on a Note. For a general discussion of the tax consequences associated with contingent payment debt instruments, see "United States Federal Income Tax Consequences-Debt Securities- Consequences to United States Holders-Contingent Payment Debt Securities" in the Prospectus. It is possible that the Notes may be taxed in some manner other than that described above. A different treatment from that described above could affect the amount, timing and character of income, gain or loss in respect of an investment in the Notes. Investors should consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of the Notes, including the tax consequences under state, local, foreign and other tax laws. Certain United States Federal Income Tax Consequences to Non-United States Holders The following is a summary of certain United States federal income tax consequences of the purchase, ownership and disposition of Notes as of the date hereof. Except where noted, this summary deals only with Notes that are held as capital assets by a non-United States holder who purchases those Notes upon original issuance at their initial public offering price. A summary of certain United States federal tax consequences that will apply to a United States holder of debt securities is set forth under "United States Federal Income Tax Consequences-Debt Securities-Consequences to United States Holders" in the Prospectus. Such holders should note that the backup withholding tax rate of 31% referenced in the Prospectus under "United States Federal Income Tax Consequences-Debt Securities-Information Reporting and Backup Withholding- United States Holders" has been reduced to 30% for payments made during 2003, 29% for payments made during 2004 and 2005 and 28% for payments made during 2006 through 2010, after which time the rate will revert back to 31% absent Congressional action. To the extent this summary is inconsistent with the summary under "United States Federal Income Tax Consequences-Debt Securities- Consequences to Non-United States Holders" in the Prospectus, it replaces that summary. For purposes of this summary, a holder of Notes is a "United States holder" if it is: * a citizen or resident of the United States; * a corporation or partnership created or organized in or under the laws of the United States or any political subdivision of the United States; * an estate the income of which is subject to United States federal income taxation regardless of its source; or * a trust if (x) it is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all of its substantial decisions or (y) it has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. A "non-United States holder" is a holder of Notes other than a "United States holder." This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and judicial decisions as of the date of this Pricing Supplement. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below. This summary does not represent a detailed description of the federal income tax consequences to a non-United States holder in light of such non-United States holder's particular circumstances. In addition, it does not represent a detailed description of the United States federal income tax consequences applicable to a non-United States holder if such non-United States holder is subject to special treatment under the United States federal income tax laws (including if such non-United States holder is a "controlled foreign corporation," "passive foreign investment company," "foreign personal holding company" or, in certain circumstances, a United States expatriate). Lehman Brothers Holdings cannot assure non-United States holders that a change in law will not alter significantly the tax considerations that are described in this summary. If a partnership holds Notes, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A holder who is a partner of a partnership holding Notes should consult such holder's tax advisors. Any person who is considering the purchase of Notes should consult such person's own tax advisors concerning the particular United States federal income tax consequences of the ownership of the Notes, as well as the consequences arising under the laws of any other taxing jurisdiction. United States Federal Withholding Tax The 30% United States federal withholding tax will not apply to any payment of principal or interest, including original issue discount, on the Notes to a non-United States holder provided that: * the non-United States holder does not actually or constructively own 10% or more of the total combined voting power of all classes of the voting stock of Lehman Brothers Holdings within the meaning of the Code and applicable United States Treasury regulations; * the non-United States holder is not a controlled foreign corporation that is related to Lehman Brothers Holdings through stock ownership; * the non-United States holder is not a bank whose receipt of interest on the Notes is described in Section 881(c)(3)(A) of the Code; and * either (a) the non-United States holder provides its name and address on an IRS Form W-8BEN (or other applicable form), and certifies, under penalty of perjury, that such non-United States holder is not a United States person or (b) such non-United States holder holds its Notes through certain foreign intermediaries and satisfies the certification requirements of applicable United States Treasury regulations. Special certification rules apply to certain non-United States holders that are entities rather than individuals. If a non-United States holder cannot satisfy the requirements described above, payments of premium, if any, and interest, including original issue discount, made to such non-United States holder will be subject to the 30% United States federal withholding tax, unless such non-United States holder provides Lehman Brothers Holdings with a properly executed: * IRS Form W-8BEN (or other applicable form) claiming an exemption from, or reduction in, withholding under the benefit of an applicable tax treaty; or * IRS Form W-8ECI (or successor form) stating that interest paid on the Notes is not subject to withholding tax because it is effectively connected with such non-United States holder's conduct of a trade or business in the United States (as discussed below under "-United States Federal Income Tax"). The 30% United States federal withholding tax generally will not apply to any gain that a non-United States holder realizes on the sale, exchange, retirement or other disposition of Notes. United States Federal Income Tax If a non-United States holder is engaged in a trade or business in the United States and premium, if any, or interest, including original issue discount, on the Notes is effectively connected with the conduct of that trade or business, such non-United States holder will be subject to United States federal income tax on that premium or interest on a net income basis (although exempt from the 30% withholding tax, provided certain certification and disclosure requirements discussed above under "-United States Federal Withholding Tax" are satisfied) in the same manner as if such non-United States holder were a United States person, as defined under the Code. In addition, if a non-United States holder is a foreign corporation, such non-United States holder may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of its earnings and profits for the taxable year, subject to adjustments, that are effectively connected with the conduct by such non-United States holder of a trade or business in the United States. A non-United States holder will generally not be subject to United States federal income tax on any gain realized on the disposition of a Note unless: * the gain is effectively connected with such non-United States holder's conduct of a trade or business in the United States; or * such non-United States holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met. United States Federal Estate Tax A non-United States holder's estate will not be subject to United States federal estate tax on Notes beneficially owned by such non-United States holder at the time of its death provided that: * any payment to such non-United States holder on the Notes would be eligible for exemption from the 30% United States federal withholding tax under the rules described in the bullet points under "-United States Federal Withholding Tax," without regard to the certification requirements of the fourth bullet point; and * interest on those Notes would not have been, if received at the time of such non-United States holder's death, effectively connected with the conduct by such non-United States holder of a trade or business in the United States. Information Reporting and Backup Withholding If a holder is a non-United States holder of Notes, Lehman Brothers Holdings must report annually to the Internal Revenue Service and to such holder the amount of payments Lehman Brothers Holdings makes to such holder and the tax withheld with respect to such payments, regardless of whether withholding was required. Copies of the information returns reporting such payments and withholding may also be made available to the tax authorities in the country in which such holder resides under the provisions of an applicable income tax treaty. A non-United States holder will not be subject to backup withholding regarding payments Lehman Brothers Holdings makes to such non-United States holder provided that Lehman Brothers Holdings does not have actual knowledge or reason to know that such non-United States holder is a United States person and Lehman Brothers Holdings has received from such non-United States holder the statement described above in the fourth bullet point under "-United States Federal Withholding Tax." In addition, a non-United States holder will be subject to information reporting and, depending on the circumstances, backup withholding regarding the proceeds of the sale of a Note made within the United States or conducted through United States-related intermediaries, unless the payor receives the statement described above and does not have actual knowledge or reason to know that such non-United States holder is a United States person, or such non- United States holder otherwise establishes an exemption. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a holder's United States federal income tax liability provided the required information is furnished to the Internal Revenue Service. Capitalized terms used herein without definition have the meanings ascribed to them in the Prospectus Supplement and Prospectus. Lehman Brothers Holdings Inc. By: /s/ Thomas O'Sullivan Name: Thomas O'Sullivan Title: Authorized Officer