424B2 1 mtng163upsize.txt MTNG163 CMS NOTE UPSIZE PRICING SUPPLEMENT Rule 424(b)(2) Registration No. 333-60474 PRICING SUPPLEMENT NO. 163/A dated October 28, 2004 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.: 52517PXS5 ISIN: US52517PXS54 Specified Currency: US Dollars Principal Amount: US$8,000,000.00 Total Per Note Issue Price: US$8,000,000.00 100% Agent's Commission: US$ 0.00 0% Proceeds to Lehman Brothers Holdings: US$8,000,000.00 100% The Notes will be issued in an aggregate principal amount of $8,000,000 and will form a single tranche with the $7,000,000 aggregate principal amount of Medium-Term Notes, Series G, due October 29, 2019, that Lehman Brothers Holdings will issue on October 29, 2004, as described in Pricing Supplement No. 163 dated October 14, 2004. The Notes will have the same CUSIP number as the other notes of this tranche and will settle on the same date as, and trade interchangeably with, the other notes of this tranche. The issuance of the Notes will increase the aggregate principal amount of the outstanding notes of this tranche to $15,000,000. In addition, Lehman Brothers Holdings may issue up to an additional $85,000,000.00 aggregate principal amount of Notes similar in all respects (including with respect to the Issue Price and the Agent's Commission specified above). Agent: Lehman Brothers Inc. Agent's Capacity: [ ] As agent [X ] As principal (See "Underwriting" below.) Original Issue Date: October 29, 2004 Stated Maturity Date: October 29, 2019, subject to Optional Redemption; provided that if such day is not a New York or London Business Day, then such day will be the following New York or London Business Day unless such day falls in the following month in which case it will be the preceding New York or London Business Day. Amortizing Note: [ ] Yes [X ] No Amortization Schedule: Not applicable [ ] Fixed Rate Note [X ] 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 [X ] Other: See "Interest Rate per Annum" below Interest Rate per Annum: From the Original Issue Date through October 28, 2012, 8.0%; from October 29, 2012 through October 28, 2014, 9.0%; and from October 29, 2014 until the Stated Maturity Date, 15.0%, in each case, subject to "Interest Accrual" provisions, as described below. Interest Payment Dates: Each January 29, April 29, July 29, and October 29, commencing on January 29, 2005, subject to Optional Redemption; provided that if such day is not a New York and London Business Day, then such day will be the following New York and London Business Day unless such day falls in the following month in which case it will be the preceding New York and London Business Day, and provided further that the final Interest Payment Date for any Notes shall be the applicable maturity date. Interest Accrual: Interest will accrue (at the rate per annum described in the Interest Rate per Annum section for each period) on each day on which the difference of the 30-Year CMS Rate minus the 10-Year CMS Rate for the relevant Accrual Determination Date is equal to or greater than 0. If, however, the difference of the 30-Year CMS Rate minus the 10-Year CMS Rate is less than 0, then no interest will accrue on the related day. See "Risk Factors" below for certain relevant considerations. 30-Year CMS Rate: The rate that appears on Reuters page ISDA FIX1 under the heading "30YR" at 11:00 a.m., New York city time. If such rate does not appear on Reuters page ISDA FIX1, the rate for such date shall be determined as if the parties had specified "USD-CMS-Reference Banks" as the applicable rate. 10-Year CMS Rate: The rate that appears on Reuters page ISDA FIX1 under the heading "10YR" at 11:00 a.m., New York city time. If such rate does not appear on Reuters page ISDA FIX1, the rate for such date shall be determined as if the parties had specified "USD-CMS-Reference Banks" as the applicable rate. "USD-CMS-Reference Banks" will be the rate determined on the basis of the mid-market semi-annual swap rate quotations provided by the Reference Banks at approximately 11:00 a.m., New York city time; and for this purpose, the semi-annual swap rate means the mean of the bid and offered rates for the semi-annual fixed leg, calculated on a 30/360 day count basis, of a fixed-for-floating U.S. Dollar interest rate swap transaction with a term equal to the designated maturity commencing on that date and in a Representative Amount with an acknowledged dealer of good credit in the swap market, where the floating leg, calculated on an actual/360 day count basis, is equivalent to USD-LIBOR-BBA with a designated maturity of three months. The rate for that date will be the arithmetic mean of the quotations, eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest). "Reference Banks" means five leading swap dealers in the New York city interbank market selected by the Calculation Agent for the purposes of providing quotations as provided above. "Representative Amount" means an amount that is representative for a single transaction in the relevant market at the relevant time. Accrual Determination Date: With respect to each New York Business Day that does not occur during the Suspension Period, that New York Business Day. With respect to each day that is not a New York Business Day not occurring during the Suspension Period, the last preceding New York Business Day. The Accrual Determination Date applicable to the day five New York Business Days prior to an Interest Payment Date will remain in effect until that Interest Payment Date. Suspension Period: The period beginning on the fifth New York Business Day prior to but excluding each Interest Payment Date (including the Stated Maturity Date). 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. London Business Day: A day other than a Saturday or Sunday on which dealings in deposits in U.S. dollars are transacted, or with respect to any future date are expected to be transacted, in the London interbank market. Interest Computation: Interest will be computed on the assumption that there are 30 days in each month and 360 days in each year. "Accrue to Pay": [ ] Yes [X ] No Interest Rate Calculation Agent: Lehman Brothers International (Europe) 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 January 29, 2005. Notice of redemption will be given not less than five New York Business Days prior to the redemption date. Optional Repayment: Not applicable. Extension of Maturity: Not applicable. Form of Note: [X ] Book-entry only (global) [ ] Certificated Depositary: 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 and A1 by Moody's Investors Service. RISK FACTORS An investment in the Notes entails certain risks not associated with an investment in conventional floating rate medium-term notes. See "Risk Factors" generally in the Prospectus Supplement. Investors should also consider the risk that the difference of the 30-Year CMS Rate minus the 10-Year CMS Rate, determined on a daily basis, may be less than zero on one or more New York 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 the 30-Year CMS Rate and the 10-Year CMS Rate, the method of calculating the 30-Year CMS Rate and the 10-Year CMS Rate, 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 value of the 30-Year CMS Rate and the 10-Year CMS Rate depends on a number of interrelated factors, including economic, financial and political events, over which Lehman Brothers Holdings has no control. The following table sets forth the historical differences of the 30-Year CMS Rate minus the 10-Year CMS Rate: Date 30-Year CMS minus Date 30-Year CMS minus 10-Year CMS (%) 10-Year CMS (%) July 29, 1992 0.848 July 29, 1998 0.133 October 29, 1992 0.898 October 29, 1998 0.538 January 29, 1993 0.837 January 29, 1999 0.331 April 29, 1993 1.223 April 29, 1999 0.242 July 29, 1993 1.089 July 29, 1999 0.144 October 29, 1993 0.869 October 29, 1999 0.162 January 31, 1994 0.952 January 31, 2000 -0.014 April 29, 1994 0.426 May 1, 2000 -0.051 July 29, 1994 0.395 July 31, 2000 -0.049 October 31, 1994 0.332 October 30, 2000 0.029 January 30, 1995 0.208 January 29, 2001 0.289 May 1, 1995 0.344 April 30, 2001 0.364 July 31, 1995 0.465 July 30, 2001 0.365 October 30, 1995 0.340 October 29, 2001 0.622 January 29, 1996 0.405 January 29, 2002 0.404 April 29, 1996 0.239 April 29, 2002 0.460 July 29, 1996 0.193 July 29, 2002 0.741 October 29, 1996 0.327 October 29, 2002 0.893 January 29, 1997 0.290 January 29, 2003 0.817 April 29, 1997 0.194 April 29, 2003 0.799 July 29, 1997 0.211 July 29, 2003 0.769 October 29, 1997 0.200 October 29, 2003 0.760 January 29, 1998 0.190 January 29, 2004 0.744 April 29, 1998 0.158 April 29, 2004 0.633 July 29, 2004 0.605 The historical experience of the 30-Year CMS Rate minus the 10-Year CMS Rate should not be taken as an indication of the future performance of the 30-Year CMS Rate minus the 10-Year CMS Rate during the term of the Notes. 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 5.47%, 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): Controllers 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 thereof 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 Other United States Federal Income Tax Consequences A summary of certain United States federal income tax consequences that will apply to holders of debt securities is set forth under "United States Federal Income Tax Consequences-Debt Securities" in the Prospectus. 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 28% for payments made through 2010, after which time the rate will revert back to 31% absent Congressional action. In addition, the sections below replace the summaries set forth in the Prospectus under "United States Federal Income Tax Consequences-Debt Securities-Consequences to Non-United States Holders-United States Federal Estate Tax" and "United States Federal Income Tax Consequences-Debt Securities-Information Reporting and Backup Withholding-Non-United States Holders." Consequences to Non-United States Holders United States Federal Estate Tax Your estate will not be subject to United States federal estate tax on debt securities beneficially owned by you at the time of your death provided that: * any payment to you on the debt securities 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 Income Tax Consequences- Debt Securities-Consequences to Non-United States Holders-United States Federal Withholding Tax," without regard to the certification requirements of the fourth bullet point; and * interest on those debt securities would not have been, if received at the time of your death, effectively connected with the conduct by you of a trade or business in the United States. Information Reporting and Backup Withholding Non-United States Holders If you are a non-United States holder of debt securities, Lehman Brothers Holdings must report annually to the IRS and to you the amount of payments Lehman Brothers Holdings makes to you 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 you reside under the provisions of an applicable income tax treaty. You will not be subject to backup withholding regarding payments Lehman Brothers Holdings makes to you provided that Lehman Brothers Holdings does not have actual knowledge or reason to know that you are a United States person and Lehman Brothers Holdings has received from you the statement described above in the fourth bullet point under "United States Federal Income Tax Consequences-Debt Securities- Consequences to Non-United States Holders-United States Federal Withholding Tax." In addition, you will be subject to information reporting and, depending on the circumstances, backup withholding regarding the proceeds of the sale of a debt security 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 you are a United States person, or you otherwise establish an exemption. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the IRS. UNDERWRITING Lehman Brothers Holdings has agreed to sell to Lehman Brothers Inc. (the "Agent"), and the Agent has agreed to purchase, the principal amount of the Notes. The Agent is committed to take and pay for all of the Notes, if any are taken. The Agent proposes to offer the Notes initially at a public offering price equal to the Issue Price set forth above and to certain dealers at such price. After the initial public offering, the public offering price and other selling terms may from time to time be varied by the Agent. The Notes are a new issue of securities with no established trading market. Lehman Brothers Holdings has been advised by the Agent that it intends to make a market in the Notes, but it is not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes. The Agent has agreed that it will, to the best of its knowledge, only offer or sell the Notes in compliance with the laws and regulations in any jurisdiction applicable to such offer or sale and it has not taken and will not take any action in any jurisdiction, other than the United States, that would permit a public offering of the Notes, or possession or distribution of any prospectus or any amendment or supplement thereto or any offering or publicity material relating to the Notes, in any country or jurisdiction where action for that purpose is required. The Agent has represented and agreed that: * it and each of its affiliates have not offered or sold and will not offer or sell any Notes to persons in the United Kingdom prior to the expiry of the period of six months from the issue date of the Notes except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations of 1995; * it and each of its affiliates have only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the "FSMA") received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to Lehman Brothers Holdings; and * it and each of its affiliates have complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom. The Agent has separately further agreed that the Notes may not be offered, sold, transferred or delivered in or from The Netherlands, as part of their initial distribution or as part of any re-offering, and neither this prospectus supplement, the accompanying prospectus nor any other document in respect of the offering may be distributed or circulated in The Netherlands, other than to individuals or legal entities which include, but are not limited to, banks, brokers, dealers, institutional investors and undertakings with a treasury department, who or which trade or invest in securities in the conduct of a business or profession. Lehman Brothers Holdings has agreed to indemnify the Agent against certain liabilities under the Securities Act of 1933, as amended, as described in the accompanying Prospectus Supplement. Capitalized terms used herein without definition have the meanings ascribed to them in the Prospectus Supplement and Prospectus. Lehman Brothers Holdings Inc. By: /s/ Paolo Tonucci Name: Paolo Tonucci Title: Authorized Officer