424B3 1 mtng226.txt MTNG226 2-YEAR CMS FLOATER Rule 424(b)(3) Registration No. 333-60474 PRICING SUPPLEMENT NO. 226 dated May 6, 2005 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.: 52517PZP9 ISIN: US52517PZP97 Specified Currency: US Dollars Principal Amount: US$35,000,000.00 Total Per Note Issue Price: US$35,000,000.00 100% Agent's Commission: US$ 0.00 0% Proceeds to Lehman Brothers Holdings: US$35,000,000.00 100% In addition, at the Original Issue Date specified below, Lehman Brothers Holdings may issue additional Notes similar in all respects (including with respect to the Issue Price and the Agent's Commission specified above). We may also issue additional Notes following the Original Issue Date at a new Issue Price and subject to a new Agent's Commission. All such additional Notes would form a single tranche with, have the same CUSIP number as, and trade interchangeably with these Notes immediately upon settlement. Agent: Lehman Brothers Inc. Agent's Capacity: [ ] As agent [X ] As principal (See "Underwriting" below.) Trade Date: May 6, 2005 Original Issue Date: May 18, 2005 Stated Maturity Date: May 18, 2007; provided that if such day is not a New York Business Day, then such day will be the following New York Business Day. Amortizing Note: [ ] Yes [X ] No Amortization Schedule: Not Applicable [ ] Fixed Rate Note Interest Rate per Annum: % [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: 2-Year CMS Rate plus the Spread Spread: Minus 0.45% Initial Interest Rate: Not applicable Spread Multiplier: Not applicable Maximum Interest Rate: Not applicable Minimum Interest Rate: 0% Interest Calculation: All values used in any calculation of the Interest Rate will be rounded to five decimal places and all percentages resulting from any Interest Rate calculation will be rounded to three decimal places. Determination Dates: Two New York Business Days prior to the applicable Interest Reset Date Interest Reset Dates: The Original Issue Date and each Interest Payment Date, commencing on May 18, 2005 Interest Payment Dates: Monthly on the 18th, commencing on June 18, 2005 2-Year CMS Rate: The rate that appears on Reuters page ISDA FIX3 under the heading "2YR" at 11:00 a.m., New York City time. If such rate does not appear on Reuters page ISDA FIX3, 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" on any Determination Date 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 on such Determination Date; 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. "Designated Maturity" means 2 years. "Representative Amount" means an amount that is representative for a single transaction in the relevant market at the relevant time. New York Business Day: Any day that is not a Saturday or a Sunday and that, in New York City, is not on 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 a 360-day year of twelve 30-day months or, in the case of an incomplete month, the number of days elapsed. "Accrue to Pay": [ ] Yes [X ] No Interest Rate Calculation Agent: Lehman Brothers Special Financing Optional Redemption: Not applicable Optional Repayment: Not applicable Extension of Maturity: Not applicable Form of Note: [X ] Book-entry only (global) [ ] Certificated Depository: The Depository Trust Company Authorized Denominations: $1,000.00 and whole multiples of $1,000.00 Issuer Rating: Long-term senior unsecured debt of Lehman Brothers Holdings is currently rated A by Standard & Poor's Ratings Services, A1 by Moody's Investors Service and A+ by Fitch Ratings. RISK FACTORS 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 anticipated level and potential volatility of the 2-Year CMS Rate, the method of calculating the 2-Year CMS Rate, the time remaining to the maturity of the Notes, the aggregate principal amount of the Notes and the availability of comparable instruments. The value of the 2-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, showing the historical level of 2-Year CMS in effect for the hypothetical Interest Determination Dates listed below, illustrates the variability of that rate: Historical Levels of 2-Year CMS Interest Determination 2-Year Interest Determination 2-Year Date CMS Rate Date CMS Rate January 18, 1995 7.886 March 20, 2000 7.093 February 21, 1995 7.399 April 18, 2000 6.986 March 20, 1995 6.951 May 18, 2000 7.685 April 18, 1995 6.709 June 19, 2000 7.186 May 18, 1995 6.354 July 18, 2000 7.210 June 19, 1995 5.855 August 18, 2000 6.977 July 18, 1995 5.970 September 18, 2000 6.732 August 18, 1995 6.315 October 18, 2000 6.586 September 18, 1995 5.922 November 20, 2000 6.562 October 18, 1995 5.860 December 18, 2000 5.986 November 20, 1995 5.622 January 18, 2001 5.361 December 18, 1995 5.587 February 20, 2001 5.334 January 18, 1996 5.150 March 19, 2001 4.916 February 20, 1996 5.404 April 18, 2001 4.808 March 18, 1996 6.068 May 18, 2001 4.898 April 18, 1996 6.177 June 18, 2001 4.540 May 20, 1996 6.207 July 18, 2001 4.475 June 18, 1996 6.506 August 20, 2001 4.274 July 18, 1996 6.359 September 18, 2001 3.616 August 19, 1996 6.168 October 18, 2001 3.221 September 18, 1996 6.420 November 19, 2001 3.313 October 18, 1996 6.050 December 18, 2001 3.570 November 18, 1996 5.842 January 18, 2002 3.301 December 18, 1996 6.056 February 19, 2002 3.355 January 21, 1997 6.167 March 18, 2002 4.050 February 18, 1997 5.967 April 18, 2002 3.774 March 18, 1997 6.413 May 20, 2002 3.703 April 18, 1997 6.638 June 18, 2002 3.330 May 19, 1997 6.511 July 18, 2002 2.896 June 18, 1997 6.274 August 19, 2002 2.639 July 18, 1997 6.195 September 18, 2002 2.417 August 18, 1997 6.115 October 18, 2002 2.513 September 18, 1997 6.113 November 18, 2002 2.258 October 20, 1997 6.242 December 18, 2002 2.125 November 18, 1997 6.086 January 21, 2003 1.979 December 18, 1997 6.034 February 18, 2003 1.921 January 20, 1998 5.699 March 18, 2003 1.998 February 18, 1998 5.672 April 21, 2003 1.957 March 18, 1998 5.842 May 19, 2003 1.512 April 20, 1998 5.926 June 18, 2003 1.446 May 18, 1998 5.959 July 18, 2003 1.718 June 18, 1998 5.870 August 18, 2003 2.133 July 20, 1998 5.828 September 18, 2003 1.955 August 18, 1998 5.765 October 20, 2003 2.231 September 18, 1998 5.154 November 18, 2003 2.130 October 19, 1998 4.547 December 18, 2003 2.155 November 18, 1998 5.055 January 20, 2004 2.025 December 18, 1998 5.022 February 18, 2004 2.009 January 19, 1999 5.128 March 18, 2004 1.839 February 18, 1999 5.383 April 19, 2004 2.385 March 18, 1999 5.444 May 18, 2004 2.928 April 19, 1999 5.436 June 18, 2004 3.208 May 18, 1999 5.768 July 19, 2004 2.960 June 18, 1999 5.974 August 18, 2004 2.801 July 19, 1999 5.998 September 20, 2004 2.791 August 18, 1999 6.262 October 18, 2004 2.858 September 20, 1999 6.228 November 18, 2004 3.238 October 18, 1999 6.503 December 20, 2004 3.440 November 18, 1999 6.405 January 18, 2005 3.616 December 20, 1999 6.783 February 18, 2005 3.808 January 18, 2000 6.990 March 18, 2005 4.116 February 18, 2000 7.227 April 18, 2005 3.947 The historical experience of 2-Year CMS should not be taken as an indication of the future performance of 2-Year CMS during the term of the Notes. Fluctuations in the level of 2-Year CMS 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 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 a 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 it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell in the Netherlands anyNotesother than to persons who trade or invest in securities in the conduct of a profession or business (which include banks, stockbrokers, insurance companies, investment undertakings, pension funds, other institutional investors and finance companies and treasury departments of large enterprises). It is expected that delivery of the Notes will be made against payment therefor more than three business days following the date of this pricing supplement. Trades in the secondary market generally are required to settle in three business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the securities on any day prior to the third business day before the settlement date will be required to specify an alternative settlement cycle at the time of any such trade to prevent failed settlement. 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/ Nahill Younis Name: Nahill Younis Title: Authorized Officer