0000950136-01-500996.txt : 20011018
0000950136-01-500996.hdr.sgml : 20011018
ACCESSION NUMBER: 0000950136-01-500996
CONFORMED SUBMISSION TYPE: 424B2
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20010730
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: LEHMAN BROTHERS HOLDINGS INC
CENTRAL INDEX KEY: 0000806085
STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211]
IRS NUMBER: 133216325
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1130
FILING VALUES:
FORM TYPE: 424B2
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-61878
FILM NUMBER: 1692435
BUSINESS ADDRESS:
STREET 1: AMERICAN EXPRESS TWR
STREET 2: 3 WORLD FINANCIAL CNTR
CITY: NEW YORK
STATE: NY
ZIP: 10285
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
file001.txt
DEFINITIVE MATERIALS
Filed Pursuant to Rule 424(b)(2)
Registration File No.: 333-61878
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 26, 2001
PRELIMINARY PROSPECTUS SUPPLEMENT
(To prospectus dated June 21, 2001)
$20,000,000 SUNS (Registered Trademark)
LEHMAN BROTHERS HOLDINGS INC.
S&P 500 (Registered Trademark) INDEX STOCK UPSIDE NOTE SECURITIES (Registered
Trademark) DUE FEBRUARY , 2005
-------------------
General:
o Senior unsecured debt securities of Lehman Brothers Holdings.
o Performance linked to the S&P 500 Index, as calculated by Standard &
Poor's, a division of McGraw-Hill, Inc.
o Denominations: $1,000 and whole multiples of $1,000.
o Stated maturity date: February , 2005, subject to postponement if a
market disruption event occurs.
o Application will be made to list the notes on the American Stock Exchange.
Payments:
o No interest or other payments prior to maturity.
o On the stated maturity date, Lehman Brothers Holdings will pay to you, per
$1,000 note, the greater of:
(1) $1,000; and
(2) the alternative redemption amount.
The alternative redemption amount per $1,000 note will equal the product
of:
(1) $1,000; and
(2) the equity return.
The equity return is the product of all 42 monthly gross returns over the term
of the notes. The monthly gross return for any particular monthly period shall
be the amount determined by dividing the closing level of the S&P 500 Index on
the last day of the monthly period by the closing level of the S&P 500 Index on
the last day of the prior monthly period (or, in the case of the first monthly
period, by the starting index level). The monthly gross return for any
particular monthly period shall not be less than 0.880 nor more than a fixed
amount which Lehman Brothers Holdings currently expects to range from 1.035 to
1.040.
Each monthly period shall end on the day of each month during the term of
the notes, except for the final monthly period, which shall end on February ,
2005, subject to postponement if a market disruption event occurs. If any of
these dates is not a business day, the index level on the next date on which
the index level can be calculated will be used. The starting index level for
the first monthly period is , which was the closing level of the S&P 500
Index on August , 2001.
Investing in the notes involves risks. Risk Factors begin on page S-7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
-------------------
PER NOTE TOTAL
---------- -------------
Public offering price ......................... % $
Underwriting discount ......................... % $
Proceeds to Lehman Brothers Holdings .......... % $
-------------------
The notes are expected to be ready for delivery in book-entry form only through
The Depository Trust Company on or about August , 2001.
-------------------
Lehman Brothers Inc., a wholly-owned subsidiary of Lehman Brothers Holdings,
makes a market in Lehman Brothers Holdings' securities. It may act as principal
or agent in, and this prospectus supplement and the accompanying prospectus may
be used in connection with, those transactions. Any such sales will be made at
varying prices related to prevailing market prices at the time of sale.
-------------------
LEHMAN BROTHERS
August , 2001
"SUNS" and "Stock Upside Note Securities" are trademarks of Lehman Brothers
Inc. "Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500"
are trademarks of McGraw-Hill, Inc. and have been licensed for use by Lehman
Brothers Holdings Inc. The notes, based on the performance of the S&P 500
Index, are not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the notes.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. NO ONE HAS BEEN
AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT COVER OF THE DOCUMENT. SECURITIES ARE NOT BEING OFFERED IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED.
---------------------
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
SUMMARY INFORMATION--Q&A .............................. S-3
RISK FACTORS .......................................... S-7
USE OF PROCEEDS AND HEDGING ........................... S-10
RATIO OF EARNINGS TO FIXED CHARGES .................... S-10
DESCRIPTION OF THE NOTES .............................. S-11
THE S&P 500 INDEX ..................................... S-16
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ......... S-20
BOOK-ENTRY ISSUANCE ................................... S-23
UNDERWRITING .......................................... S-24
EXPERTS ............................................... S-25
PROSPECTUS
PROSPECTUS SUMMARY .................................... 2
WHERE YOU CAN FIND MORE INFORMATION ................... 6
USE OF PROCEEDS AND HEDGING ........................... 7
RATIO OF EARNINGS TO FIXED CHARGES .................... 8
DESCRIPTION OF DEBT SECURITIES ........................ 8
DESCRIPTION OF WARRANTS ............................... 17
DESCRIPTION OF PURCHASE CONTRACTS ..................... 22
DESCRIPTION OF UNITS .................................. 25
FORM, EXCHANGE AND TRANSFER ........................... 29
BOOK-ENTRY PROCEDURES AND SETTLEMENT .................. 30
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ......... 32
PLAN OF DISTRIBUTION .................................. 32
ERISA CONSIDERATIONS .................................. 34
LEGAL MATTERS ......................................... 35
EXPERTS ............................................... 35
S-2
SUMMARY INFORMATION--Q&A
This summary highlights selected information from the prospectus supplement and
accompanying prospectus to help you understand the notes. You should carefully
read this prospectus supplement and the accompanying prospectus to understand
fully the terms of the notes and the tax and other considerations that are
important to you in making a decision about whether to invest in the notes. You
should pay special attention to the "Risk Factors" section beginning on page
S-7 to determine whether an investment in the notes is appropriate for you.
WHAT ARE THE NOTES?
The notes are a series of senior debt of Lehman Brothers Holdings whose value
is tied to the performance of the S&P 500 Index. See "The S&P 500 Index." The
notes will rank equally with all other unsecured debt of Lehman Brothers
Holdings, except subordinated debt, and will mature on February , 2005,
unless postponed because a market disruption event occurs. See "Description of
the Notes-- Determination of alternative redemption amount."
WHO PUBLISHES THE S&P 500 INDEX AND WHAT DOES THE S&P 500 INDEX MEASURE?
The S&P 500 Index is published by Standard & Poor's, a division of McGraw-Hill,
Inc. ("S&P"), and is intended to provide an indication of the pattern of common
stock price movement. The calculation of the value of the S&P 500 Index is
based on the relative value of the aggregate market value of the common stocks
of 500 companies as of a particular time compared to the aggregate average
market value of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943. S&P chooses companies for inclusion in
the S&P 500 Index with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in the common
stock population of the New York Stock Exchange, which S&P uses as an assumed
model for the composition of the total market.
Please note than an investment in the notes does not entitle you to any
ownership or other interest in the stocks of the companies included in the S&P
500 Index.
WHAT PAYMENTS WILL I RECEIVE ON THE NOTES BEFORE MATURITY?
None. No payments will be made on the notes before maturity.
WHAT WILL I RECEIVE IF I HOLD THE NOTES UNTIL THE STATED MATURITY DATE?
Lehman Brothers Holdings has designed the notes for investors who want to
protect their investment by receiving at least the principal amount of their
investment on the stated maturity date and who also want to participate in a
possible increase in the S&P 500 Index. On the stated maturity date, you will
receive a payment per $1,000 note equal to the greater of:
o $1,000; and
o the alternative redemption amount.
The alternative redemption amount per $1,000 note is equal to the product of:
(1) $1,000; and
(2) the equity return.
The equity return is the product of all 42 monthly gross returns over the term
of the notes. The monthly gross return for any particular monthly period shall
be the amount determined by dividing the closing level of the index on the last
day of the monthly period by the closing level of the index on the last day of
the prior monthly period (or, in the case of the first monthly period, by the
starting index level). The monthly gross return for any particular monthly
period shall not be less than 0.880 nor more than a fixed amount which Lehman
Brothers Holdings currently expects to range from 1.035 to 1.040.
Each monthly period shall end on the day of each month during the term of
the notes, except for the final monthly period, which shall end on February ,
2005, subject to postponement if a market disruption event occurs. If any of
these dates is not a business day, the index level on the next date on which
the index level can be calculated will be used. The starting index level for
the first monthly period is , which was the closing level of the S&P 500
Index on August , 2001.
S-3
See "Description of the Notes--Determination of alternative redemption amount",
and "Discontinuance of the S&P 500 Index; Alteration of Method of Calculation"
for details.
MONTHLY GROSS RETURN, EQUITY RETURN AND AMOUNT PAYABLE AT MATURITY -- EXAMPLES
o MONTHLY GROSS RETURN
Here are three examples of monthly gross return calculations for a single
monthly period:
EXAMPLE 1: ASSUMING FOR PURPOSES OF THIS EXAMPLE THAT THE CLOSING LEVELS OF THE
S&P 500 INDEX ON THE LAST DAY OF THE PARTICULAR MONTHLY PERIOD AND ON THE LAST
DAY OF THE PREVIOUS MONTHLY PERIOD ARE 1224 AND 1200, RESPECTIVELY AND THAT
MONTHLY GROSS RETURNS ARE LIMITED BETWEEN 0.880 AND 1.0375:
Current month-end level = 1224 = 1.02
---------------------- -----
Prior month-end level 1200
As a result, the monthly gross return equals 1.02 because 1.02 is greater than
0.88 and less than 1.0375.
EXAMPLE 2: ASSUMING FOR PURPOSES OF THIS EXAMPLE THAT THE CLOSING LEVELS OF THE
S&P 500 INDEX ON THE LAST DAY OF THE PARTICULAR MONTHLY PERIOD AND ON THE LAST
DAY OF THE PREVIOUS MONTHLY PERIOD ARE 1260 AND 1200, RESPECTIVELY AND THAT
MONTHLY GROSS RETURNS ARE LIMITED BETWEEN 0.880 AND 1.0375:
Current month-end level = 1260 = 1.05
---------------------- -----
Prior month-end level 1200
As a result, the monthly gross return equals 1.0375 because 1.05 is greater
than 1.0375.
EXAMPLE 3: ASSUMING FOR PURPOSES OF THIS EXAMPLE THAT THE CLOSING LEVELS OF THE
S&P 500 INDEX ON THE LAST DAY OF THE PARTICULAR MONTHLY PERIOD AND ON THE LAST
DAY OF THE PREVIOUS MONTHLY PERIOD ARE 960 AND 1200, RESPECTIVELY AND THAT
MONTHLY GROSS RETURNS ARE LIMITED BETWEEN 0.880 AND 1.0375:
Current month-end level = 960 = 0.80
---------------------- -----
Prior month-end level 1200
As a result, the monthly gross return equals 0.88 because 0.80 is less than
0.88.
o EQUITY RETURN
Here is an example of the equity return calculation:
EXAMPLE: ASSUMING FOR PURPOSES OF THIS EXAMPLE THAT THE S&P 500 INDEX PERFORMS
AS FOLLOWS DURING THE TERM OF THE NOTES AND THAT THE MONTHLY RETURNS ARE CAPPED
BETWEEN 0.880 AND 1.0375:
MONTHLY MONTHLY
MONTH GROSS RETURN MONTH GROSS RETURN
------- -------------- ------- -------------
1 1.0375 22 0.9550
2 1.0100 23 1.0260
3 0.9500 24 1.0375
4 0.9975 25 0.9950
5 1.0375 26 0.8800
6 1.0200 27 1.0375
7 0.8800 28 0.9750
8 1.0000 29 0.9825
9 1.0375 30 1.0375
10 0.9850 31 1.0250
11 0.9935 32 1.0100
12 1.0375 33 0.9850
13 1.0250 34 1.0375
14 0.9350 35 0.9650
15 0.9950 36 1.0250
16 1.0375 37 1.0375
17 0.9750 38 0.9875
18 0.9800 39 1.0375
19 1.0375 40 1.0150
20 1.0150 41 0.9175
21 0.9865 42 1.0375
Equity return = 1.0375 x 1.0100 x 0.9500 x 0.9975 x 1.0375 x 1.0200 x 0.8800 x
1.0000 x 1.0375 x 0.9850 x 0.9935 x 1.0375 x 1.0250 x 0.9350 x 0.9950 x 1.0375
x 0.9750 x 0.9800 x 1.0375 x 1.0150 x 1.0375 x 0.9865 x 1.0260 x 1.0375 x
0.9950 x 0.8800 x 1.0375 x 0.9750 x 0.9825 x 1.0375 x 1.0250 x 1.0100 x 0.9850
x 1.0375 x 0.9650 x 1.0250 x 1.0375 x 0.9875 x 1.0375 x 1.0150 x 0.9175 x
1.0375 = 1.02509
As a result, the equity return equals 1.02509.
o AMOUNT PAYABLE AT MATURITY
Here are two examples of the amount payable at maturity calculation per $1,000
note:
EXAMPLE 1: ASSUMING FOR PURPOSES OF THIS EXAMPLE THAT THE EQUITY RETURN, OR THE
PRODUCT OF ALL 42 MONTHLY GROSS RETURNS, EQUALS 1.20;
S-4
Alternative Redemption Amount per $1,000 note = $1,000 x 1.20 = $1,200
As a result, on the stated maturity date, you would receive $1,200 per $1,000
note, because $1,200 is greater than $1,000.
EXAMPLE 2: ASSUMING FOR PURPOSES OF THIS EXAMPLE THAT THE EQUITY RETURN, OR THE
PRODUCT OF ALL 42 MONTHLY GROSS RETURNS, EQUALS 0.90;
Alternative Redemption Amount per $1,000 note = $1,000 x 0.90 = $900
As a result, on the stated maturity date, you would receive $1,000 per $1,000
note, because $1,000 is greater than $900.
-----------------------------------
To the extent that the closing levels of the S&P 500 Index, the limitations on
monthly gross returns or the equity returns differ from the levels assumed
above, the results indicated above would be different.
HOW HAS THE S&P 500 INDEX PERFORMED HISTORICALLY?
Lehman Brothers Holdings has provided a table, beginning on page S-18, showing
the performance of the S&P 500 Index from January 1, 1998 through July 24,
2001. Lehman Brothers Holdings has provided this historical information to help
you evaluate the behavior of the S&P 500 Index so that you can make an informed
decision with respect to an investment in the notes. You should realize,
however, that past performance is not necessarily indicative of how the S&P 500
Index or the notes will perform in the future.
HOW WILL I BE ABLE TO FIND THE INDEX LEVEL AT ANY POINT IN TIME?
You can obtain the level of the S&P 500 Index at any time from the Bloomberg
(Registered Trademark) service under the symbol "^SPX". You may also obtain
the closing level of the S&P 500 Index at any time from the Standard and Poor's
website, at http://www.spglobal.com/closes_us.html.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the notes are subject to a number of risks. See "Risk Factors" beginning
on page S-7.
WHAT ABOUT TAXES?
The notes will be subject to U.S. Treasury regulations that apply to contingent
payment debt instruments. As a result, you will be subject to federal income
tax on the accrual of original issue discount in respect of the notes. In
addition, gain or loss on the sale, exchange or other disposition of notes will
generally be ordinary gain or loss. See "United States Federal Income Tax
Consequences."
WHO IS LEHMAN BROTHERS HOLDINGS?
Lehman Brothers Holdings is one of the leading global investment banks, serving
institutional, corporate, government and high net worth clients and customers.
Lehman Brothers Holdings' 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. See "Lehman Brothers Holdings Inc." on page 2 and "Where
You Can Find More Information" on page 6 of the accompanying prospectus.
WHAT IS THE ROLE OF LEHMAN BROTHERS INC.?
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, is the
underwriter for the offering and sale of the notes. Lehman Brothers Inc. will
also be the calculation agent for purposes of calculating the amount payable to
you at maturity. Potential conflicts of interest may exist between Lehman
Brothers Inc. and you as a beneficial owner of the notes. See "Risk
Factors--Potential conflicts of interest exist because Lehman Brothers Holdings
controls Lehman Brothers Inc., which will act as the calculation agent" and
"Description of the Notes--Calculation agent."
After the initial offering, Lehman Brothers Inc. intends to buy and sell the
notes to create a secondary market in the notes and may stabilize or maintain
the market price of the notes during the initial distribution of the notes.
However, Lehman Brothers Inc. will not be obligated to engage in any of these
market activities or to continue them once they are begun.
IN WHAT FORM WILL THE NOTES BE ISSUED?
The notes will be represented by one or more global securities that will be
deposited with and
S-5
registered in the name of The Depository Trust Company or its nominee. This
means that you will not receive a certificate for your notes.
WILL THE NOTES BE LISTED ON A STOCK EXCHANGE?
Lehman Brothers Holdings will apply to list the notes on the American Stock
Exchange. You should be aware that the listing of the notes on the American
Stock Exchange, if accepted, will not necessarily ensure that a liquid trading
market will be available for the notes.
S-6
RISK FACTORS
You should carefully consider the risk factors provided below as well as the
other information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated in this document by reference. As
described in more detail below, the trading price of the notes may vary
considerably before the maturity date due, among other things, to fluctuations
in the price of the common stocks that make up the S&P 500 Index and other
events that are difficult to predict and beyond Lehman Brothers Holdings'
control.
You should reach an investment decision only after you have carefully
considered with your advisors the suitability of an investment in the notes in
light of your particular circumstances.
THESE NOTES ARE DIFFERENT FROM CONVENTIONAL DEBT SECURITIES OF LEHMAN BROTHERS
HOLDINGS IN SEVERAL WAYS.
o IF THE ALTERNATIVE REDEMPTION AMOUNT IS LESS THAN OR EQUAL TO $1,000 PER
$1,000 NOTE, YOU WILL ONLY RECEIVE THE PRINCIPAL AMOUNT OF THE NOTE ON THE
STATED MATURITY DATE. This may be true even if the equity return exceeds
1.0 at some time during the life of the notes but later falls below it.
o THE PAYMENT YOU RECEIVE AT MATURITY MAY BE LESS THAN THE YIELD ON A
CONVENTIONAL DEBT SECURITY OF COMPARABLE MATURITY. The amount Lehman
Brothers Holdings pays you on the stated maturity date may be less than
the return you could earn on other investments. Because the amount you
receive on the stated maturity date may only equal the principal amount,
the effective yield to maturity on the notes may be less than that which
would be payable on a conventional fixed-rate, non-callable debt security
of Lehman Brothers Holdings. In addition, any return may not fully
compensate you for any opportunity cost to you when you take into account
inflation and other factors relating to the time value of money.
o NO PERIODIC INTEREST WILL BE PAID ON THE NOTES. No periodic payments of
interest will be made on the notes. However, because the notes will be
classified as contingent payment debt instruments for United States
federal income tax purposes, they will be considered to be issued with
original issue discount. As a result, you will be required to include the
original issue discount in income during your ownership of the notes,
subject to adjustments. See "United States Federal Income Tax
Consequences."
YOUR RETURN ON THE NOTES MAY BE LESS THAN IF YOU OWNED THE COMMON STOCKS THAT
MAKE UP THE S&P 500 INDEX.
o YOUR RETURN ON THE NOTES WILL PROBABLY NOT CAPTURE THE FULL INCREASE OF THE
S&P 500 INDEX DURING THE TERM OF THE NOTES. Capping each monthly return at
an amount Lehman Brothers Holdings currently estimates to be between 1.035
and 1.040 will likely limit your potential return over your principal
investment to only a portion of the increase in the S&P 500 Index over the
term of the notes.
o YOUR RETURN WILL NOT REFLECT DIVIDENDS ON THE COMMON STOCKS IN
THE S&P 500 INDEX. Your return on the notes will not
reflect the return you would realize if you actually owned the common
stocks included in the S&P 500 Index and received the dividends paid on
those stocks. This is because the calculation agent will calculate the
amount payable to you by reference to the level of the S&P 500 Index,
which is calculated by reference to the prices of the common stocks in the
S&P 500 Index without taking into consideration the value of dividends
paid on those stocks.
HISTORICAL VALUES OF THE S&P 500 INDEX SHOULD NOT BE TAKEN AS AN INDICATION OF
THE FUTURE PERFORMANCE OF THE S&P 500 INDEX DURING THE TERM OF THE NOTES.
The trading prices of the common stocks in the S&P 500 Index will determine the
index level. As a result, it is impossible to predict whether the index level
will fall or rise. Trading prices of the common stocks in the S&P 500 Index
will be influenced by complex and interrelated political, economic, financial
and other factors that can affect the markets in which those securities are
traded and the values of those common stocks themselves.
S-7
THE VALUE OF THE NOTES WILL BE AFFECTED BY NUMEROUS FACTORS, SOME OF WHICH ARE
RELATED IN COMPLEX WAYS.
The value of the notes in the secondary market will be affected by supply and
demand of the notes, the index level at that time and a number of other
factors, some of which are interrelated in complex ways. As a result, the
effect of any one factor may be offset or magnified by the effect of another
factor. The price at which you will be able to sell the notes before stated
maturity may be at a discount, which could be substantial, from their principal
amount, if, at that time, the index level is less than, equal to or not
sufficiently above the starting index level at such time. A change in a
specific factor could have the following impacts on the market value of the
notes, assuming all other conditions remain constant.
o VALUE. Lehman Brothers Holdings expects that the market value of the notes
will depend substantially on the amount, if any, by which the index level
at any given point in time exceeds the starting index level. If you decide
to sell your notes when the index level exceeds the starting index level,
you may nonetheless receive substantially less than the amount that would
be payable on the stated maturity date based on that index level because
of expectations that the index level will continue to fluctuate until the
alternative redemption amount is determined. If you decide to sell your
notes when the level of the index is below the starting index level, you
can expect to receive less than the principal amount of the note.
Political, economic and other developments that affect the stocks in the
S&P 500 Index may also affect the index level and, thus, the value of the
notes.
o INTEREST RATES. The trading value of the notes may be affected by changes
in interest rates. In general, if U.S. interest rates change, the trading
value of the notes may be adversely affected by changes in U.S. interest
rates.
o VOLATILITY OF THE S&P 500 INDEX. Volatility is the term used to describe
the size and frequency of market fluctuations. If the volatility of the
level of the S&P 500 Index changes, the trading value of the notes may be
adversely affected.
o MERGER AND ACQUISITION TRANSACTIONS. Some of the common stocks included in
the S&P 500 Index may be affected by mergers and acquisitions, which can
contribute to volatility of the S&P 500 Index. Additionally, as a result
of a merger or acquisition, one or more common stocks in the S&P 500 Index
may be replaced with a surviving or acquiring entity's securities. The
surviving or acquiring entity's securities may not have the same
characteristics as the common stock originally included in the S&P 500
Index.
o TIME REMAINING TO MATURITY. The value of the notes may be affected by the
time remaining to maturity. As the time remaining to the maturity of the
notes decreases, this time value may decrease, adversely affecting the
trading value of the notes.
o DIVIDEND YIELDS. If dividend yields on the common stocks in the S&P 500
Index increase, the value of the notes may be adversely affected because
the S&P 500 Index does not incorporate the value of those payments.
o LEHMAN BROTHERS HOLDINGS' CREDIT RATINGS, FINANCIAL CONDITION AND RESULTS.
Actual or anticipated changes in Lehman Brothers Holdings' credit ratings,
financial condition or results may affect the market value of the notes.
o ECONOMIC CONDITIONS AND EARNINGS PERFORMANCE OF THE UNDERLYING COMPANIES.
General economic conditions and earnings results of the companies whose
common stocks make up the S&P 500 Index and real or anticipated changes in
those conditions or results may affect the market value of the notes.
You should understand that the impact of one of the factors specified above,
such as an increase in interest rates, may offset some or all of any change in
the trading value of the notes attributable to another factor, such as an
increase in the index level. In general, assuming all relevant factors are held
constant, the effect on the trading value of the notes of a given change in
most of the factors listed above will be less if it occurs later than if it
occurs earlier in the term of the notes.
S-8
ADJUSTMENTS TO THE S&P 500 INDEX COULD ADVERSELY AFFECT THE VALUE OF THE NOTES.
The policies of S&P concerning additions, deletions and substitutions of the
stocks underlying the S&P 500 Index and the manner in which S&P takes account
of certain changes affecting such underlying stock may affect the value of the
S&P 500 Index. The policies of S&P with respect to the calculation of the S&P
500 Index could also affect the value of the S&P 500 Index. S&P may discontinue
or suspend calculation or dissemination of the S&P 500 Index or materially
alter the methodology by which it calculates the S&P 500 Index. Any such
actions could affect the value of the notes. See "Description of the
Notes--Discontinuance of the S&P 500 Index; Alteration of Method of
Calculation" and "The S&P 500 Index."
POTENTIAL CONFLICTS OF INTEREST EXIST BECAUSE LEHMAN BROTHERS HOLDINGS CONTROLS
LEHMAN BROTHERS INC., WHICH WILL ACT AS THE CALCULATION AGENT.
Lehman Brothers Inc. will act as the calculation agent, which determines the
amount you will receive on the notes at maturity, whether adjustments should be
made to the equity return and whether a market disruption event has occurred.
As a result, potential conflicts of interest may exist between Lehman Brothers
Inc. and you. See "Description of the Notes--Payment on the stated maturity
date", "--Market disruption events" and "--Discontinuance of the S&P 500 Index;
Alteration of Method of Calculation."
PURCHASES AND SALES OF COMMON STOCKS IN THE S&P 500 INDEX BY LEHMAN BROTHERS
HOLDINGS AND ITS AFFILIATES COULD AFFECT THE PRICES OF THOSE COMMON STOCKS OR
THE LEVEL OF THE S&P 500 INDEX.
Lehman Brothers Holdings and its affiliates, including Lehman Brothers Inc.,
may from time to time buy or sell shares of common stocks included in the S&P
500 Index or derivative instruments related to those common stocks for their
own accounts in connection with their normal business practices or in
connection with hedging of Lehman Brothers Holdings' obligations under the
notes. These transactions could affect the prices of those common stocks or the
index level. See "Use of Proceeds and Hedging."
TAX CONSEQUENCES
For U.S. federal income tax purposes, the notes will be classified as
contingent payment debt instruments. As a result, they will be considered to be
issued with original issue discount, which you will be required to include in
income during your ownership of the notes, subject to some adjustments,
although you will receive no cash payments during the term of the notes.
Additionally, you will generally be required to recognize ordinary income on
the gain, if any, realized on a sale, upon maturity, or other disposition of
the notes. See "United States Federal Income Tax Consequences."
S-9
USE OF PROCEEDS AND HEDGING
An amount equal to approximately % of the proceeds to be received by Lehman
Brothers Holdings from the sale of the notes has been or will be used by Lehman
Brothers Holdings or one or more of its subsidiaries before and immediately
following the initial offering of the notes to acquire common stocks included
in the S&P 500 Index. Lehman Brothers Holdings or one or more of its
subsidiaries may also acquire listed or over-the-counter options contracts in,
or other derivative or synthetic instruments related to, those common stocks to
hedge Lehman Brothers Holdings' obligations under the notes. The balance of the
proceeds will be used for general corporate purposes. See "Use of Proceeds and
Hedging" on page 7 of the accompanying prospectus.
From time to time after the initial offering and before the maturity of the
notes, depending on market conditions, including the market price of the common
stocks included in the S&P 500 Index, Lehman Brothers Holdings expects that it
or one or more of its subsidiaries will increase or decrease their initial
hedging positions using dynamic hedging techniques. Lehman Brothers Holdings or
one or more of its subsidiaries may take long or short positions in those
common stocks or those other equity securities or in listed or over-the-counter
options contracts or other derivative or synthetic instruments related to those
common stocks or those other equity securities. In addition, Lehman Brothers
Holdings or one or more of its subsidiaries may purchase or otherwise acquire a
long or short position in notes from time to time and may, in their sole
discretion, hold or resell those notes. Lehman Brothers Holdings or one or more
of its subsidiaries may also take positions in other types of appropriate
financial instruments that may become available in the future.
To the extent that Lehman Brothers Holdings or one or more of its subsidiaries
has a long hedge position in any of the common stocks that make up the S&P 500
Index, or options contracts or other derivative or synthetic instruments
related to those common stocks, Lehman Brothers Holdings or one or more of its
subsidiaries may liquidate a portion of their holdings at or about the time of
the maturity of the notes or at or about the time of a change in the common
stocks that underlie the S&P 500 Index. Depending, among other things, on
future market conditions, the aggregate amount and the composition of the
positions are likely to vary over time. Profits or losses from any of those
positions cannot be ascertained until the position is closed out and any
offsetting position or positions are taken into account. Certain activity by
Lehman Brothers Holdings or one or more of its subsidiaries described above can
potentially increase or decrease the prices of the common stocks that are
included in the S&P 500 Index and, accordingly, increase or decrease the index
level. Although Lehman Brothers Holdings has no reason to believe that any of
those activities will have a material impact on the price of the common stocks
that make up the S&P 500 Index, these activities could have such an effect.
RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED NOVEMBER 30, SIX MONTHS ENDED
----------------------------------------------------------- MAY 31,
1996 1997 1998 1999 2000 2001
----------- --------- --------- --------- --------- -----------------
1.06 1.07 1.07 1.12 1.14 1.13
S-10
DESCRIPTION OF THE NOTES
GENERAL
You will find information about the notes in two separate documents that
progressively provide more detail:
o the accompanying prospectus; and
o this prospectus supplement.
Because the terms of the notes may differ from the general information Lehman
Brothers Holdings has provided in the prospectus, in all cases you should rely
on information in this prospectus supplement over different information in the
prospectus. The notes are to be issued as a series of debt securities under the
senior indenture, which is more fully described in the prospectus. For a
description of the rights attaching to different series of debt securities
under the senior indenture, you should refer to the section "Description of
Debt Securities" beginning on page 8 of the accompanying prospectus. The notes
are "Senior Debt" as described in the accompanying prospectus. Citibank, N.A.
is trustee under the senior indenture.
Lehman Brothers Holdings may initially issue up to $20,000,000 aggregate
principal amount of notes. Lehman Brothers Holdings may, without the consent of
the holders of the notes, create and issue additional notes ranking equally
with the notes and otherwise similar in all respects so that such further notes
shall be consolidated and form a single series with the notes. No additional
notes can be issued if an event of default has occurred with respect to the
notes.
The notes will be issued in denominations of $1,000 and whole multiples of
$1,000.
INTEREST
No interest is payable on the notes or the principal amount of the notes.
PAYMENT ON THE STATED MATURITY DATE
The notes will mature on February , 2005, unless postponed because a market
disruption event occurs; see "--Determination of alternative redemption amount"
below. You will be entitled to receive per $1,000 note, on the stated maturity
date, the greater of:
o $1,000; and
o the alternative redemption amount, as described below.
If the alternative redemption amount per $1,000 note is less than or equal to
$1,000, because the repayment of your principal amount is protected, you will
be entitled to receive $1,000 per $1,000 note on the stated maturity date.
DETERMINATION OF ALTERNATIVE REDEMPTION AMOUNT
The alternative redemption amount per $1,000 note will be determined by the
calculation agent and will equal the product of:
(1) $1,000; and
(2) the equity return.
The equity return is the product of all 42 monthly gross returns over the term
of the notes. The monthly gross return for any particular monthly period shall
be the amount determined by dividing the closing level of the index on the last
day of the monthly period by the closing level of the index on the last day of
the prior monthly period (or, in the case of the first monthly period, by the
starting index level). The monthly gross return for any particular monthly
period shall not be less than 0.880 nor more than a fixed amount which Lehman
Brothers Holdings currently expects to range from 1.035 to 1.040.
Each monthly period shall end on the day of each month during the term of
the notes, except for the final monthly period, which shall end on February ,
2005, subject to postponement if a market disruption event occurs. If any of
these dates is not a business day, the index level on the next date on which
the index level can be calculated will be used. The starting index level for
the first monthly period is , which was the closing level of the S&P 500
Index on August , 2001.
The index level of the S&P 500 on the last day of each monthly period will
generally be the closing level of the S&P 500 Index on that date. However, if
the calculation agent determines that one or more market disruption events have
occurred on that day, the calculation agent will determine the index level by
reference to the closing level of the S&P 500 Index on the next
S-11
business day on which there is not a market disruption event. If a market
disruption event occurs on February , 2005, your payment on the notes will be
postponed until three business days after the date that the index level for the
final monthly period is determined.
"Closing level" means the last reported level of the S&P 500 Index at 4:00
p.m., New York City time, as reported by S&P.
DISCONTINUANCE OF THE S&P 500 INDEX; ALTERATION OF METHOD OF CALCULATION
If S&P discontinues publication of the S&P 500 Index and S&P or another entity
publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the discontinued S&P
500 Index then the final index level will be determined by reference to the
value of such successor index at the close of trading on the New York Stock
Exchange, the American Stock Exchange, Nasdaq National Market or the relevant
exchange or market for the successor index on the date that the final index
level is to be determined.
Upon any selection by the calculation agent of a successor index, Lehman
Brothers Holdings will promptly give notice to the holders of the notes.
If S&P discontinues publication of the S&P 500 Index prior to, and such
discontinuance is continuing on, the date that the final index level is to be
determined and the calculation agent determines that no successor index is
available at such time, then, on such date, the calculation agent will
determine the final index level to be used in computing the alternative
redemption amount. The final index level will be computed by the calculation
agent in accordance with the formula for and method of calculating the S&P 500
Index last in effect prior to such discontinuance, using the closing level (or,
if trading in the relevant securities has been materially suspended or
materially limited, its good faith estimate of the closing level that would
have prevailed but for such suspension or limitation) at the close of the
principal trading session on such date of each security most recently
comprising the S&P 500 Index on the primary organized U.S. exchange or trading
system. Notwithstanding these alternative arrangements, discontinuance of the
publication of the S&P 500 Index may adversely affect the value of the notes.
If at any time the method of calculating the S&P 500 Index or a successor
index, or the final index level thereof, is changed in a material respect, or
if the S&P 500 Index or a successor index is in any other way modified so that
such index does not, in the opinion of the calculation agent, fairly represent
the value of the S&P 500 Index or such successor index had such changes or
modifications not been made, then, from and after such time, the calculation
agent will, at the close of business in New York City on the date that the
final index level is to be determined, make such calculations and adjustments
as, in the good faith judgment of the calculation agent, may be necessary in
order to arrive at a value of a stock index comparable to the S&P 500 Index or
such successor index, as the case may be, as if such changes or modifications
had not been made, and calculate the final index level and the alternative
redemption amount with reference to the S&P 500 Index or such successor index,
as adjusted. Accordingly, if the method of calculating the S&P 500 Index or a
successor index is modified so that the value of such index is a fraction of
what it would have been if it had not been modified (for example, due to a
split in the index), then the calculation agent will adjust such index in order
to arrive at a value of the S&P 500 Index or such successor index as if it had
not been modified (for example, as if such split had not occurred).
MARKET DISRUPTION EVENTS
A market disruption event with respect to the S&P 500 Index will occur on any
day if the calculation agent determines that:
o A suspension, absence or material limitation of trading in 20% or more of
the underlying stocks which then comprise the S&P 500 Index or any
successor index has occurred on that day, in each case, for more than two
hours of trading or during the one-half hour period preceding the close of
trading on the primary organized U.S. exchange or trading system on which
those stocks are traded or, if in the case of a common stock not listed or
quoted in the United States, on the primary exchange, trading system or
market for that security. Limitations on trading during significant market
fluctuations imposed pursuant to New York Stock Exchange Rule 80B or any
applicable rule or regulation enacted or promulgated by the New York
S-12
Stock Exchange, any other exchange, trading system or market, any other
self regulatory organization or the SEC of similar scope or a replacement
for Rule 80B, may be considered material. For purposes of this prospectus
supplement, "trading system" includes bulletin board services.
Notwithstanding the first sentence of this paragraph, a market disruption
event for a security traded on a bulletin board means a suspension,
absence or material limitation of trading of that security for more than
two hours or during the one hour period preceding 4:00 p.m., New York City
time.
o A suspension, absence or material limitation has occurred on that day, in
each case, for more than two hours of trading or during the one-half hour
period preceding the close of trading in options contracts related to the
S&P 500 Index or any successor index, whether by reason of movements in
price exceeding levels permitted by an exchange, trading system or market
on which those options contracts are traded or otherwise.
o Information is unavailable on that date, through a recognized system of
public dissemination of transaction information, for more than two hours
of trading or during the one-half hour period preceding the close of
trading, of accurate price, volume or related information in respect of
20% or more of the underlying stocks which then comprise the S&P 500 Index
or any successor index or in respect of options contracts related to the
S&P 500 Index or any successor index, in each case traded on any major
U.S. exchange or trading system or, in the case of securities of a
non-U.S. issuer, traded on the primary non-U.S. exchange, trading system
or market.
For purposes of determining whether a market disruption event has occurred:
o a limitation on the hours 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, trading system or market;
o any suspension in trading in an options contract on the S&P 500 Index or
any successor index by a major securities exchange, trading system or
market by reason of:
o a price change violating limits set by that securities market,
o an imbalance of orders relating to those contracts or
o a disparity in bid and ask quotes relating to those contracts
will constitute a market disruption event notwithstanding that the
suspension or material limitation is less than two hours;
o a suspension or material limitation on an exchange, trading system or in a
market will include a suspension or material limitation of trading by one
class of investors provided that the suspension continues for more than
two hours of trading or during the last one-half hour period preceding the
close of trading on the relevant exchange, trading system or market but
will not include any time when the relevant exchange, trading system or
market is closed for trading as part of that exchange's, trading system's
or market's regularly scheduled business hours; and
o "close of trading" means 4:00 p.m., New York City time.
Under certain circumstances, the duties of Lehman Brothers Inc. as the
calculation agent in determining the existence of market disruption events
could conflict with the interests of Lehman Brothers Inc. as an affiliate of
the issuer of the notes.
Based on the information currently available to Lehman Brothers Holdings, on
October 27, 1997, the New York Stock Exchange suspended all trading during the
one-half hour period preceding the close of trading pursuant to New York Stock
Exchange Rule 80B. On August 12, 1999, the Chicago Board of Trade suspended all
trading after 2:00 p.m., New York City time, because a power failure in the
Chicago downtown area caused the CBT to close an hour early. The same power
failure also caused the Chicago Board Options Exchange to halt trading for a
one-half hour period. On September 16, 1999, stormy weather from Hurricane
Floyd led the New York Mercantile and Commodity Exchange and the New York Board
of Trade to close early at noon and 1:00 p.m., respectively, New York City
time. On June 8, 2001, the New York Stock Exchange
S-13
suspended all trading during an 85-minute period starting at 10:10 a.m., New
York City time, due to a system failure caused by new trading software
installed overnight. The system failure at the New York Stock Exchange also
caused the Chicago Mercantile Exchange to halt trading in its Standard & Poor's
500 stock index futures contracts and the Standard & Poor's MidCap 400 futures
contracts for a 45-minute period. On June 29, 2001, a computer failure at
NASDAQ'S Trumbull, Connecticut office disabled two of NASDAQ's main trading
platforms for approximately two hours. As a result of the breakdown of the
trading platforms, NASDAQ was forced to extend its trading deadline that day to
5:00 p.m., New York City time. If any suspension of trading caused by similar
events occurs during the term of the notes, that event could constitute a
market disruption event. The existence or non-existence of such circumstances,
however, is not necessarily indicative of the likelihood of those circumstances
arising or not arising in the future.
HYPOTHETICAL RETURNS
The table below illustrates, for a range of hypothetical equity returns
calculated three business days before the stated maturity date:
o the hypothetical alternative redemption amount per $1,000 note;
o the percentage change from $1,000 to the hypothetical alternative
redemption amount;
o the hypothetical total amount payable at stated maturity per $1,000 note;
o the hypothetical total rate of return; and
o the hypothetical pre-tax annualized rate of return.
PERCENTAGE
HYPOTHETICAL CHANGE
ALTERNATIVE OF ALTERNATIVE TOTAL AMOUNT
REDEMPTION REDEMPTION PAYABLE AT ANNUALIZED
HYPOTHETICAL AMOUNT PER AMOUNT STATED MATURITY TOTAL RATE PRE-TAX
EQUITY RETURN $1,000 NOTE OVER $1,000 PER $1,000 NOTE OF RETURN RATE OF RETURN
--------------- -------------- ---------------- ----------------- ------------ ---------------
2.0 $2,000 100.0% $2,000 100.0% 21.90%
1.9 $1,900 90.0% $1,900 90.0% 20.13%
1.8 $1,800 80.0% $1,800 80.0% 18.29%
1.7 $1,700 70.0% $1,700 70.0% 16.37%
1.6 $1,600 60.0% $1,600 60.0% 14.37%
1.5 $1,500 50.0% $1,500 50.0% 12.28%
1.4 $1,400 40.0% $1,400 40.0% 10.09%
1.3 $1,300 30.0% $1,300 30.0% 7.78%
1.2 $1,200 20.0% $1,200 20.0% 5.35%
1.1 $1,100 10.0% $1,100 10.0% 2.76%
1.0 $1,000 0.0% $1,000 0.0% 0.00%
0.9 $ 900 -10.0% $1,000 0.0% 0.00%
0.8 $ 800 -20.0% $1,000 0.0% 0.00%
0.7 $ 700 -30.0% $1,000 0.0% 0.00%
0.6 $ 600 -40.0% $1,000 0.0% 0.00%
0.5 $ 500 -50.0% $1,000 0.0% 0.00%
The above figures are for purposes of illustration only. The actual amount
received by investors and the resulting total and pre-tax rate of return will
depend entirely on the actual final index level and the alternative redemption
amount determined by the calculation agent. In particular, the actual final
index level could be lower or higher than those reflected in the table.
You should compare the features of the notes to other available investments
before deciding to purchase the notes. Due to the uncertainty concerning the
alternative redemption amount, the return on investment with respect to the
notes may be higher or lower than the return available on other securities
issued by Lehman Brothers Holdings or by others and available through Lehman
Brothers Inc. You should reach an investment decision only after carefully
considering the suitability of the notes in light of your particular
circumstances.
S-14
CALCULATION AGENT
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, will act as
initial calculation agent for the notes. Pursuant to the calculation agency
agreement, Lehman Brothers Holdings may appoint a different calculation agent
from time to time after the date of this prospectus supplement without your
consent and without notifying you.
The calculation agent will determine the amount you receive at the stated
maturity of the notes. The calculation agent will determine the alternative
redemption amount and whether you will receive the alternative redemption
amount or $1,000 per $1,000 note.
In addition, the calculation agent will determine:
o the closing level of the S&P 500 Index at the end of each monthly period;
o whether adjustments are required to the index level under various
circumstances; see "--Discontinuance of the S&P 500 Index; Alteration of
Method of Calculation";
o the successor index if publication of the S&P 500 Index is discontinued;
see "--Discontinuance of the S&P 500 Index; Alteration of Method of
Calculation"; and
o whether a market disruption event has occurred; see "--Market disruption
events."
All determinations made by the calculation agent will be at the sole discretion
of the calculation agent and, in the absence of manifest error, will be
conclusive for all purposes and binding on Lehman Brothers Holdings and you.
The calculation agent will have no liability for its determinations, except as
provided in the calculation agency agreement.
EVENTS OF DEFAULT AND ACCELERATION
If an event of default with respect to any notes has occurred and is
continuing, the amount payable to you upon any acceleration permitted under the
senior indenture will be equal to, per $1,000 note, the greater of $1,000 and
the alternative redemption amount, calculated as though the date of
acceleration was the stated maturity date and the date three business days
before that date was the date for determining the level of the S&P 500 Index
for the last monthly period. If a bankruptcy proceeding is commenced in respect
of Lehman Brothers Holdings, the claims of the holder of a note may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, as though the
commencement of the proceeding was the stated maturity and the date three
business days before that date was the date for determining the level of the
S&P 500 Index for the last monthly period. See "Description of Debt
Securities--Defaults" beginning on page 13 of the accompanying prospectus.
S-15
THE S&P 500 INDEX
GENERAL
Unless otherwise stated, all information herein on the S&P 500 Index is derived
from S&P or other publicly available sources. Such information reflects the
policies of S&P as stated in such sources, and such policies are subject to
change by S&P. S&P is under no obligation to continue to publish the S&P 500
Index and may discontinue publication of the S&P 500 Index at any time.
The S&P 500 Index is published by S&P and is intended to provide an indication
of the pattern of common stock price movement. The calculation of the value of
the S&P 500 Index (discussed below in further detail) is based on the relative
value of the aggregate market value (as defined below) of the common stocks of
500 companies as of a particular time compared to the aggregate average market
value of the common stocks of 500 similar companies during the base period of
the years 1941 through 1943.
S&P chooses companies for inclusion in the S&P 500 Index with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the New York
Stock Exchange, which S&P uses as an assumed model for the composition of the
total market. Relevant criteria employed by S&P include the viability of the
particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
company's common stock is generally responsive to changes in the affairs of the
respective industry and the market value and trading activity of the common
stock of that company. S&P may from time to time, in its sole discretion, add
companies to, or delete companies from, the S&P 500 Index to achieve the
objectives stated above.
As of June 29, 2001, the 500 companies included in the S&P 500 Index were
divided into 10 industry groups (with the number of companies currently
included in each industry group indicated in parentheses): Consumer
Discretionary (85), Consumer Staples (37), Energy (26), Financials (70), Health
Care (71), Industrials (40), Information Technology (77), Materials (41),
Telecommunications Services (13) and Utilities (40).
THE S&P 500 INDEX DOES NOT REFLECT THE PAYMENT OF DIVIDENDS ON THE STOCKS
UNDERLYING IT AND THEREFORE THE INTEREST DISTRIBUTION ON THE NOTES WILL NOT
PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE ABLE TO PURCHASE SUCH
UNDERLYING STOCKS AND HOLD THEM UNTIL THE STATED MATURITY DATE.
COMPUTATION OF THE S&P 500 INDEX
While S&P currently employs the following methodology to calculate the S&P 500
Index, no assurance can be given that S&P will not modify or change such
methodology in a manner that may affect the alternate amount.
S&P currently computes the S&P 500 Index as of a particular time as follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such
time (such product referred to as the "market value" of such stock);
(b) the market value of all component stocks as of such time (as
determined under clause (a) above) are aggregated;
(c) the mean average of the market values as of each week in the base
period of the years 1941 through 1943 of the common stock of each
company in a group of 500 substantially similar companies is
determined;
(d) the mean average market values of all such common stocks over such
base period (as determined under clause (c) above) are aggregated
(such aggregate amount being referred to herein as the "base
value");
(e) the aggregate market value of all component stocks as of such time
(as determined under clause (b) above) is divided by the base value;
and
(f) the resulting quotient (expressed in decimals) is multiplied by ten.
S&P adjusts the foregoing formula to negate the effects of changes in the
market value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such
S-16
causes as the issuance of stock dividends, the granting to shareholders of
rights to purchase additional shares of such stock, the purchase of shares by
employees pursuant to employee benefit plans, certain consolidations and
acquisitions, the granting to shareholders of rights to purchase other
securities of the company, the substitution by S&P of particular component
stocks in the S&P 500 Index, and other reasons. In all such cases, S&P first
recalculates the aggregate market value of all component stocks (after taking
account of the new market price per share of the particular component stock or
the new number of outstanding shares thereof or both, as the case may be) and
the determines the new base value in accordance with the following formula:
old base value x new market value = new base value
----------------
old market value
The result is that the base value is adjusted in proportion to any change in
the aggregate market value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the S&P 500 Index.
HISTORICAL INFORMATION
The following table sets forth the high and low index level, as well as
end-of-month closing index levels, of the S&P 500 Index for each month in the
period from July 1, 1998 through July 24, 2001. The closing index level on July
24, 2001 was 1171.65. We obtained the closing index levels listed below from
Bloomberg Financial Markets, and we believe such information to be accurate.
The results shown should not be considered as a representation of the income,
yield or capital gain or loss that may be generated by the S&P 500 Index in the
future.
The value of the S&P 500 Index may decrease so that you will receive a payment
at maturity only worth the principal amount of the notes. We cannot give you
any assurance that the value of the S&P 500 Index will increase so that at
maturity you will receive more than $1,000 per $1,000 note.
S-17
HIGH LOW MONTH-END
----------- ----------- -----------
1998
January .............................. 985.49 927.69 980.28
February ............................. 1049.34 1001.27 1049.34
March ................................ 1105.65 1035.05 1101.75
April ................................ 1130.54 1085.11 1111.75
May .................................. 1122.07 1090.82 1090.82
June ................................. 1138.49 1077.01 1133.84
July ................................. 1186.75 1120.67 1120.67
August ............................... 1112.44 957.28 957.28
September ............................ 1066.09 973.89 1017.01
October .............................. 1098.67 959.44 1098.67
November ............................. 1192.29 1110.84 1163.63
December ............................. 1241.81 1141.20 1229.23
1999
January .............................. 1279.64 1212.19 1279.64
February ............................. 1273.00 1216.14 1238.33
March ................................ 1316.55 1225.50 1286.37
April ................................ 1362.80 1289.48 1335.18
May .................................. 1367.56 1281.41 1301.84
June ................................. 1372.71 1293.64 1372.71
July ................................. 1418.78 1328.72 1328.72
August ............................... 1381.79 1281.43 1320.41
September ............................ 1357.24 1268.37 1282.71
October .............................. 1362.93 1247.41 1362.93
November ............................. 1424.94 1347.74 1388.91
December ............................. 1469.25 1397.72 1469.25
2000
January .............................. 1465.15 1360.16 1394.46
February ............................. 1441.72 1333.36 1366.42
March ................................ 1527.46 1355.62 1498.58
April ................................ 1516.35 1356.56 1452.43
May .................................. 1468.25 1373.86 1420.60
June ................................. 1486.00 1441.48 1454.60
July ................................. 1510.49 1419.89 1430.83
August ............................... 1517.68 1438.10 1517.68
September ............................ 1520.77 1426.57 1436.51
October .............................. 1436.28 1329.78 1429.40
November ............................. 1432.19 1314.95 1314.95
December ............................. 1380.20 1264.74 1320.28
2001
January .............................. 1373.73 1283.27 1366.01
February ............................. 1373.47 1239.94 1239.94
March ................................ 1264.74 1117.58 1160.33
April ................................ 1253.70 1103.25 1249.46
May .................................. 1312.83 1245.67 1255.82
June ................................. 1283.57 1208.43 1224.42
July (through July 24, 2001) ......... 1236.72 1171.65 1171.65
S-18
LICENSE AGREEMENT BETWEEN S&P AND LEHMAN BROTHERS HOLDINGS
S&P and Lehman Brothers Holdings have entered into a non-exclusive license
agreement providing for the license to Lehman Brothers Holdings and certain of
its affiliated or subsidiary companies, in exchange for a fee, of the right to
use indices owned and published by S&P (including the S&P 500) in connection
with certain securities, including the notes.
The license agreement between S&P and Lehman Brothers Holdings provides that
the following language must be stated in this Prospectus Supplement.
The notes are not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the holders of the notes or
any member of the public regarding the advisability of investing in securities
generally or in the notes particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to Lehman
Brothers Holdings is the licensing of certain trademarks and trade names of S&P
and of the S&P 500 Index which is determined, composed and calculated by S&P
without regard to Lehman Brothers Holdings or the notes. S&P has no obligation
to take the needs of Lehman Brothers Holdings or the holders of the notes into
consideration in determining, composing or calculating the S&P 500 Index. S&P
is not responsible for and has not participated in the determination of the
timing of the sale of the notes, prices at which the notes are to be initially
be sold, or quantities of the notes to be issued or in the determination or
calculation of the equation by which the notes are to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the notes.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LEHMAN BROTHERS HOLDINGS, HOLDERS OF
THE NOTES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING THE FOREGOING, IN NO EVENT SHALL S&P HAVE
ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
All disclosures contained in this Prospectus Supplement regarding the S&P 500
Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by S&P.
None of Lehman Brothers Holdings, Lehman Brothers Inc. or the trustee assumes
any responsibility for the accuracy or completeness of such information.
S-19
UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership, and disposition of notes as of the
date of this prospectus supplement. Except where noted, this summary deals only
with a note held as a capital asset by a United States holder who purchases the
note on original issue at its initial offering price, and it does not deal with
special situations. For example, this summary does not address:
o tax consequences to holders who may be subject to special tax treatment,
such as dealers in securities or currencies, traders in securities that
elect to use the mark-to-market method of accounting for their securities,
financial institutions, regulated investment companies, real estate
investment trusts, tax-exempt entities or insurance companies;
o tax consequences to persons holding notes as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle;
o tax consequences to holders of notes whose "functional currency" is not
the U.S. dollar;
o alternative minimum tax consequences, if any; or
o any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (which we refer to as the Code), and regulations, rulings
and judicial decisions as of the date of this prospectus supplement. Those
authorities may be changed, perhaps retroactively, so as to result in United
States federal income tax consequences different from those discussed below.
If a partnership holds the notes, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding the notes, you should consult your
own tax advisors.
If you are considering the purchase of notes, you should consult your own tax
advisors concerning the federal income tax consequences in light of your
particular situation and any consequences arising under the laws of any other
taxing jurisdiction.
UNITED STATES HOLDERS
The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a United States holder of notes.
For purposes of this discussion, a United States holder is a beneficial owner
of a note that is:
o a citizen or resident of the United States;
o a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
o an estate the income of which is subject to United States federal income
taxation regardless of its source; or
o a trust (1) that is subject to the supervision of a court within the United
States and the control of one or more United States persons as defined in
Section 7701(a)(30) of the Code or (2) that has a valid election in effect
under applicable Treasury regulations to be treated as a United States
person.
ACCRUAL OF INTEREST
The Treasury regulations that apply to contingent payment debt obligations will
apply to the notes. All payments on the notes will be taken into account under
these Treasury regulations. As discussed more fully below, the effect of these
Treasury regulations will be to:
o require you, regardless of your usual method of tax accounting, to use the
accrual method with respect to the notes;
o result in the accrual of original issue discount by you even though no cash
payments will be made to you; and
o generally result in ordinary rather than capital treatment of any gain, and
to some extent loss, on the sale, exchange, repurchase or redemption of the
notes.
Under the contingent payment debt rules, you will be required to include
original issue discount in income each year, regardless of your usual method of
tax accounting, based on the "comparable yield" of the notes, which will
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generally be the rate at which Lehman Brothers Holdings could issue a fixed
rate debt instrument with terms and conditions similar to the notes.
Lehman Brothers Holdings is required to provide the comparable yield to you
and, solely for tax purposes, is also required to provide a projected payment
schedule that estimates the amount and timing of contingent payments on the
notes. Lehman Brothers Holdings has determined that the comparable yield is an
annual rate of %, compounded semi-annually. Based on the comparable yield,
the projected payment schedule per $1,000 note is $ due at maturity.
THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE ARE NOT PROVIDED FOR
ANY PURPOSE OTHER THAN THE DETERMINATION OF YOUR INTEREST ACCRUALS AND
ADJUSTMENTS THEREOF IN RESPECT OF THE NOTES AND DO NOT CONSTITUTE A
REPRESENTATION REGARDING THE ACTUAL AMOUNT OF THE PAYMENTS ON A NOTE.
The amount of original issue discount on a note for each accrual period is then
determined by multiplying the comparable yield of the note, adjusted for the
length of the accrual period, by the note's adjusted issue price at the
beginning of the accrual period, determined in accordance with the rules set
forth in the contingent payment debt rules. The amount of original issue
discount so determined is then allocated on a ratable basis to each day in the
accrual period that you held the note. Lehman Brothers Holdings is required to
provide information returns stating the amount of original issue discount
accrued on notes held of record by persons other than corporations and other
exempt owners.
If an actual contingent payment made on the notes differs from the projected
contingent payment, an adjustment will be made for the difference. A positive
adjustment, for the amount by which an actual payment exceeds the projected
contingent payment, will be treated as additional original issue discount in
the current year. A negative adjustment will:
o first, reduce the amount of original issue discount required to be accrued
in the current year; and
o second, any negative adjustments that exceed the amount of original issue
discount accrued in the current year will be treated as ordinary loss to
the extent of your total prior original issue discount inclusions with
respect to the note.
You are generally bound by the above comparable yield and projected payment
schedule. However, if you believe that Lehman Brothers Holdings' projected
payment schedule is unreasonable, you may set your own projected payment
schedule so long as you explicitly disclose the use of, and the reason for,
that schedule. Unless otherwise prescribed by the Commissioner of the Internal
Revenue Service, that disclosure must be made in a statement attached to your
timely filed federal income tax return for the taxable year in which a note is
acquired.
SALE, EXCHANGE OR OTHER DISPOSITION OF NOTES
Upon the sale, exchange, repurchase or redemption of a note, you will recognize
gain or loss equal to the difference between your amount realized and your
adjusted tax basis in the note. Such gain on a note generally will be treated
as ordinary income. Loss from the disposition of a note will be treated as
ordinary loss to the extent of your prior net original issue discount
inclusions with respect to the note. Any loss in excess of that amount will be
treated as capital loss.
Special rules apply in determining the tax basis of a note. Your basis in a
note is generally increased by original issue discount you previously accrued
on the note.
NON-UNITED STATES HOLDERS
The following discussion is a summary of certain United States federal tax
consequences that will apply to you if you are a Non-United States holder of
notes. Special rules may apply to you if you are a controlled foreign
corporation, passive foreign investment company or foreign personal holding
company and therefore subject to special treatment under the Code. You should
consult your own tax advisors to determine the U.S. federal, state, local and
other tax consequences that may be relevant to you.
S-21
UNITED STATES FEDERAL WITHHOLDING TAX
The 30% United States federal withholding tax will not apply to any payment,
including original issue discount, on a note provided that:
o you do not actually, or constructively, own 10% or more of the total
combined voting power of all classes of Lehman Brothers Holdings' voting
stock within the meaning of the Code and the Treasury regulations;
o you are not a controlled foreign corporation that is related to Lehman
Brothers Holdings through stock ownership;
o you are not a bank whose receipt of interest on a note is described in
Section 881(c)(3)(A) of the Code; and
o (1) you provide your name and address on an IRS Form W-8BEN and certify,
under penalty of perjury, that you are not a United States holder or (2)
you hold your notes through certain foreign intermediaries or foreign
partnerships and you satisfy the certification requirements of applicable
Treasury regulations. Special certification rules apply to holders that are
pass-through entities.
If you cannot satisfy the requirements described above, payments, including
original issue discount, made to you will be subject to the 30% United States
federal withholding tax, unless you provide Lehman Brothers Holdings with a
properly executed (1) IRS Form W-8BEN claiming an exemption from, or reduction
in, withholding under the benefit of an applicable tax treaty or (2) IRS Form
W-8ECI stating that interest paid on a note is not subject to withholding tax
because it is effectively connected with your conduct of a trade or business in
the United States.
UNITED STATES FEDERAL INCOME TAX
Any gain or income on a note will generally be subject to United States federal
income tax if you are engaged in a trade or business in the United States, and
gain or income on the notes is effectively connected with the conduct of that
trade or business. In such case, you will be subject to United States federal
income tax on such gain or income on a net income basis in the same manner as
if you were a United States holder. In addition, if you are a foreign
corporation, you may be subject to a branch profits tax equal to 30%, or lower
applicable treaty rate, of your earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with the conduct by you
of a trade or business in the United States. For this purpose, effectively
connected gain and income on the notes will be included in earnings and
profits.
UNITED STATES FEDERAL ESTATE TAX
Your estate will not be subject to United States federal estate tax on notes
beneficially owned by you at the time of your death, provided that (1) you do
not own 10% or more of the total combined voting power of all classes of Lehman
Brothers Holdings' voting stock, within the meaning of the Code and the
Treasury regulations, and (2) original issue discount on that note 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
If you are a United States holder of notes, information reporting requirements
will generally apply to all payments Lehman Brothers Holdings makes to you and
the proceeds from the sale of a note made to you, unless you are an exempt
recipient such as a corporation. Backup withholding tax will apply to those
payments if you fail to provide a taxpayer identification number, a
certification of exempt status, or if you fail to report in full interest
income.
If you are a Non-United States holder of notes, you will not be required to pay
backup withholding and provide information reporting regarding payments Lehman
Brothers Holdings makes to you provided that Lehman Brothers Holdings does not
have actual knowledge that you are a United States holder and Lehman Brothers
Holdings has received from you the statement described above under "Non-United
States Holders--United States Federal Withholding Tax." In addition, you will
not be required to pay backup withholding and provide information reporting
regarding the proceeds of the sale of a note made within the United States or
conducted through certain United States-related financial intermediaries, if
the
S-22
payor receives the statement described above and does not have actual knowledge
that you are a United States holder, or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
BOOK-ENTRY ISSUANCE
The notes will be represented by one or more global securities that will be
deposited with and registered in the name of DTC or its nominee. This means
that Lehman Brothers Holdings will not issue certificates to you for the notes.
Each global security will be issued to DTC which will keep a computerized
record of its participants (for example, a broker) whose clients have purchased
the notes. Each participant will then keep a record of its clients. Unless it
is exchanged in whole or in part for a certificated security, a global security
may not be transferred. However, DTC, its nominees and their successors may
transfer a global security as a whole to one another.
Beneficial interests in a global security will be shown on, and transfers of
the global security will be made only through, records maintained by DTC and
its participants. DTC holds securities that its direct participants deposit
with DTC. DTC also records the settlements among direct participants of
securities transactions, such as transfers and pledges, in deposited securities
through computerized records for direct participants' accounts. This eliminates
the need to exchange certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC's book-entry system is also used by other
organizations such as securities brokers and dealers, banks and trust companies
that work through a direct participant.
When you purchase notes through the DTC system, the purchases must be made by
or through a direct participant, who will receive credit for the notes on DTC's
records. Since you actually own the notes, you are the beneficial owner. Your
ownership interest will only be recorded on the direct or indirect
participants' records. DTC has no knowledge of your individual ownership of the
notes. DTC's records only show the identity of the direct participants and the
amount of the notes held by or through them. You will not receive a written
confirmation of your purchase or sale or any periodic account statement
directly from DTC. You should instead receive these from your direct or
indirect participant. As a result, the direct or indirect participants are
responsible for keeping accurate account of the holdings of their customers
like you.
The trustee for the notes will wire payments on the notes to DTC's nominee.
Lehman Brothers Holdings and the trustee will treat DTC's nominee as the owner
of each global security for all purposes. Accordingly, Lehman Brothers
Holdings, the trustee and any paying agent will have no direct responsibility
or liability to pay amounts due on the global security to you or any other
beneficial owners in the global security. Any redemption notices will be sent
by Lehman Brothers Holdings directly to DTC, who will in turn inform the direct
participants or the indirect participants, who will then contact you as a
beneficial holder. If less than all of the notes are being redeemed, DTC will
proportionally allot the amount of the interest of each direct participant to
be redeemed.
It is DTC's current practice, upon receipt of any payment of interest,
distributions or liquidation amount, to proportionally credit direct
participants' accounts on the payment date based on their holdings. In
addition, it is DTC's current practice to pass through any consenting or voting
rights to the participants by using an omnibus proxy. Those participants in
turn will make payments to and solicit votes from you, the ultimate owner of
notes based on customary practices. Payments to you will be the responsibility
of the participants and not of DTC, the trustee or Lehman Brothers Holdings.
Notes represented by a global security will be exchangeable for certificated
securities with the same terms in authorized denominations only if:
S-23
o DTC is unwilling or unable to continue as depositary or ceases to be a
clearing agency registered under applicable law and a successor is not
appointed by Lehman Brothers Holdings within 90 days; or
o Lehman Brothers Holdings decides to discontinue use of the book-entry
system.
If the global security is exchanged for certificated securities, the trustee
will keep the registration books for the notes at its corporate office and
follow customary practices and procedures.
DTC has provided Lehman Brothers Holdings with the following information: DTC
is a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the United States Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act
of 1934. DTC is owned by a number of its direct participants and by the New
York Stock Exchange, the American Stock Exchange and the National Association
of Securities Dealers, Inc. The rules that apply to DTC and its participants
are on file with the SEC.
CLEARSTREAM AND EUROCLEAR
Links have been established among DTC, Clearstream Banking and Euroclear (two
European book-entry depositories similar to DTC), to facilitate the initial
issuance of the notes and cross-market transfers of the notes associated with
secondary market trading.
Although DTC, Clearstream and Euroclear have agreed to the procedures provided
below in order to facilitate transfers, they are under no obligation to perform
those procedures and those procedures may be modified or discontinued at any
time.
Clearstream and Euroclear will record the ownership interests of their
participants in much the same way as DTC, and DTC will record the aggregate
ownership of each U.S. agent of Clearstream and Euroclear, as participants in
DTC.
When notes are to be transferred from the account of a DTC participant to the
account of a Clearstream participant or a Euroclear participant, the purchaser
must send instructions to Clearstream or Euroclear through a participant at
least one business day prior to settlement. Clearstream or Euroclear, as the
case may be, will instruct its U.S. agent to receive the notes against payment.
After settlement, Clearstream or Euroclear will credit its participant's
account. Credit for the notes will appear on the next day, European time.
Because the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending notes to the
relevant U.S. agent acting for the benefit of Clearstream or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant, a cross-market transaction will
settle no differently than a trade between two DTC participants.
When a Clearstream or Euroclear participant wishes to transfer notes to a DTC
participant, the seller must send instructions to Clearstream or Euroclear
through a participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct its U.S. agent to transfer notes
against payment. The payment will then be reflected in the account of the
Clearstream or Euroclear participant the following day, with the proceeds
back-valued to the value date; which day would be the preceding day, when
settlement occurs in New York. If settlement is not completed on the intended
value date (i.e., the trade fails), proceeds credited to the Clearstream or
Euroclear participant's account would instead be valued as of the actual
settlement date.
UNDERWRITING
Lehman Brothers Holdings has agreed to sell to Lehman Brothers Inc., the
underwriter, all of the notes.
The underwriter has advised Lehman Brothers Holdings that it proposes to
initially offer the notes to the public at the public offering price
S-24
indicated on the cover page of this prospectus supplement; it may also offer
the notes to certain dealers at the same price less a concession not in excess
of % of the principal amount of the notes. After the initial public offering
of the notes is completed, the public offering price and the concession may be
changed.
In connection with the offering, the rules of the SEC permit the underwriter to
engage in various transactions that stabilize the price of the notes. These
transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the notes. If the underwriter creates a
short position in the notes in connection with the offering (that is, if it
sells a larger number of the notes than is indicated on the cover page of this
prospectus supplement), the underwriter may reduce that short position by
purchasing notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. Neither
Lehman Brothers Holdings nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the notes. In addition, neither Lehman
Brothers Holdings nor the underwriter makes any representation that the
underwriter will in fact engage in transactions described in this paragraph, or
that those transactions, once begun, will not be discontinued without notice.
The underwriter may not confirm sales to any account over which it exercises
discretionary authority without the prior written approval of the customer.
Lehman Brothers Holdings will pay certain expenses, expected to be
approximately $ , associated with the offer and sale of the notes.
Lehman Brothers Holdings has agreed to indemnify the underwriter against some
liabilities, including liabilities under the Securities Act of 1933.
The underwriting arrangements for this offering comply with the requirements of
Rule 2720 of the NASD regarding an NASD member firm underwriting securities of
its affiliate.
A prospectus supplement and the accompanying prospectus in electronic format
may be made available on the Internet sites or through other online services
maintained by the underwriter and/or selling group members participating in
this offering, or by their affiliates. In those cases, prospective investors
may view offering terms online and, depending upon the particular underwriter
or selling group member, prospective investors may be allowed to place orders
online. The underwriter may agree with Lehman Brothers Holdings to allocate a
specific number of shares for sale to online brokerage account holders. Any
such allocation for online distributions will be made by the underwriter on the
same basis as other allocations.
Other than the prospectus supplement and the accompanying prospectus in
electronic format, the information on the underwriter's or any selling group
member's web site and any information contained in any other web site
maintained by the underwriter or selling group member is not part of the
prospectus supplement, the accompanying prospectus or the registration
statement of which this prospectus supplement and the accompanying prospectus
form a part, has not been approved and/or endorsed by Lehman Brothers Holdings
or the underwriter or any selling group member in its capacity as underwriter
or selling group member and should not be relied upon by investors.
EXPERTS
The consolidated financial statements and financial statement schedule of
Lehman Brothers Holdings as of November 30, 2000 and 1999, and for each of the
years in the three-year period ended November 30, 2000, have been audited by
Ernst & Young LLP, independent certified public accountants, as set forth in
their report on the consolidated financial statements. The consolidated
financial statements and accountant's report are incorporated by reference in
Lehman Brothers Holdings' annual report on Form 10-K for the year ended
November 30, 2000, and incorporated by reference in this prospectus supplement.
The consolidated financial statements of Lehman Brothers Holdings referred to
above are incorporated by reference in this prospectus supplement in reliance
upon the report given on the authority of Ernst & Young LLP as experts in
accounting and auditing.
S-25
PROSPECTUS
$1,165,000,000
LEHMAN BROTHERS HOLDINGS INC.
MAY OFFER--
DEBT SECURITIES
WARRANTS
PURCHASE CONTRACTS
UNITS
----------------
The Securities may be offered in one or more series, in amounts, at prices
and on terms to be determined at the time of the offering.
Lehman Brothers Holdings will provide the specific terms of these
securities in supplements to this prospectus. You should read this prospectus
and the accompanying prospectus supplement carefully before you invest.
The securities offered pursuant to this prospectus will have an initial
aggregate offering price of up to $1,165,000,000 or the equivalent thereof in
one or more foreign currencies, foreign currency units or composite currencies,
subject to reduction as a result of the sale under certain circumstances of
other securities.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus or any accompanying prospectus supplement is truthful or
complete. Any representation to the contrary is a criminal offense.
----------------
June 21, 2001
Page 1
PROSPECTUS SUMMARY
This summary provides a brief overview of the key aspects of Lehman
Brothers Holdings and all material terms of the offered securities that are
known as of the date of this prospectus. For a more complete understanding of
the terms of a particular issuance of offered securities, before making your
investment decision, you should carefully read:
o this prospectus, which explains the general terms of the securities that
Lehman Brothers Holdings may offer;
o the accompanying prospectus supplement for such issuance, which explains
the specific terms of the securities being offered and which may update or
change information in this prospectus; and
o the documents referred to in "Where You Can Find More Information" on page
6 for information about Lehman Brothers Holdings, including its financial
statements.
LEHMAN BROTHERS HOLDINGS INC.
Lehman Brothers Holdings 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, private equity investments, securities sales and trading,
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. The company is
a member of all principal securities and commodities exchanges in the United
States, as well as the National Association of Securities Dealers, Inc., and
holds memberships or associate memberships on several principal international
securities and commodities exchanges, including the London, Tokyo, Hong Kong,
Frankfurt, Paris and Milan stock exchanges.
Lehman Brothers Holdings' principal executive office is at Three World
Financial Center, New York, New York 10285, and its telephone number is (212)
526-7000.
THE SECURITIES LEHMAN BROTHERS HOLDINGS MAY OFFER
Lehman Brothers Holdings may use this prospectus to offer up to
$1,165,000,000 of:
o debt securities,
o warrants,
o purchase contracts, and
o units, comprised of two or more debt securities, warrants and purchase
contracts, in any combination.
A prospectus supplement will describe the specific types, amounts, prices
and detailed terms of any of these offered securities and may describe certain
risks associated with an investment in the securities. Terms used in the
prospectus supplement will have the meanings described in this prospectus,
unless otherwise specified.
The debt securities, warrants, purchase contracts and units are unsecured
obligations of Lehman Brothers Holdings. Since Lehman Brothers Holdings is a
holding company, its cash flow and consequent ability to satisfy its
obligations under the offered securities are dependent upon the
2
earnings of its subsidiaries and the distribution of those earnings or loans or
other payments by those subsidiaries to Lehman Brothers Holdings. Lehman
Brothers Holdings' subsidiaries will have no obligation to pay any amount in
respect of offered securities or to make any funds available therefor.
Dividends, loans and other payments by Lehman Brothers Inc. and certain other
subsidiaries are restricted by net capital and other rules of various
regulatory bodies. Additionally, the ability of Lehman Brothers Holdings to
participate as an equity holder in any distribution of assets of any subsidiary
is subordinate to the claims of creditors of the subsidiary, except to the
extent that any claims Lehman Brothers Holdings may have as a creditor of the
subsidiary are judicially recognized.
DEBT SECURITIES
Debt securities are unsecured general obligations of Lehman Brothers
Holdings in the form of senior or subordinated debt. Senior debt includes
Lehman Brothers Holdings' notes, debt and guarantees and any other indebtedness
for money borrowed that is not subordinated. Subordinated debt, so designated
at the time it is issued, will not be entitled to interest, principal or other
payments if payments on the senior debt are not made. The senior and
subordinated debt will be issued under separate indentures. Neither indenture
limits the amount of debt that Lehman Brothers Holdings may issue.
Debt securities may bear interest at a fixed or a floating rate and may
provide that the amount payable at maturity, and/or the amount of interest
payable on an interest payment date, will be determined by reference to:
o securities of one or more issuers, including Lehman Brothers Holdings,
o one or more currencies,
o one or more commodities,
o any other financial, economic or other measure or instrument, including the
occurrence or non-occurrence of any event or circumstance, and/or
o one or more indices or baskets of the items described above.
For any particular debt securities Lehman Brothers Holdings offers, the
prospectus supplement will describe the specific designation, the aggregate
principal or face amount and the purchase price; the ranking, whether senior or
subordinated; the stated maturity; the redemption terms, if any; the rate or
manner of calculating the rate and the payment dates for interest, if any; the
amount or manner of calculating the amount payable at maturity and whether that
amount may be paid by delivering cash, securities or other property; and any
other specific terms.
WARRANTS
Lehman Brothers Holdings may offer two types of warrants:
o warrants to purchase Lehman Brothers Holdings' debt securities, and
o warrants to purchase or sell, or whose cash value is determined by
reference to the performance, level or value of, one or more of the
following:
o securities of one or more issuers, including Lehman Brothers Holdings,
o one or more currencies,
o one or more commodities,
o any other financial, economic or other measure or instrument, including
the occurrence or non-occurrence of any event or circumstance, and
o one or more indices or baskets of the items described above.
3
For any particular warrants Lehman Brothers Holdings offers, the
prospectus supplement will describe the underlying property; the expiration
date; the exercise price or the manner of determining the exercise price; the
amount and kind, or the manner of determining the amount and kind, of property
or cash to be delivered by you or us upon exercise; and any other specific
terms. Lehman Brothers Holdings will issue the warrants under warrant
agreements between Lehman Brothers Holdings and one or more warrant agents and
may issue warrants under a unit agreement described below.
PURCHASE CONTRACTS
Lehman Brothers Holdings may offer purchase contracts for the purchase or
sale of, or whose cash value is determined by reference to the performance,
level or value of, one or more of the following:
o securities of one or more issuers, including Lehman Brothers Holdings,
o one or more currencies,
o one or more commodities,
o any other financial, economic or other measure or instrument, including the
occurrence or non-occurrence of any event or circumstance, and
o one or more indices or baskets of the items described above.
For any particular purchase contracts Lehman Brothers Holdings offers, the
prospectus supplement will describe the underlying property; the settlement
date; the purchase price or manner of determining the purchase price and
whether it must be paid when the purchase contract is issued or at a later
date; the amount and kind, or the manner of determining the amount and kind, of
property or cash to be delivered at settlement; whether the holder will pledge
property to secure the performance of any obligations the holder may have under
the purchase contract; and any other specific terms. Lehman Brothers Holdings
will issue prepaid purchase contracts under an indenture for debt securities
described above and may issue purchase contracts under a unit agreement
described below.
UNITS
Lehman Brothers Holdings may offer units, comprised of two or more debt
securities, warrants and purchase contracts, in any combination. For any
particular units Lehman Brothers Holdings offers, the prospectus supplement
will describe the particular securities comprising each unit; the terms on
which those securities will be separable, if any; whether the holder will
pledge property to secure the performance of any obligations the holder may
have under the unit; and any other specific terms of the units. Lehman Brothers
Holdings may issue the units under unit agreements between Lehman Brothers
Holdings and one or more unit agents.
FORM OF SECURITIES
Lehman Brothers Holdings will generally issue the securities in book-entry
form through one or more depositaries, such as The Depository Trust Company,
Euroclear or Clearstream, Luxembourg, named in the applicable prospectus
supplement. Each sale of a security in book-entry form will settle in
immediately available funds through the depositary, unless otherwise stated.
Lehman Brothers Holdings will issue the securities only in registered form,
without coupons.
PAYMENT CURRENCIES
Amounts payable in respect of the securities, including the purchase
price, will be payable in U.S. dollars, unless the prospectus supplement states
otherwise.
4
LISTING
If any securities are to be listed or quoted on a securities exchange or
quotation system, the applicable prospectus supplement will so state.
USE OF PROCEEDS
Lehman Brothers Holdings will use the net proceeds it receives from any
offering of these securities for general corporate purposes, primarily to fund
its operating units and subsidiaries. Lehman Brothers Holdings may use some of
the proceeds to refinance or extend the maturity of existing debt obligations.
Lehman Brothers Holdings may use a portion of the proceeds from the sale of
securities to hedge its exposure to payments that it may have to make on such
securities as described below under "Use of Proceeds and Hedging".
PLAN OF DISTRIBUTION
Lehman Brothers Holdings may sell the offered securities in any of the
following ways:
o to or through underwriters or dealers;
o by itself directly;
o through agents; or
o through a combination of any of these methods of sale.
The prospectus supplement will explain the ways Lehman Brothers Holdings
will sell specific securities, including the names of any underwriters and
details of the pricing of the securities, as well as the commissions,
concessions or discounts Lehman Brothers Holdings is granting the underwriters,
dealers or agents.
If Lehman Brothers Holdings uses underwriters in any sale, the
underwriters will buy the securities for their own account and may resell the
securities from time to time in one or more transactions, at a fixed public
offering price or at varying prices determined at the time of sale. In
connection with an offering, underwriters and selling group members and their
affiliates may engage in transactions to stabilize, maintain or otherwise
affect the market price of the securities, in accordance with applicable law.
Lehman Brothers Holdings expects that the underwriters for any offering
will include one or more of its broker-dealer affiliates. It also expects that
one or more of these affiliates may offer and sell previously issued offered
securities as part of their business, and may act as principals or agents in
such transactions. Lehman Brothers Holdings or such affiliates may use this
prospectus and the related prospectus supplements and pricing supplements in
connection with these activities.
5
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Act of 1933, Lehman Brothers Holdings filed
a registration statement (No. 333-61878) relating to the securities offered by
this prospectus with the Securities and Exchange Commission. This prospectus is
a part of that registration statement, which includes additional information.
Lehman Brothers Holdings files annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
document Lehman Brothers Holdings files at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. You can also
request copies of the documents, upon payment of a duplicating fee, by writing
the Public Reference Section of the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. These SEC filings are
also available to the public from the SEC's web site at http://www.sec.gov.
The SEC allows Lehman Brothers Holdings to "incorporate by reference" the
information it files with the SEC, which means that it can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information that Lehman Brothers Holdings files later with the SEC will
automatically update information in this prospectus. In all cases, you should
rely on the later information over different information included in this
prospectus or the prospectus supplement. Lehman Brothers Holdings incorporates
by reference the documents listed below and any future filings made with the
SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934:
o Annual Report on Form 10-K for the year ended November 30, 2000, filed with
the SEC on February 28, 2001;
o Amendment No. 1 to Annual Report on Form 10-K for the year ended November
30, 2000, filed with the SEC on March 9, 2001;
o Quarterly Report on Form 10-Q for the quarter ended February 28, 2001,
filed with the SEC on April 16, 2001;
o Current Reports on Form 8-K, filed with the SEC on January 4, January 5,
February 27, March 13, March 21, April 26 (two filings), May 2, May 22,
June 1, June 14 and June 19, 2001.
All documents Lehman Brothers Holdings files pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
before the later of (1) the completion of the offering of the securities
described in this prospectus and (2) the date affiliates of Lehman Brothers
Holdings stop offering securities pursuant to this prospectus shall be
incorporated by reference in this prospectus from the date of filing of such
documents.
You may request a copy of these filings, at no cost, by writing or
telephoning Lehman Brothers Holdings at the following address:
Controller's Office
Lehman Brothers Holdings Inc.
Three World Financial Center
New York, New York 10285
(212) 526-0660
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED IN THIS PROSPECTUS AND
THE PROSPECTUS SUPPLEMENT, AS WELL AS THE INFORMATION INCORPORATED BY
REFERENCE. LEHMAN BROTHERS HOLDINGS HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. LEHMAN BROTHERS HOLDINGS IS NOT MAKING AN OFFER OF
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS, THE PROSPECTUS
SUPPLEMENT OR ANY DOCUMENTS INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE OF THE APPLICABLE DOCUMENT.
6
USE OF PROCEEDS AND HEDGING
General. Lehman Brothers Holdings will use the proceeds it receives from
the sale of the offered securities for general corporate purposes, principally
to:
o fund the business of its operating units;
o fund investments in, or extensions of credit or capital contributions to,
its subsidiaries; and
o lengthen the average maturity of liabilities, by reducing short-term
liabilities or re-funding maturing indebtedness.
Lehman Brothers Holdings expects to incur additional indebtedness in the
future to fund its businesses. Lehman Brothers Holdings or an affiliate may
enter into one or more swap agreements in connection with sales of the offered
securities and may earn additional income from those transactions.
Hedging. Lehman Brothers Holdings or its subsidiaries may use all or some
of the proceeds received from the sale of offered securities to purchase or
maintain positions in the securities or other assets underlying the offered
securities or assets used to determine the relevant index or indices. Lehman
Brothers Holdings or its subsidiaries may also purchase or maintain positions
in options, futures contracts, forward contracts or swaps, or options on such
securities, or other derivative or similar instruments relating to the relevant
index or underlying assets. Lehman Brothers Holdings may also use the proceeds
to pay the costs and expenses of hedging any currency, interest rate or other
risk relating to offered securities.
Lehman Brothers Holdings expects that it or its subsidiaries will increase
or decrease their initial hedging position over time using techniques which
help evaluate the size of any hedge based upon a variety of factors affecting
the value of the underlying instrument. These factors may include the history
of price changes in that underlying instrument and the time remaining to
maturity. Lehman Brothers Holdings may take long or short positions in the
underlying instrument, the assets underlying any such instrument or other
derivative or similar instruments related thereto. These other hedging
activities may occur from time to time before the offered securities mature and
will depend on market conditions and the value of the underlying instrument.
In addition, Lehman Brothers Holdings or its subsidiaries may purchase or
otherwise acquire long or short positions in offered securities from time to
time and may, in their sole discretion, hold, resell, exercise, cancel or
retire such offered securities. Lehman Brothers Holdings or its subsidiaries
may also take hedging positions in other types of appropriate financial
instruments that may become available in the future.
If Lehman Brothers Holdings or its subsidiaries have long hedge positions
in, options contracts in, or other derivative or similar instruments related
to, the underlying assets or measures, Lehman Brothers Holdings or its
subsidiaries may liquidate all or a portion of their holdings at or about the
time of the maturity of the offered securities. The aggregate amount and type
of such positions are likely to vary over time depending on future market
conditions and other factors. Lehman Brothers Holdings is only able to
determine profits or losses from any such position when the position is closed
out and any offsetting position or positions are taken into account.
Lehman Brothers Holdings has no reason to believe that its hedging
activities will have a material impact on the price of such options, swaps,
futures contracts, options on the foregoing, or other derivative or similar
instruments, or on the value of the underlying securities, index (or the assets
underlying the index), currency, commodity or interest rate. However, Lehman
Brothers Holdings cannot guarantee to you that its hedging activities will not
affect such prices or value. Lehman Brothers Holdings will use the remainder of
the proceeds from the sale of offered securities for general corporate purposes
as described above.
7
RATIO OF EARNINGS TO FIXED CHARGES
THREE
MONTHS
YEAR ENDED NOVEMBER 30, ENDED
--------------------------------------------------------- FEBRUARY 28,
1996 1997 1998 1999 2000 2001
--------- --------- --------- --------- --------- -------------
Ratio of Earnings to Fixed Charges ......... 1.06 1.07 1.07 1.12 1.14 1.12
DESCRIPTION OF DEBT SECURITIES
Please note that in this section entitled "Description of Debt
Securities", references to Lehman Brothers Holdings refer only to Lehman
Brothers Holdings and not to its consolidated subsidiaries. Also, in this
section, references to "holders" mean those who own debt securities registered
in their own names, on the books that Lehman Brothers Holdings or the trustee
maintains for this purpose, and not those who own beneficial interests in debt
securities registered in street name or in debt securities issued in book-entry
form through one or more depositaries. Owners of beneficial interests in the
debt securities should read the section below entitled "Book-Entry Procedures
and Settlement".
GENERAL
The debt securities offered by this prospectus will be unsecured
obligations of Lehman Brothers Holdings and will be either senior or
subordinated debt. Senior debt will be issued under a senior debt indenture.
Subordinated debt will be issued under a subordinated debt indenture. The
senior debt indenture and the subordinated debt indenture are sometimes
referred to in this prospectus individually as an "indenture" and collectively
as the "indentures". The indentures (including all amendments and a separate
related document containing standard multiple series indenture provisions) have
been filed with the SEC and are incorporated by reference in the registration
statement of which this prospectus forms a part. You can obtain copies of the
indentures by following the directions on page 6 or by contacting the
applicable indenture trustee.
A form of each debt security, reflecting the particular terms and
provisions of a series of offered debt securities, has been filed with the SEC
or will be filed with the SEC at the time of the offering and incorporated by
reference in the registration statement of which this prospectus forms a part.
You can obtain a copy of any form of debt security when it has been filed by
following the directions on page 6 or by contacting the applicable indenture
trustee.
The following briefly summarizes the material provisions of the indentures
and the debt securities. You should read the more detailed provisions of the
applicable indenture, including the defined terms, for provisions that may be
important to you. As you read this section, please remember that the specific
terms of your debt security as described in the prospectus supplement will
supplement and, if applicable, modify or replace the general terms described in
this section. You should read carefully the particular terms of a series of
debt securities, which will be described in more detail in the prospectus
supplement. If there are differences between the prospectus supplement and this
prospectus, the prospectus supplement will control. Thus, the statements made
in this section may not apply to your debt security.
Unless otherwise provided for a particular issuance in an accompanying
prospectus supplement, the trustee under the senior debt indenture will be
Citibank, N.A., and the trustee under the subordinated debt indenture will be
The Chase Manhattan Bank (formerly known as Chemical Bank).
The indentures provide that unsecured senior or subordinated debt
securities of Lehman Brothers Holdings may be issued in one or more series,
with different terms, in each case as authorized from time to time by Lehman
Brothers Holdings. Lehman Brothers Holdings also has the right to "reopen" a
previous issue of a series of debt securities by issuing additional debt
securities of such series.
TYPES OF DEBT SECURITIES
Lehman Brothers Holdings may issue fixed rate debt securities, floating
rate debt securities or indexed debt securities.
8
Fixed and Floating Rate Debt Securities
Fixed rate debt securities will bear interest at a fixed rate described in
the prospectus supplement. This type includes zero coupon debt securities,
which bear no interest and are often issued at a price lower than the principal
amount. Federal income tax consequences and other special considerations
applicable to any debt securities issued by Lehman Brothers Holdings at a
discount will be described in the applicable prospectus supplement.
Upon the request of the holder of any floating rate debt security, the
calculation agent will provide for that debt security the interest rate then in
effect, and, if determined, the interest rate that will become effective on the
next interest reset date. The calculation agent's determination of any interest
rate, and its calculation of the amount of interest for any interest period,
will be final and binding in the absence of manifest error.
All percentages resulting from any interest rate calculation relating to a
debt security will be rounded upward or downward, as appropriate, to the next
higher or lower one hundred-thousandth of a percentage point. All amounts used
in or resulting from any calculation relating to a debt security will be
rounded upward or downward, as appropriate, to the nearest cent, in the case of
U.S. dollars, or to the nearest corresponding hundredth of a unit, in the case
of a currency other than U.S. dollars, with one-half cent or one-half of a
corresponding hundredth of a unit or more being rounded upward.
In determining the base rate that applies to a floating rate debt security
during a particular interest period, the calculation agent may obtain rate
quotes from various banks or dealers active in the relevant market, as
described in the prospectus supplement. Those reference banks and dealers may
include the calculation agent itself and its affiliates, as well as any
underwriter, dealer or agent participating in the distribution of the relevant
floating rate debt securities and its affiliates, and they may include
affiliates of Lehman Brothers Holdings.
Indexed Debt Securities
Lehman Brothers Holdings may also offer indexed debt securities, which may
be fixed or floating rate debt securities or bear no interest. An indexed debt
security provides that the amount payable at its maturity, and/or the amount of
interest (if any) payable on an interest payment date, will be determined by
reference to:
o securities of one or more issuers, including Lehman Brothers Holdings,
o one or more currencies,
o one or more commodities,
o any other financial, economic or other measure or instrument, including the
occurrence or non-occurrence of any event or circumstance, which may
include any credit event (as defined in the prospectus supplement) relating
to any company or companies or other entity or entities (which may include
a government or governmental agency) other than Lehman Brothers Holdings,
and/or
o one or more indices or baskets of the items described above.
Each instrument, measure or event described above is referred to as an
"index property". If you are a holder of an indexed debt security, you may
receive an amount at maturity that is greater than or less than the face amount
of your debt security depending upon the value of the applicable index property
at maturity. The value of the applicable index property will fluctuate over
time.
An indexed debt security may provide either for cash settlement or for
physical settlement by delivery of the index property or another property of
the type listed above. An indexed debt security may also provide that the form
of settlement may be determined at Lehman Brothers Holdings' option or at the
holder's option. Some indexed debt securities may be exchangeable, at Lehman
Brothers Holdings' option or the holder's option, for securities of an issuer
other than Lehman Brothers Holdings.
9
If you purchase an indexed debt security, the prospectus supplement will
include information about the relevant index property, about how amounts that
are to become payable will be determined by reference to the price or value of
that index property and about the terms on which the security may be settled
physically or in cash.
No holder of an indexed debt security will, as such, have any rights of a
holder of the index property referenced in the debt security or deliverable
upon settlement, including any right to receive payment thereunder.
INFORMATION IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement for any offered series of debt securities will
describe the following terms, as applicable:
o the title;
o whether senior or subordinated debt;
o the total principal amount offered;
o the percentage of the principal amount at which the securities will be sold
and, if applicable, the method of determining the price;
o the maturity date or dates;
o whether the debt securities are fixed rate debt securities, floating rate
debt securities or indexed debt securities;
o if the debt securities are fixed rate debt securities, the yearly rate at
which the debt security will bear interest, if any, and the interest
payment dates;
o if the debt security is an original issue discount debt security, the yield
to maturity;
o if the debt securities are floating rate debt securities, the interest rate
basis; any applicable index currency or maturity, spread or spread
multiplier or initial, maximum or minimum rate; the interest reset,
determination, calculation and payment dates; the day count used to
calculate interest payments for any period;
o the date or dates from which interest, if any, will accrue, or how such
date or dates will be determined, and the interest payment dates and any
related record dates;
o if the debt securities are indexed debt securities, the amount Lehman
Brothers Holdings will pay you at maturity, the amount of interest, if any,
Lehman Brothers Holdings will pay you on an interest payment date or the
formula Lehman Brothers Holdings will use to calculate these amounts, if
any, and the terms on which your debt security will be exchangeable for or
payable in cash, securities or other property;
o if the index property is an index, the method of providing for a substitute
index or indices or otherwise determining the amount payable on the indexed
debt securities if any index changes or ceases to be made available by its
publisher;
o if other than in United States dollars, the currency or currency unit in
which the securities are denominated and in which payment will be made;
o any provisions for the payment of additional amounts for taxes;
o the denominations in which the securities will be issuable if other than
denominations of $1,000 and integral multiples thereof;
o the terms and conditions on which the securities may be redeemed at the
option of Lehman Brothers Holdings;
o any obligation of Lehman Brothers Holdings to redeem, purchase or repay the
securities at the option of a holder upon the happening of any event and
the terms and conditions of redemption, purchase or repayment;
10
o any provisions for the discharge of Lehman Brothers Holdings' obligations
relating to the securities by deposit of funds or United States government
obligations;
o the names and duties of any co-trustees, depositaries, authenticating
agents, calculation agents, paying agents, transfer agents or registrars
for the debt securities;
o any material provisions of the applicable indenture described in this
prospectus that do not apply to the securities; and
o any other specific terms of the securities.
The terms on which a series of debt securities may be convertible into or
exchangeable for other securities of Lehman Brothers Holdings or any other
entity will be set forth in the prospectus supplement relating to such series.
Such terms will include provisions as to whether conversion or exchange is
mandatory, at the option of the holder or at the option of Lehman Brothers
Holdings. The terms may include provisions pursuant to which the number of
other securities to be received by the holders of such series of debt
securities may be adjusted.
PAYMENT AND PAYING AGENTS
Distributions on the debt securities other than those represented by
global notes will be made in the designated currency against surrender of the
debt securities at the principal corporate trust office of the relevant trustee
in New York City. Payment will be made to the registered holder at the close of
business on the record date for such payment. Interest payments will be made at
the principal corporate trust office of the relevant trustee in New York City,
or by a check mailed to the holder at his registered address. Payments in any
other manner will be specified in the prospectus supplement.
CALCULATION AGENTS
Calculations relating to floating rate debt securities and indexed debt
securities will be made by the calculation agent, an institution that Lehman
Brothers Holdings appoints as its agent for this purpose. That institution may
include any affiliate of Lehman Brothers Holdings, such as Lehman Brothers Inc.
Lehman Brothers Holdings may appoint a different institution to serve as
calculation agent from time to time after the original issue date of the debt
security without your consent and without notifying you of the change. The
initial calculation agent will be identified in the prospectus supplement.
SENIOR DEBT
The senior debt securities will be issued under the senior debt indenture
and will rank on an equal basis with all other unsecured debt of Lehman
Brothers Holdings except subordinated debt.
SUBORDINATED DEBT
The subordinated debt securities will be issued under the subordinated
debt indenture and will rank subordinated and junior in right of payment, to
the extent set forth in the subordinated debt indenture, to all "senior debt"
(as defined below) of Lehman Brothers Holdings.
If Lehman Brothers Holdings defaults in the payment of any principal of,
or premium, if any, or interest on any senior debt when it becomes due and
payable after any applicable grace period, then, unless and until the default
is cured or waived or ceases to exist, Lehman Brothers Holdings cannot make a
payment on account of or redeem or otherwise acquire the subordinated debt
securities.
If there is any insolvency, bankruptcy, liquidation or other similar
proceeding relating to Lehman Brothers Holdings, its creditors or its property,
then all senior debt must be paid in full before any payment may be made to any
holders of subordinated debt securities.
Furthermore, if Lehman Brothers Holdings defaults in the payment of the
principal of and accrued interest on any subordinated debt securities that is
declared due and payable upon an event of default under the subordinated debt
indenture, holders of all senior debt will first be entitled to receive payment
in full in cash before holders of such debt can receive any payments.
11
"Senior debt" means:
(1) the principal, premium, if any, and interest in respect of (A)
indebtedness of Lehman Brothers Holdings for money borrowed and (B)
indebtedness evidenced by securities, notes, debentures, bonds or other
similar instruments issued by Lehman Brothers Holdings, including the
senior debt securities;
(2) all capitalized lease obligations of Lehman Brothers Holdings;
(3) all obligations of Lehman Brothers Holdings representing the deferred
purchase price of property; and
(4) all deferrals, renewals, extensions and refundings of obligations of
the type referred to in clauses (1) through (3);
but senior debt does not include:
(a) subordinated debt securities;
(b) any indebtedness that by its terms is subordinated to, or ranks on an
equal basis with, subordinated debt securities;
(c) 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; and
(d) indebtedness that is subordinated to an obligation of Lehman Brothers
Holdings of the type specified in clauses (1) through (4) above.
The effect of clause (d) is that Lehman Brothers Holdings may not issue,
assume or guarantee any indebtedness for money borrowed which is junior to the
senior debt securities and senior to the subordinated debt securities.
COVENANTS
Limitations on Liens. The indentures provide that Lehman Brothers Holdings
will not, and will not permit any designated subsidiary to, incur, issue,
assume or guarantee any indebtedness for money borrowed if such indebtedness is
secured by a pledge of, lien on, or security interest in any shares of common
stock of any designated subsidiary, without providing that each series of debt
securities and, at Lehman Brothers Holdings' option, any other indebtedness
ranking equally and ratably with such indebtedness, is secured equally and
ratably with (or prior to) such other secured indebtedness.
"Designated subsidiary" means any subsidiary of Lehman Brothers Holdings,
the consolidated net worth of which represents at least 5% of the consolidated
net worth of Lehman Brothers Holdings. As of February 28, 2001, the designated
subsidiaries were Lehman Brothers Bancorp Inc., Lehman Brothers Bank, FSB,
Lehman Brothers Inc., Lehman Brothers Holdings Plc, Lehman Brothers
(International) Europe, Lehman Brothers Japan Inc., Lehman Brothers U.K.
Holdings (Delaware) Inc., Lehman Brothers UK Holdings Ltd., Lehman Commercial
Paper Inc., LCPI Properties Inc., LW-LP Inc., Lehman Re Ltd. and Structured
Asset Securities Corp.
Limitations on Mergers and Sales of Assets. The indentures provide that
Lehman Brothers Holdings will not merge or consolidate or transfer or lease all
or substantially all its assets, and another person may not transfer or lease
all or substantially all of its assets to Lehman Brothers Holdings unless:
o either (1) Lehman Brothers Holdings is the continuing corporation, or
(2) the successor corporation, if other than Lehman Brothers Holdings,
is a U.S. corporation and expressly assumes by supplemental indenture
the obligations evidenced by the securities issued pursuant to the
indenture and
o immediately after the transaction, there would not be any default in the
performance of any covenant or condition of the indenture.
12
Other than the restrictions described above, the indentures do not limit
the amount of debt or other securities that Lehman Brothers Holdings may issue
or contain any covenants or provisions that would protect holders of the debt
securities in the event of a highly leveraged transaction.
MODIFICATION OF THE INDENTURES
Under the indentures, Lehman Brothers Holdings and the relevant trustee
can enter into supplemental indentures to establish the form and terms of any
new series of debt securities without obtaining the consent of any holder of
debt securities.
Lehman Brothers Holdings and the trustee may, with the consent of the
holders of at least 662/3% in aggregate principal amount of the debt securities
of a series, modify the applicable indenture or the rights of the holders of
the securities of such series to be affected.
No such modification may, without the consent of the holder of each
security so affected:
o extend the fixed maturity of any such securities,
o reduce the rate or change the time of payment of interest on such
securities,
o reduce the principal amount of such securities or the premium, if any,
on such securities,
o change any obligation of Lehman Brothers Holdings to pay additional
amounts,
o reduce the amount of the principal payable on acceleration of any
securities issued originally at a discount,
o adversely affect the right of repayment or repurchase at the option of
the holder,
o reduce or postpone any sinking fund or similar provision,
o change the currency or currency unit in which any such securities are
payable or the right of selection thereof,
o impair the right to sue for the enforcement of any such payment on or
after the maturity of such securities,
o reduce the percentage of securities referred to above whose holders need
to consent to the modification or a waiver without the consent of such
holders,
o change any obligation of Lehman Brothers Holdings to maintain an office
or agency.
DEFAULTS
Each indenture provides that events of default regarding any series of
debt securities will be:
o failure to pay required interest on any debt security of such series for
30 days;
o failure to pay principal or premium, if any, on any debt security of
such series when due;
o failure to make any required scheduled installment payment for 30 days
on debt securities of such series;
o failure to perform for 90 days after notice any other covenant in the
relevant indenture other than a covenant included in the relevant
indenture solely for the benefit of a series of debt securities other
than such series; and
o certain events of bankruptcy or insolvency, whether voluntary or not.
If an event of default regarding debt securities of any series issued
under the indentures should occur and be continuing, either the trustee or the
holders of 25% in the principal amount of outstanding debt securities of such
series may declare each debt security of that series due and payable. Lehman
Brothers Holdings is required to file annually with the trustee a statement of
an officer as to the fulfillment by Lehman Brothers Holdings of its obligations
under the indenture during the preceding year.
13
No event of default regarding one series of debt securities issued under
an indenture is necessarily an event of default regarding any other series of
debt securities.
Holders of a majority in principal amount of the outstanding debt
securities of any series will be entitled to control certain actions of the
trustee under the indentures and to waive past defaults regarding such series.
The trustee generally will not be requested, ordered or directed by any of the
holders of debt securities, unless one or more of such holders shall have
offered to the trustee reasonable security or indemnity.
If an event of default occurs and is continuing regarding a series of debt
securities, the trustee may use any sums that it holds under the relevant
indenture for its own reasonable compensation and expenses incurred prior to
paying the holders of debt securities of such series.
Before any holder of any series of debt securities may institute action
for any remedy, except payment on such holder's debt security when due, the
holders of not less than 25% in principal amount of the debt securities of that
series outstanding must request the trustee to take action. Holders must also
offer and give the satisfactory security and indemnity against liabilities
incurred by the trustee for taking such action.
DEFEASANCE
Except as may otherwise be set forth in an accompanying prospectus
supplement, after Lehman Brothers Holdings has deposited with the trustee, cash
or government securities, in trust for the benefit of the holders sufficient to
pay the principal of, premium, if any, and interest on the debt securities of
such series when due, then:
o if the terms of the debt securities so provide, Lehman Brothers Holdings
will be deemed to have paid and satisfied its obligations on all
outstanding debt securities of such series, which is known as
"defeasance and discharge"; or
o Lehman Brothers Holdings will cease to be under any obligation, other
than to pay when due the principal of, premium, if any, and interest on
such debt securities, relating to the debt securities of such series,
which is known as "covenant defeasance".
When there is a defeasance and discharge, (1) the applicable indenture
will no longer govern the debt securities of such series, (2) Lehman Brothers
Holdings will no longer be liable for payment and (3) the holders of such debt
securities will be entitled only to the deposited funds. When there is a
covenant defeasance, however, Lehman Brothers Holdings will continue to be
obligated to make payments when due if the deposited funds are not sufficient.
For a discussion of the principal United States federal income tax
consequences of covenant defeasance and defeasance and discharge, see the
discussion of United States federal income tax consequences in the prospectus
supplement.
PAYMENT OF ADDITIONAL AMOUNTS
If so noted in the applicable prospectus supplement for a particular
issuance, Lehman Brothers Holdings will pay to the holder of any debt security
who is a "United States Alien" (as defined below) such additional amounts as
may be necessary so that every net payment of principal of and interest on the
debt security, after deduction or withholding for or on account of any present
or future tax, assessment or other governmental charge imposed upon the holder
by the United States or any taxing authority thereof or therein, will not be
less than the amount provided in such debt security to be then due and payable.
Lehman Brothers Holdings will not be required, however, to make any payment of
additional amounts for or on account of:
o any tax, assessment or other governmental charge that would not have
been imposed but for (1) the existence of any present or former
connection between such holder (or between a fiduciary, settlor,
beneficiary of, member or shareholder of, or possessor of a power over,
such holder, if such holder is an estate, trust, partnership or
corporation) and the United States
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including, without limitation, such holder (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor), being or having been a
citizen or resident or treated as a resident of the United States or
being or having been engaged in trade or business or present in the
United States, or (2) the presentation of a debt security for payment
after 10 days;
o any estate, inheritance, gift, sales, transfer, excise, personal
property or similar tax, assessment or other governmental charge;
o any tax, assessment or other governmental charge imposed by reason of
such holder's past or present status as a passive foreign investment
company, a controlled foreign corporation, a personal holding company or
foreign personal holding company with respect to the United States, or
as a corporation which accumulates earnings to avoid United States
federal income tax;
o any tax, assessment or other governmental charge which is payable
otherwise than by withholding from payment of principal of, or interest
on, such debt security;
o any tax, assessment or other governmental charge required to be withheld
by any paying agent from any payment of principal of, or interest on,
any debt security if such payment can be made without withholding by any
other paying agent;
o any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure to comply with certification,
information, documentation or other reporting requirements concerning
the nationality, residence, identity or connections with the United
States of the holder or beneficial owner of such debt security, if such
compliance is required by statute or by regulation of the United States
Treasury Department as a precondition to relief or exemption from such
tax, assessment or other governmental charge;
o any tax, assessment or other governmental charge imposed on interest
received by (1) a 10% shareholder (as defined in Section 871(h)(3)(B) of
the Code and the regulations that may be promulgated thereunder) of
Lehman Brothers Holdings, or (2) a controlled foreign corporation with
respect to Lehman Brothers Holdings within the meaning of the Code; or
o any combinations of items identified in the bullet points above.
In addition, Lehman Brothers Holdings will not be required to pay any
additional amounts to any holder who is a fiduciary or partnership or other
than the sole beneficial owner of such debt security to the extent that a
beneficiary or settlor with respect to such fiduciary, or a member of such
partnership or a beneficial owner thereof would not have been entitled to the
payment of such additional amounts had such beneficiary, settlor, member or
beneficial owner been the holder of the debt security.
The term "United States Alien" means any corporation, partnership,
individual or fiduciary that is, as to the United States, a foreign
corporation, a nonresident alien individual, a nonresident fiduciary of a
foreign estate or trust, or a foreign partnership one or more of the members of
which is, as to the United States, a foreign corporation, a nonresident alien
individual or a nonresident fiduciary of a foreign estate or trust.
REDEMPTION UPON A TAX EVENT
If so noted in the applicable prospectus supplement for a particular
issuance, the debt securities may be redeemed at the option of Lehman Brothers
Holdings in whole, but not in part, on not more than 60 days' and not less than
30 days' notice, at a redemption price equal to 100% of their principal amount,
if Lehman Brothers Holdings determines that as a result of a "change in tax
law" (as defined below):
o Lehman Brothers Holdings has or will become obligated to pay additional
amounts as described under the heading "--Payment of Additional Amounts"
on any debt security, or
15
o there is a substantial possibility that Lehman Brothers Holdings will be
required to pay such additional amounts.
A "change in tax law" that would trigger the provisions of the preceding
paragraph is any change in or amendment to the laws, treaties, regulations or
rulings of the United States or any political subdivision or taxing authority
thereof, or any proposed change in the laws, treaties, regulations or rulings,
or any change in the official application, enforcement or interpretation of the
laws, treaties, regulations or rulings (including a holding by a court of
competent jurisdiction in the United States) or any other action (other than an
action predicated on law generally known on or before the date of the
applicable prospectus supplement for the particular issuance of debt securities
to which this section applies except for proposals before the Congress prior to
that date) taken by any taxing authority or a court of competent jurisdiction
in the United States, or the official proposal of the action, whether or not
the action or proposal was taken or made with respect to Lehman Brothers
Holdings.
Prior to the publication of any notice of redemption, Lehman Brothers
Holdings shall deliver to the Trustee (1) an officers' certificate stating that
Lehman Brothers Holdings is entitled to effect the aforementioned redemption
and setting forth a statement of facts showing that the conditions precedent to
the right of Lehman Brothers Holdings so to redeem have occurred, and (2) an
opinion of counsel to such effect based on such statement of facts.
GOVERNING LAW
Unless otherwise stated in the prospectus supplement, the debt securities
and the indentures will be governed by New York law.
CONCERNING THE TRUSTEES
Lehman Brothers Holdings has had and may continue to have banking and
other business relationships with the trustees in the ordinary course of
business.
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DESCRIPTION OF WARRANTS
Please note that in this section entitled "Description of Warrants",
references to Lehman Brothers Holdings refer only to Lehman Brothers Holdings
and not to its consolidated subsidiaries. Also, in this section, references to
"holders" mean those who own warrants registered in their own names, on the
books that Lehman Brothers Holdings or its agent maintains for this purpose,
and not those who own beneficial interests in warrants registered in street
name or in warrants issued in book-entry form through one or more depositaries.
Owners of beneficial interests in the warrants should read the section below
entitled "Book-Entry Procedures and Settlement".
GENERAL
Lehman Brothers Holdings may issue warrants that are debt warrants or
universal warrants. Lehman Brothers Holdings may offer warrants separately or
together with its debt securities. Lehman Brothers Holdings may also offer
warrants together with other warrants, purchase contracts and debt securities
in the form of units, as summarized below in "Description of Units".
Lehman Brothers Holdings may issue warrants in such amounts or in as many
distinct series as Lehman Brothers Holdings wishes. This section summarizes
terms of the warrants that apply generally to all series. Most of the financial
and other specific terms of your warrant will be described in the prospectus
supplement. Those terms may vary from the terms described here.
The warrants of a series will be issued under a separate warrant agreement
to be entered into between Lehman Brothers Holdings and one or more banks or
trust companies, as warrant agent, as set forth in the prospectus supplement,
and, if part of a unit, may be issued under a unit agreement as described below
under "Description of Units". A form of each warrant agreement, including a
form of warrant certificate representing each warrant, reflecting the
particular terms and provisions of a series of offered warrants, will be filed
with the SEC at the time of the offering and incorporated by reference in the
registration statement of which this prospectus forms a part. You can obtain a
copy of any form of warrant agreement when it has been filed by following the
directions on page 6 or by contacting the applicable warrant agent.
The following briefly summarizes the material provisions of the warrant
agreements and the warrants. As you read this section, please remember that the
specific terms of your warrant as described in the prospectus supplement will
supplement and, if applicable, may modify or replace the general terms
described in this section. You should read carefully the prospectus supplement
and the more detailed provisions of the warrant agreement and the warrant
certificate, including the defined terms, for provisions that may be important
to you. If there are differences between the prospectus supplement and this
prospectus, the prospectus supplement will control. Thus, the statements made
in this section may not apply to your warrant.
TYPES OF WARRANTS
Lehman Brothers Holdings may issue debt warrants or universal warrants.
Debt Warrants
Lehman Brothers Holdings may issue warrants for the purchase of its debt
securities on terms to be determined at the time of sale. This type of warrant
is referred to as a "debt warrant".
Universal Warrants
Lehman Brothers Holdings may also issue warrants, on terms to be
determined at the time of sale, for the purchase or sale of, or whose cash
value is determined by reference to the performance, level or value of, one or
more of the following:
o securities of one or more issuers, including Lehman Brothers Holdings,
o one or more currencies,
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o one or more commodities,
o any other financial, economic or other measure or instrument, including
the occurrence or non-occurrence of any event or circumstance, which may
include any credit event (as defined in the prospectus supplement)
relating to any company or companies or other entity or entities (which
may include a government or governmental agency), and
o one or more indices or baskets of the items described above.
This type of warrant is referred to as a "universal warrant". Each
instrument, measure or event described above is referred to as a "warrant
property".
Lehman Brothers Holdings may satisfy its obligations, if any, with respect
to any universal warrants by delivering:
o the warrant property,
o the cash value (as defined in the prospectus supplement) of the warrant
property, or
o the cash value of the warrants determined by reference to the
performance, level or value of the warrant property.
The prospectus supplement will describe what Lehman Brothers Holdings may
deliver to satisfy its obligations with respect to any universal warrants. Any
securities deliverable by Lehman Brothers Holdings with respect to any
universal warrants will be freely transferable by the holder.
INFORMATION IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement may contain, where applicable, the following
information about your warrants:
o the specific designation and aggregate number of, and the price at which
Lehman Brothers Holdings will issue, the warrants,
o the currency or currency unit with which the warrants may be purchased
and in which any payments due to or from the holder upon exercise must
be made,
o the date on which the right to exercise the warrants will begin and the
date on which that right will expire or, if you may not continuously
exercise the warrants throughout that period, the specific date or dates
on which you may exercise the warrants,
o whether and under what circumstances the warrants may be cancelled by
Lehman Brothers Holdings prior to their expiration date, in which case
the holders will be entitled to receive only the applicable cancellation
amount, which may be either a fixed amount or an amount that varies
during the term of the warrants in accordance with a schedule or
formula,
o whether the warrants will be issued in global or non-global form,
although, in any case, the form of a warrant included in a unit will
correspond to the form of the unit and of any debt security or purchase
contract included in that unit,
o the identities of the warrant agent, any depositaries and any paying,
transfer, calculation or other agents for the warrants,
o any securities exchange or quotation system on which the warrants or any
securities deliverable upon exercise of the warrants may be listed,
o whether the warrants are to be sold separately or with other securities,
as part of units or otherwise, and if the warrants are to be sold with
the securities of another company or other companies, certain
information regarding such company or companies, and
o any other terms of the warrants.
If warrants are issued as part of a unit, the prospectus supplement will
specify whether the warrants will be separable from the other securities in the
unit before the warrants' expiration date. A warrant issued in a unit in the
United States may not be so separated before the 91st day after the unit is
issued.
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No holder of a warrant will, as such, have any rights of a holder of the
debt securities or warrant property purchasable under or in the warrant,
including any right to receive payment thereunder.
ADDITIONAL INFORMATION IN THE PROSPECTUS SUPPLEMENT
Debt Warrants
If you purchase debt warrants, the prospectus supplement may contain,
where appropriate, the following additional information about the debt
warrants:
o the designation, aggregate principal amount, currency and terms of the
debt securities that may be purchased upon exercise of the debt
warrants,
o whether the exercise price may be paid in cash, by the exchange of any
debt warrants or other securities or both and the method of exercising
the debt warrants, and
o the designation, terms and amount of debt securities, if any, to be
issued together with each of the debt warrants and the date, if any,
after which the debt warrants and debt securities will be separately
transferable.
After the close of business on the expiration date (or such later date to
which the expiration date may be extended by Lehman Brothers Holdings),
unexercised debt warrants will become void.
Universal Warrants
If you purchase universal warrants, the prospectus supplement may contain,
where appropriate, the following additional information about the universal
warrants:
o whether the universal warrants are put warrants (entitling the holder to
sell the warrant property or receive the cash value of the right to sell
the warrant property), call warrants (entitling the holder to buy the
warrant property or receive the cash value of the right to buy the
warrant property), or spread warrants (entitling the holder to receive a
cash value determined by reference to the amount, if any, by which a
specified reference value of the warrant property at the time of
exercise exceeds a specified base value of the warrant property),
o the warrant property or cash value, and the amount or method for
determining the amount of warrant property or cash value, deliverable
upon exercise of each universal warrant,
o the price at which and the currency with which the warrant property may
be purchased or sold upon the exercise of each universal warrant, or the
method of determining that price,
o whether the exercise price may be paid in cash, by the exchange of any
universal warrants or other securities or both, and the method of
exercising the universal warrants,
o whether the exercise of the universal warrants is to be settled in cash
or by delivery of the warrant property or both and whether settlement
will occur on a net basis or a gross basis,
o the minimum number, if any, of universal warrants that must be exercised
at any one time, other than upon automatic exercise,
o the maximum number, if any, of universal warrants that may, subject to
election by Lehman Brothers Holdings, be exercised by all owners (or by
any person or entity) on any day,
o any provisions for the automatic exercise of the warrants at expiration
or otherwise,
o if the warrant property is an index, the method of providing for a
substitute index or indices or otherwise determining the amount payable
in connection with the exercise of the warrants if any index changes or
ceases to be made available by its publisher, and
o whether, following the occurrence of a market disruption event or force
majeure event (as defined in the prospectus supplement), the cash
settlement value of a universal warrant will be determined on a
different basis than under normal circumstances.
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CALCULATION AGENTS
Calculations relating to universal warrants will be made by the
calculation agent, an institution that Lehman Brothers Holdings appoints as its
agent for this purpose. That institution may be an affiliate of Lehman Brothers
Holdings, such as Lehman Brothers Inc. Lehman Brothers Holdings may appoint a
different institution to serve as calculation agent from time to time after the
original issue date of the warrant without your consent and without notifying
you of the change. The initial calculation agent will be identified in the
prospectus supplement.
NO LIMIT ON ISSUANCE OF WARRANTS
The warrant agreements do not limit the number of warrants or other
securities that Lehman Brothers Holdings may issue.
MODIFICATIONS
Lehman Brothers Holdings and the relevant warrant agent may, without the
consent of the holders, amend each warrant agreement and the terms of each
issue of warrants, for the purpose of curing any ambiguity or of correcting or
supplementing any defective or inconsistent provision, or in any other manner
that Lehman Brothers Holdings may deem necessary or desirable and that will not
adversely affect the interests of the holders of the outstanding unexercised
warrants in any material respect.
Lehman Brothers Holdings and the relevant warrant agent also may, with the
consent of the holders of at least a majority in number of the outstanding
unexercised warrants affected, modify or amend the warrant agreement and the
terms of the warrants.
No such modification or amendment may, without the consent of the holders
of each warrant affected:
o reduce the amount receivable upon exercise, cancellation or expiration,
o shorten the period of time during which the warrants may be exercised,
o otherwise materially and adversely affect the exercise rights of the
beneficial owners of the warrants, or
o reduce the percentage of outstanding warrants whose holders must consent
to modification or amendment of the applicable warrant agreement or the
terms of the warrants.
MERGER AND SIMILAR TRANSACTIONS PERMITTED; NO RESTRICTIVE COVENANTS OR EVENTS
OF DEFAULT
Warrant agreements will not restrict Lehman Brothers Holdings' ability to
merge or consolidate with, or sell its assets to, another firm or to engage in
any other transactions. If at any time there is a merger or consolidation
involving Lehman Brothers Holdings or a sale or other disposition of all or
substantially all of the assets of Lehman Brothers Holdings, the successor or
assuming company will be substituted for Lehman Brothers Holdings, with the
same effect as if it had been named in the warrant agreement and in the
warrants as Lehman Brothers Holdings. Lehman Brothers Holdings will be relieved
of any further obligation under the warrant agreement or warrants, and, in the
event of any such merger, consolidation, sale or other disposition, Lehman
Brothers Holdings as the predecessor corporation may at any time thereafter be
dissolved, wound up or liquidated.
Warrant agreements will not include any restrictions on Lehman Brothers
Holdings' ability to put liens on its assets, including Lehman Brothers
Holdings' interests in its subsidiaries, nor will they provide for any events
of default or remedies upon the occurrence of any events of default.
WARRANT AGREEMENTS WILL NOT BE QUALIFIED UNDER TRUST INDENTURE ACT
No warrant agreement will be qualified as an indenture, and no warrant
agent will be required to qualify as a trustee, under the Trust Indenture Act.
Therefore, holders of warrants issued under a warrant agreement will not have
the protection of the Trust Indenture Act with respect to their warrants.
20
ENFORCEABILITY OF RIGHTS BY BENEFICIAL OWNER
Each warrant agent will act solely as an agent of Lehman Brothers 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 registered holder of or owner of a beneficial interest in any warrant. A
warrant agent will have no duty or responsibility in case of any default by
Lehman Brothers Holdings under the applicable warrant agreement or warrant
certificate, including any duty or responsibility to initiate any proceedings
at law or otherwise or to make any demand upon Lehman Brothers Holdings.
Holders may, without the consent of the applicable warrant agent, enforce
by 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 universal warrants.
GOVERNING LAW
Unless otherwise stated in the prospectus supplement, the warrants and
each warrant agreement will be governed by New York law.
21
DESCRIPTION OF PURCHASE CONTRACTS
Please note that in this section entitled "Description of Purchase
Contracts", references to Lehman Brothers Holdings refer only to Lehman
Brothers Holdings and not to its consolidated subsidiaries. Also, in this
section, references to "holders" mean those who own purchase contracts
registered in their own names, on the books that Lehman Brothers Holdings, its
agent or the trustee maintains for this purpose, and not those who own
beneficial interests in purchase contracts registered in street name or in
purchase contracts issued in book-entry form through one or more depositaries.
Owners of beneficial interests in the purchase contracts should read the
section below entitled "Book-Entry Procedures and Settlement".
GENERAL
Lehman Brothers Holdings may issue purchase contracts in such amounts and
in as many distinct series as Lehman Brothers Holdings wishes. In addition,
Lehman Brothers Holdings may issue a purchase contract separately or as part of
a unit, as described below under "Description of Units".
This section summarizes terms of the purchase contracts that will apply
generally to all purchase contracts. Most of the financial and other specific
terms of your purchase contract will be described in the prospectus supplement.
Those terms may vary from the terms described here.
A form of each purchase contract reflecting the particular terms and
provisions of a series of offered purchase contracts will be filed with the SEC
at the time of the offering and incorporated by reference in the registration
statement of which this prospectus forms a part. You can obtain a copy of any
form of purchase contract when it has been filed by following the directions on
page 6.
The following briefly summarizes the material provisions of the purchase
contracts. As you read this section, please remember that the specific terms of
your purchase contract as described in the prospectus supplement will
supplement and, if applicable, may modify or replace the general terms
described in this section. You should read carefully the prospectus supplement
and the more detailed provisions of the purchase contract, including the
defined terms, for provisions that may be important to you. If there are
differences between the prospectus supplement and this prospectus, the
prospectus supplement will control. Thus, the statements made in this section
may not apply to your purchase contract.
PURCHASE CONTRACT PROPERTY
Lehman Brothers Holdings may offer purchase contracts for the purchase or
sale of, or whose cash value is determined by reference to the performance,
level or value of, one or more of the following:
o securities of one or more issuers, including Lehman Brothers Holdings'
securities described in this prospectus and securities of third parties,
o one or more currencies,
o one or more commodities,
o any other financial, economic or other measure or instrument, including
the occurrence or non-occurrence of any event or circumstance, which may
include any credit event (as defined in the prospectus supplement)
relating to any company or companies or other entity or entities (which
may include a government or governmental agency) other than Lehman
Brothers Holdings, and
o one or more indices or baskets of the items described above.
Each instrument, measure or event described above is referred to as a
"purchase contract property". Each purchase contract will obligate:
o the holder to purchase or sell, and obligate Lehman Brothers Holdings to
sell or purchase, on specified dates, one or more purchase contract
properties at a specified price or prices, or
22
o the holder or Lehman Brothers Holdings to settle the purchase contract
with a cash payment determined by reference to the value, performance or
level of one or more purchase contract properties, on specified dates and
at a specified price or prices.
Some purchase contracts may include multiple obligations to purchase or
sell different purchase contract properties, and both Lehman Brothers Holdings
and the holder may be sellers or buyers under the same purchase contract. No
holder of a purchase contract will, as such, have any rights of a holder of the
purchase contract property purchasable under or referenced in the contract,
including any right to receive payments on that property. Any securities
deliverable by Lehman Brothers Holdings with respect to any purchase contracts
will be freely transferrable by the holder.
PREPAID PURCHASE CONTRACTS; APPLICABILITY OF INDENTURE
Some purchase contracts may require the holders to satisfy their
obligations under the contracts at the time the contracts are issued. Those
contracts are referred to as "prepaid purchase contracts". Lehman Brothers
Holdings' obligation to settle a prepaid purchase contract on the relevant
settlement date will be one of its senior debt securities or subordinated debt
securities, which are described above under "Description of Debt Securities".
Prepaid purchase contracts will be issued under the applicable indenture, and
the provisions of that indenture will govern those contracts, including the
rights and duties of the holders, the trustee and us with respect to those
contracts.
NON-PREPAID PURCHASE CONTRACTS
Some purchase contracts do not require the holders to satisfy their
obligations under the contracts until settlement. Those contracts are referred
to as "non-prepaid purchase contracts". The holder of a non-prepaid purchase
contract may remain obligated to perform under the contract for a substantial
period of time.
Non-prepaid purchase contracts will be issued under a unit agreement, if
they are issued in units, or under some other document, if they are not. For
example, Lehman Brothers Holdings may issue non-prepaid purchase contracts
under which the holder has multiple obligations to purchase or sell, some of
which are prepaid and some of which are not, under one of its indentures. Unit
agreements generally are described under "Description of Units" below. The
particular governing document that applies to your non-prepaid purchase
contracts will be described in the prospectus supplement.
No Trust Indenture Act Protection
Non-prepaid purchase contracts will not be senior debt securities or
subordinated debt securities and will not be issued under one of Lehman
Brothers Holdings' indentures, unless stated otherwise in the applicable
prospectus supplement. Consequently, no governing documents for non-prepaid
purchase contracts will be qualified as indentures, and no third party will be
required to qualify as a trustee with regard to those contracts, under the
Trust Indenture Act. Holders of non-prepaid purchase contracts will not have
the protection of the Trust Indenture Act with respect to those contracts.
Pledge by Holders to Secure Performance
If provided in the prospectus supplement, the holder's obligations under
the purchase contract and governing document will be secured by collateral. In
that case, the holder, acting through the unit agent as its attorney-in-fact,
if applicable, will pledge the items described below to a collateral agent
named in the prospectus supplement, which will hold them, for Lehman Brothers
Holdings' benefit, as collateral to secure the holder's obligations. This is
referred to as the "pledge" and all the items described below as the "pledged
items". The pledge will create a security interest in the holder's entire
interest in and to:
o any other securities included in the unit, if the purchase contract is
part of a unit, or any other property specified in the applicable
prospectus supplement,
23
o all additions to and substitutions for the pledged items,
o all income, proceeds and collections received in respect of the pledged
items, and
o all powers and rights owned or acquired later with respect to the
pledged items.
The collateral agent will forward all payments from the pledged items to
Lehman Brothers Holdings, unless the payments have been released from the
pledge in accordance with the purchase contract and the governing document.
Lehman Brothers Holdings will use the payments from the pledged items to
satisfy the holder's obligations under the purchase contract.
Settlement of Purchase Contracts That Are Part of Units
If so provided in the prospectus supplement, the following will apply to a
non-prepaid purchase contract that is issued together with any of Lehman
Brothers Holdings' debt securities as part of a unit. If the holder fails to
satisfy its obligations under the purchase contract, the unit agent may apply
the principal and interest payments on the debt securities to satisfy those
obligations as provided in the governing document. If the holder is permitted
to settle its obligations by cash payment, the holder may be permitted to do so
by delivering the debt securities in the unit to the unit agent as provided in
the governing document.
Book-entry and other indirect owners should consult their banks or brokers
for information on how to settle their purchase contracts.
Failure of Holder to Perform Obligations
If the holder fails to settle its obligations under a non-prepaid purchase
contract as required, the holder will not receive the purchase contract
property or other consideration to be delivered at settlement. Holders that
fail to make timely settlement may also be obligated to pay interest or other
amounts.
Merger and Similar Transactions Permitted; No Restrictive Covenants or
Events of Default
Purchase contracts that are not prepaid will not restrict Lehman Brothers
Holdings' ability to merge or consolidate with, or sell its assets to, another
firm or to engage in any other transactions. If at any time Lehman Brothers
Holdings merges or consolidates with, or sells its assets substantially as an
entirety to, another firm, the successor company will succeed to and assume
Lehman Brothers Holdings' obligations under these purchase contracts. Lehman
Brothers Holdings will then be relieved of any further obligation under these
purchase contracts and, in the event of any such merger, consolidation or sale,
Lehman Brothers Holdings as the predecessor company may at any time thereafter
be dissolved, wound up or liquidated.
Purchase contracts that are not prepaid will not include any restrictions
on Lehman Brothers Holdings' ability to put liens on its assets, including
Lehman Brothers Holdings' interests in its subsidiaries. These purchase
contracts also will not provide for any events of default or remedies upon the
occurrence of any events of default.
INFORMATION IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement may contain, where applicable, the following
information about your purchase contract:
o whether the purchase contract obligates the holder to purchase or sell,
or both purchase and sell, one or more purchase contract properties and
the nature and amount of each of those properties, or the method of
determining those amounts,
o whether the purchase contract is to be prepaid or not and the governing
document for the contract,
24
o whether the purchase contract is to be settled by delivery of, or by
reference or linkage to the value, performance or level of, the purchase
contract properties,
o any acceleration, cancellation, termination or other provisions relating
to the settlement of the purchase contract,
o if the purchase contract property is an index, the method of providing
for a substitute index or indices or otherwise determining the amount
payable in connection with the settlement of the purchase contract if
any index changes or ceases to be made available by its publisher,
o whether, following the occurrence of a market disruption event or force
majeure event (as defined in the prospectus supplement), the settlement
delivery obligation or cash settlement value of a purchase contract will
be determined on a different basis than under normal circumstances,
o whether the purchase contract will be issued as part of a unit and, if
so, the other securities comprising the unit and whether any unit
securities will be subject to a security interest in Lehman Brothers
Holdings' favor as described below,
o whether the purchase contract will be issued in global or non-global
form, although, in any case, the form of a purchase contract included in
a unit will correspond to the form of the unit and of any debt security
or warrant included in that unit,
o the identities of any depositaries and any paying, transfer, calculation
or other agents for the purchase contracts,
o any securities exchange or quotation system on which the purchase
contracts or any securities deliverable in settlement of the purchase
contracts may be listed, and
o any other terms of the purchase contracts.
If Lehman Brothers Holdings issues a purchase contract as part of a unit,
the prospectus supplement will state whether the contract will be separable
from the other securities in the unit before the contract settlement date. A
purchase contract issued in a unit in the United States may not be so separated
before the 91st day after the unit is issued.
CALCULATION AGENTS
Calculations relating to purchase contracts will be made by the
calculation agent, an institution that Lehman Brothers Holdings appoints as its
agent for this purpose. That institution may be an affiliate of Lehman Brothers
Holdings, such as Lehman Brothers Inc. Lehman Brothers Holdings may appoint a
different institution to serve as calculation agent from time to time after the
original issue date of the purchase contract without your consent and without
notifying you of the change. The initial calculation agent will be identified
in the prospectus supplement.
NO LIMIT ON ISSUANCE OF PURCHASE CONTRACTS
There is no limit on the number of purchase contracts or other securities
that Lehman Brothers Holdings may issue.
GOVERNING LAW
Unless stated otherwise in the prospectus supplement, the purchase
contracts and any governing documents will be governed by New York law.
DESCRIPTION OF UNITS
Please note that in this section entitled "Description of Units",
references to Lehman Brothers Holdings refer only to Lehman Brothers Holdings
and not to its consolidated subsidiaries. Also, in this section, references to
"holders" mean those who own units registered in their own names, on the
25
books that Lehman Brothers Holdings or its agent maintains for this purpose,
and not those who own beneficial interests in units registered in street name
or in units issued in book-entry form through one or more depositaries. Owners
of beneficial interests in the units should read the section below entitled
"Book-Entry Procedures and Settlement".
GENERAL
Lehman Brothers Holdings may issue units in such amounts and in as many
distinct series as Lehman Brothers Holdings wishes. This section summarizes
terms of the units that apply generally to all series. Most of the financial
and other specific terms of your series will be described in the prospectus
supplement. Those terms may vary from the terms described here.
The units of a series will be issued under a separate unit agreement to be
entered into between Lehman Brothers Holdings and one or more banks or trust
companies, as unit agent, as set forth in the prospectus supplement. A form of
each unit agreement, including a form of unit certificate representing each
unit, reflecting the particular terms and provisions of a series of offered
units will be filed with the SEC at the time of the offering and incorporated
by reference in the registration statement of which this prospectus forms a
part. You can obtain a copy of any form of unit agreement when it has been
filed by following the directions on page 6 or by contacting the applicable
unit agent.
The following briefly summarizes the material provisions of the unit
agreements and the units. The specific terms of your unit as described in the
prospectus supplement will supplement and, if applicable, may modify or replace
the general terms described in this section. You should read carefully the
prospectus supplement and the more detailed provisions of the unit agreement
and the unit certificate, including the defined terms, for provisions that may
be important to you. If there are differences between the prospectus supplement
and this prospectus, the prospectus supplement will control. Thus, the
statements made in this section may not apply to your unit.
Lehman Brothers Holdings may issue units comprised of one or more debt
securities, warrants and purchase contracts in any combination. Each unit will
be issued so that the holder of the unit is also the holder of each security
included in the unit. Thus, the holder of a unit will have the rights and
obligations of a holder of each included security. The unit agreement under
which a unit is issued may provide that the securities included in the unit may
not be held or transferred separately, at any time or at any time before a
specified date.
INFORMATION IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement may contain, where applicable, the following
information about your unit:
o the designation and terms of the units and of the securities comprising
the units, including whether and under what circumstances those
securities may be held or transferred separately;
o any provisions of the governing unit agreement that differ from those
described below;
o whether the units will be issued in global or non-global form, although,
in any case, the form of a unit will correspond to the form of the debt
securities, warrants and/or purchase contracts included in that unit,
o the identities of the unit agent, any depositaries and any paying,
transfer, calculation or other agents for the units,
o any securities exchange or quotation system on which the units and the
securities separable therefrom may be listed, and
o any other terms of the units.
The applicable provisions described in this section, as well as those
described under "Description of Debt Securities", "Description of Warrants" and
"Description of Purchase Contracts", will apply to each unit and to any debt
security, warrant or purchase contract included in each unit, respectively.
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UNIT AGREEMENTS: PREPAID, NON-PREPAID AND OTHER
Lehman Brothers Holdings will issue the units under one or more unit
agreements to be entered into between Lehman Brothers Holdings and a bank or
other financial institution, as unit agent. Lehman Brothers Holdings may add,
replace or terminate unit agents from time to time. Lehman Brothers Holdings
may also choose to act as its own unit agent. Lehman Brothers Holdings will
identify the unit agreement under which your units will be issued and the unit
agent under that agreement in the applicable prospectus supplement.
If a unit includes one or more purchase contracts and all those purchase
contracts are prepaid purchase contracts, Lehman Brothers Holdings will issue
the unit under a "prepaid unit agreement". Prepaid unit agreements will reflect
the fact that the holders of the related units have no further obligations
under the purchase contracts included in their units. If a unit includes one or
more non-prepaid purchase contracts, Lehman Brothers Holdings will issue the
unit under a "non-prepaid unit agreement". Non-prepaid unit agreements will
reflect the fact that the holders have payment or other obligations under one
or more of the purchase contracts comprising their units. Lehman Brothers
Holdings may also issue units under other kinds of unit agreements, which will
be described in the applicable prospectus supplement. In some cases, Lehman
Brothers Holdings may issue units under one of its indentures.
A unit agreement may also serve as the governing document for a security
included in a unit. For example, a non-prepaid purchase contract that is part
of a unit may be issued under and governed by the relevant unit agreement.
This prospectus refers to prepaid unit agreements, non-prepaid unit
agreements and other unit agreements, generally, as "unit agreements".
GENERAL PROVISIONS OF A UNIT AGREEMENT
The following provisions will generally apply to all unit agreements
unless otherwise stated in the prospectus supplement.
Enforcement of Rights
The unit agent under a unit agreement will act solely as Lehman Brothers
Holdings's agent in connection with the units issued under that agreement. The
unit agent will not assume any obligation or relationship of agency or trust
for or with any registered holder of or owner of a beneficial interest in those
units or of the securities comprising those units. The unit agent will not be
obligated to take any action on behalf of those holders or owners to enforce or
protect their rights under the units or the included securities.
Except as indicated in the next paragraph, a holder of a unit may, without
the consent of the unit agent or any other holder, enforce its rights as holder
under any security included in the unit, in accordance with the terms of that
security and the indenture, warrant agreement or unit agreement under which
that security is issued. Those terms are described elsewhere in this prospectus
under the sections relating to debt securities, warrants and purchase
contracts.
Notwithstanding the foregoing, a unit agreement may limit or otherwise
affect the ability of a holder of units issued under that agreement to enforce
its rights, including any right to bring a legal action, with respect to those
units or any securities, other than debt securities and prepaid purchase
contracts, that are included in those units. Limitations of this kind will be
described in the prospectus supplement.
Modification Without Consent of Holders
Lehman Brothers Holdings and the applicable unit agent may amend any unit
or unit agreement without the consent of any holder:
o to cure any ambiguity,
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o to correct or supplement any defective or inconsistent provision, or
o to make any other change that Lehman Brothers Holdings believes is
necessary or desirable and will not adversely affect the interests of
the affected holders in any material respect.
Lehman Brothers Holdings does not need any approval to make changes that
affect only units to be issued after the changes take effect. Lehman Brothers
Holdings may also make changes that do not adversely affect a particular unit
in any material respect, even if they adversely affect other units in a
material respect. In those cases, Lehman Brothers Holdings does not need to
obtain the approval of the holder of the unaffected unit; Lehman Brothers
Holdings only needs to obtain any required approvals from the holders of the
affected units.
The foregoing applies also to any security issued under a unit agreement,
as the governing document.
Modification With Consent of Holders
Lehman Brothers Holdings may not amend any particular unit or a unit
agreement with respect to any particular unit unless Lehman Brothers Holdings
obtains the consent of the holder of that unit, if the amendment would:
o impair any right of the holder to exercise or enforce any right under a
security included in the unit if the terms of that security require the
consent of the holder to any changes that would impair the exercise or
enforcement of that right,
o impair the right of the holder to purchase or sell, as the case may be,
the purchase contract property under any non-prepaid purchase contract
issued under the unit agreement, or to require delivery of or payment
for that property when due, or
o reduce the percentage of outstanding units of any series or class the
consent of whose holders is required to amend that series or class, or
the applicable unit agreement with respect to that series or class, as
described below.
Any other change to a particular unit agreement and the units issued under
that agreement would require the following approval:
o If the change affects only the units of a particular series issued under
that agreement, the change must be approved by the holders of a majority
of the outstanding units of that series.
o If the change affects the units of more than one series issued under
that agreement, it must be approved by the holders of a majority of all
outstanding units of all series affected by the change, with the units
of all the affected series voting together as one class for this
purpose.
These provisions regarding changes with majority approval also apply to
changes affecting any securities issued under a unit agreement, as the
governing document.
In each case, the required approval must be given by written consent.
Unit Agreements Will Not Be Qualified Under Trust Indenture Act
No unit agreement will be qualified as an indenture, and no unit agent
will be required to qualify as a trustee, under the Trust Indenture Act.
Therefore, holders of units issued under unit agreements will not have the
protections of the Trust Indenture Act with respect to their units.
ADDITIONAL PROVISIONS OF A NON-PREPAID UNIT AGREEMENT
In addition to the provisions described above, a non-prepaid unit
agreement will include the following provisions.
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Obligations of Unit Holder
Each holder of units issued under a non-prepaid unit agreement will:
o be bound by the terms of each non-prepaid purchase contract included in
the holder's units and by the terms of the unit agreement with respect
to those contracts, and
o appoint the unit agent as its authorized agent to execute, deliver and
perform on the holder's behalf each non-prepaid purchase contract
included in the holder's units.
The unit agreement for a unit that includes a non-prepaid purchase
contract will also include provisions regarding the holder's pledge of
collateral and special settlement provisions. These are described above under
"Description of Purchase Contracts--Additional Terms of Non-Prepaid Purchase
Contracts".
Assumption of Obligations by Transferee
When the holder of a unit issued under a non-prepaid unit agreement
transfers the unit to a new holder, the new holder will assume the obligations
of the prior holder with respect to each non-prepaid purchase contract included
in the unit, and the prior holder will be released from those obligations.
Under the non-prepaid unit agreement, Lehman Brothers Holdings will consent to
the transfer of the unit, to the assumption of those obligations by the new
holder and to the release of the prior holder, if the transfer is made in
accordance with the provisions of that agreement.
MERGERS AND SIMILAR TRANSACTIONS PERMITTED; NO RESTRICTIVE COVENANTS OR EVENTS
OF DEFAULT
The unit agreements will not restrict Lehman Brothers Holdings's ability
to merge or consolidate with, or sell its assets to, another firm or to engage
in any other transactions. If at any time Lehman Brothers Holdings merges or
consolidates with, or sells its assets substantially as an entirety to, another
firm, the successor company will succeed to and assume Lehman Brothers
Holdings' obligations under the unit agreements. Lehman Brothers Holdings will
then be relieved of any further obligation under these agreements and, in the
event of any such merger, consolidation or sale, Lehman Brothers Holdings as
the predecessor corporation may at any time thereafter be dissolved, wound up
or liquidated.
The unit agreements will not include any restrictions on Lehman Brothers
Holdings' ability to put liens on its assets, including Lehman Brothers
Holdings' interests in its subsidiaries. The unit agreements also will not
provide for any events of default or remedies upon the occurrence of any events
of default.
NO LIMIT ON ISSUANCE OF UNITS
There is no limit on the number of units or other securities that Lehman
Brothers Holdings may issue.
GOVERNING LAW
Unless otherwise stated in the prospectus supplement, the unit agreements
and the units will be governed by New York law.
FORM, EXCHANGE AND TRANSFER
Securities will only be issued in registered form; no securities will be
issued in bearer form. Lehman Brothers Holdings will issue each debt security,
warrant, purchase contract or unit in book-entry form only, unless otherwise
specified in the prospectus supplement. Securities in book-entry form will be
represented by a global security registered in the name of a depositary, which
will be the holder of all the securities represented by the global security.
Those who own beneficial interests in a global security will do so through
participants in the depositary's system, and the rights
29
of these indirect owners will be governed solely by the applicable procedures
of the depositary and its participants. Only the depositary will be entitled to
transfer or exchange a security in global form, since it will be the sole
holder of the security. These book-entry securities are described below under
"Book-Entry Procedures and Settlement".
If any securities are issued in non-global form or cease to be book-entry
securities (in the circumstances described in the next section), the following
will apply to them:
o The securities will be issued in fully registered form in denominations
stated in the prospectus supplement. Holders may exchange their
securities for debt securities, warrants, purchase contracts or units,
as the case may be, of the same series of smaller denominations or
combined into fewer securities of the same series of larger
denominations, as long as the total amount is not changed.
o Holders may exchange, transfer, present for payment or exercise their
securities at the office of the trustee, warrant agent, unit agent or
other agent indicated in the prospectus supplement. They may also
replace lost, stolen, destroyed or mutilated securities at that office.
Lehman Brothers Holdings may appoint another entity to perform these
functions or may perform them itself.
o Holders will not be required to pay a service charge to transfer or
exchange their securities, but they may be required to pay any tax or
other governmental charge associated with the transfer or exchange. The
transfer or exchange, and any replacement, will be made only if Lehman
Brothers Holdings' transfer agent is satisfied with the holder's proof
of legal ownership. The transfer agent may also require an indemnity
before replacing any securities.
o If Lehman Brothers Holdings has the right to redeem, accelerate or
settle any securities before their maturity or expiration, and Lehman
Brothers Holdings exercises that right as to less than all those
securities, Lehman Brothers Holdings may block the transfer or exchange
of those securities during the period beginning 15 days before the day
Lehman Brothers Holdings mails the notice of exercise and ending on the
day of that mailing, in order to freeze the list of holders to prepare
the mailing. Lehman Brothers Holdings may also refuse to register
transfers of or exchange any security selected for early settlement,
except that Lehman Brothers Holdings will continue to permit transfers
and exchanges of the unsettled portion of any security being partially
settled.
o If fewer than all of the securities represented by a certificate that
are payable or exercisable in part are presented for payment or
exercise, a new certificate will be issued for the remaining amount of
securities.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Most offered securities will be book-entry (global) securities. Upon
issuance, all book-entry securities will be represented by one or more fully
registered global securities without coupons. Each global security will be
deposited with, or on behalf of, The Depository Trust Company, a securities
depository, and will be registered in the name of DTC or a nominee of DTC. DTC
will thus be the only registered holder of these securities.
Purchasers of securities may only hold interests in the global securities
through DTC if they are participants in the DTC system. Purchasers may also
hold interests through a securities intermediary--banks, brokerage houses and
other institutions that maintain securities accounts for customers--that has an
account with DTC or its nominee. DTC will maintain accounts showing the
security holdings of its participants, and these participants will in turn
maintain accounts showing the security holdings of their customers. Some of
these customers may themselves be securities intermediaries holding securities
for their customers. Thus, each beneficial owner of a book-entry security will
hold that security indirectly through a hierarchy of intermediaries, with DTC
at the "top" and the beneficial owner's own securities intermediary at the
"bottom".
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The securities of each beneficial owner of a book-entry security will be
evidenced solely by entries on the books of the beneficial owner's securities
intermediary. The actual purchaser of the securities will generally not be
entitled to have the securities represented by the global securities registered
in its name and will not be considered the owner under the declaration. In most
cases, a beneficial owner will also not be able to obtain a paper certificate
evidencing the holder's ownership of securities. The book-entry system for
holding securities eliminates the need for physical movement of certificates
and is the system through which most publicly traded securities are held in the
United States. However, the laws of some jurisdictions require some purchasers
of securities to take physical delivery of their securities in definitive form.
These laws may impair the ability to transfer book-entry securities.
A beneficial owner of book-entry securities represented by a global
security may exchange the securities for definitive (paper) securities only if:
o DTC is unwilling or unable to continue as depositary for such global
security and Lehman Brothers Holdings does not appoint a qualified
replacement for DTC within 90 days; or
o Lehman Brothers Holdings in its sole discretion decides to allow some or
all book-entry securities to be exchangeable for definitive securities
in registered form.
Unless we indicate otherwise, any global security that is exchangeable
will be exchangeable in whole for definitive securities in registered form,
with the same terms and of an equal aggregate principal amount or aggregate
number of warrants or units, as the case may be. Definitive securities will be
registered in the name or names of the person or persons specified by DTC in a
written instruction to the registrar of the securities. DTC may base its
written instruction upon directions that it receives from its participants.
In this prospectus, for book-entry securities, references to actions taken
by security holders will mean actions taken by DTC upon instructions from its
participants, and references to payments, notices of redemption and other
notices to security holders will mean payments, notices of redemption and other
notices to DTC as the registered holder of the securities for distribution to
participants in accordance with DTC's procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under section 17A of the Securities Exchange Act
of 1934. The rules applicable to DTC and its participants are on file with the
SEC.
Lehman Brothers Holdings will not have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interest in the book-entry securities or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests.
CLEARSTREAM AND EUROCLEAR
Links have been established among DTC, Clearstream Banking, societe
anonyme, Luxembourg ("Clearstream Banking SA") and Euroclear (two international
clearing systems that perform functions similar to those that DTC performs in
the U.S.), to facilitate the initial issuance of book-entry securities and
cross-market transfers of book-entry securities associated with secondary
market trading.
Although DTC, Clearstream Banking SA and Euroclear have agreed to the
procedures provided below in order to facilitate transfers, they are under no
obligation to perform such procedures, and the procedures may be modified or
discontinued at any time.
Clearstream Banking SA and Euroclear will record the ownership interests
of their participants in much the same way as DTC, and DTC will record the
aggregate ownership of each of the U.S. agents of Clearstream Banking SA and
Euroclear, as participants in DTC.
31
When book-entry securities are to be transferred from the account of a DTC
participant to the account of a Clearstream Banking SA participant or a
Euroclear participant, the purchaser must send instructions to Clearstream
Banking SA or Euroclear through a participant at least one business day prior
to settlement. Clearstream Banking SA or Euroclear, as the case may be, will
instruct its U.S. agent to receive book-entry securities against payment. After
settlement, Clearstream Banking SA or Euroclear will credit its participant's
account. Credit for the book-entry securities will appear on the next day
(European time).
Because settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending book-entry
securities to the relevant U.S. agent acting for the benefit of Clearstream
Banking SA or Euroclear participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC participant, a
cross-market transaction will settle no differently than a trade between two
DTC participants.
When a Clearstream Banking SA or Euroclear participant wishes to transfer
book-entry securities to a DTC participant, the seller must send instructions
to Clearstream Banking SA or Euroclear through a participant at least one
business day prior to settlement. In these cases, Clearstream Banking SA or
Euroclear will instruct its U.S. agent to transfer the book-entry securities
against payment. The payment will then be reflected in the account of the
Clearstream Banking SA or Euroclear participant the following day, with the
proceeds back-valued to the value date (which would be the preceding day, when
settlement occurs in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), proceeds credited to the Clearstream
Banking SA or Euroclear participant's account would instead be valued as of the
actual settlement date.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The prospectus supplement will contain a summary of the material U.S.
federal income tax consequences to U.S. persons investing in offered
securities. 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. You are urged to consult your own tax advisor prior to any
acquisition of offered securities.
PLAN OF DISTRIBUTION
Lehman Brothers Holdings may offer the offered securities in one or more
of the following ways from time to time:
o to or through underwriters or dealers;
o by itself directly;
o through agents; or
o through a combination of any of these methods of sale.
Any such underwriters, dealers or agents may include Lehman Brothers Inc.
or other affiliates of Lehman Brothers Holdings.
The prospectus supplement relating to a particular offering of securities
will set forth the terms of such offering, including:
o the name or names of any underwriters, dealers or agents;
o the purchase price of the offered securities and the proceeds to Lehman
Brothers Holdings from such sale;
o any underwriting discounts and commissions or agency fees and other
items constituting underwriters' or agents' compensation;
o the initial public offering price;
o any discounts or concessions to be allowed or reallowed or paid to
dealers; and
32
o any securities exchanges on which such offered securities may be listed.
Any initial public offering prices, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in an offering of offered securities, such
offered securities will be acquired by the underwriters for their 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 securities may be either offered to the
public through underwriting syndicates represented by one or more managing
underwriters or by one or more underwriters without a syndicate. Unless
otherwise set forth in the prospectus supplement, the underwriters will not be
obligated to purchase offered securities unless specified conditions are
satisfied, and if the underwriters do purchase any offered securities, they
will purchase all offered securities.
In connection with underwritten offerings of the offered securities and in
accordance with applicable law and industry practice, underwriters may
over-allot or effect transactions that stabilize, maintain or otherwise affect
the market price of the offered securities at levels above those that might
otherwise prevail in the open market, including by entering stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids, each of
which is described below:
o A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of
a security.
o A syndicate covering transaction means the placing of any bid on behalf
of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering.
o A penalty bid means an arrangement that permits the managing underwriter
to reclaim a selling concession from a syndicate member in connection
with the offering when offered securities originally sold by the
syndicate member are purchased in syndicate covering transactions.
These transactions may be effected on the NYSE, in the over-the-counter
market, or otherwise. Underwriters are not required to engage in any of these
activities, or to continue such activities if commenced.
If dealers are utilized in the sale of offered securities, Lehman Brothers
Holdings will sell such offered securities to the dealers as principals. The
dealers may then resell such offered securities to the public at varying prices
to be determined by such dealers at the time of resale. The names of the
dealers and the terms of the transaction will be set forth in the prospectus
supplement relating to that transaction.
Offered securities may be sold directly by Lehman Brothers Holdings to one
or more institutional purchasers, or through agents designated by Lehman
Brothers Holdings from time to time, at a fixed price or prices, which may be
changed, or at varying prices determined at the time of sale. Any such agent
may be deemed to be an underwriter as that term is defined in the Securities
Act. Any agent involved in the offer or sale of the offered securities in
respect of which this prospectus is delivered will be named, and any
commissions payable by Lehman Brothers Holdings to such agent will be set
forth, in the prospectus supplement relating to that offering. Unless otherwise
indicated in such prospectus supplement, any such agent will be acting on a
best efforts basis for the period of its appointment.
If so indicated in the applicable prospectus supplement, Lehman Brothers
Holdings will authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase offered securities from Lehman
Brothers Holdings at the public offering price set forth in such prospectus
supplement pursuant to delayed delivery contracts providing for payment and
delivery on a specified date in the future. Such contracts will be subject only
to those conditions set forth in the prospectus supplement and the prospectus
supplement will set forth the commission payable for solicitation of such
contracts.
33
Lehman Brothers Inc., the U.S. broker-dealer subsidiary of Lehman Brothers
Holdings, is a member of the National Association of Securities Dealers, Inc.
and may participate in distributions of the offered securities. Accordingly,
offerings of offered securities in which Lehman Brothers Inc. participates will
conform to the requirements set forth in Rule 2720 of the Conduct Rules of the
NASD. Furthermore, any underwriters offering the offered securities will not
confirm sales to any accounts over which they exercise discretionary authority
without the prior approval of the customer.
This prospectus together with any applicable prospectus supplement may
also be used by Lehman Brothers Inc. and other affiliates of Lehman Brothers
Holdings in connection with offers and sales of the offered securities in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale. Such affiliates may act as principals or agents in
such transactions. Such affiliates have no obligation to make a market in any
of the offered securities and may discontinue any market-making activities at
any time without notice, at its sole discretion.
Underwriters, dealers and agents may be entitled, under agreements with
Lehman Brothers Holdings, to indemnification by Lehman Brothers Holdings
relating to material misstatements and omissions. Underwriters, dealers and
agents may be customers of, engage in transactions with, or perform services
for, Lehman Brothers Holdings and affiliates of Lehman Brothers Holdings in the
ordinary course of business.
Each series of offered securities will be a new issue of securities and
will have no established trading market. Any underwriters to whom offered
securities are sold for public offering and sale may make a market in such
offered securities, but such underwriters will not be obligated to do so and
may discontinue any market making at any time without notice. The offered
securities may or may not be listed on a national securities exchange. No
assurance can be given that there will be a market for the offered securities.
UNITED KINGDOM SELLING RESTRICTIONS
Each underwriter will represent and agree that:
o it has not offered or sold and prior to the date six months after the
date of issue of the offered securities will not offer or sell offered
securities in the United Kingdom 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 business
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 1995;
o 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 offered securities in, from or otherwise involving the
United Kingdom; and
o it has only issued or passed on, and will only issue or pass on, in the
United Kingdom any document received by it in connection with the issue
of the offered securities to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisement) (Exemptions) Order 1996 (as amended) or is a person to
whom the document may otherwise lawfully be issued or passed on.
ERISA CONSIDERATIONS
Lehman Brothers Holdings has subsidiaries, including Lehman Brothers Inc.,
that provide services to many employee benefit plans. Lehman Brothers Holdings
and any direct or indirect subsidiary of Lehman Brothers Holdings may each be
considered a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and a "disqualified person" under
corresponding provisions of the Internal Revenue Code of 1986 (the "Code"),
relating to many employee benefit plans. "Prohibited transactions" within the
meaning of ERISA and the Code may result if any offered securities are acquired
by an employee benefit plan relating to which Lehman Brothers Holdings or any
direct or indirect subsidiary of Lehman Brothers Holdings is a party in
34
interest, unless such offered securities are acquired pursuant to an applicable
exemption. Any employee benefit plan or other entity subject to such provisions
of ERISA or the Code proposing to acquire the offered securities should consult
with its legal counsel.
LEGAL MATTERS
Barrett S. DiPaolo, Vice President and Associate General Counsel of Lehman
Brothers Holdings, has rendered an opinion to Lehman Brothers Holdings
regarding the validity of the securities offered by the prospectus. Simpson
Thacher & Bartlett, New York, New York, or other counsel identified in the
applicable prospectus supplement, will act as legal counsel to the
underwriters. Simpson Thacher & Bartlett has from time to time acted as counsel
for Lehman Brothers Holdings and its subsidiaries and may do so in the future.
EXPERTS
The consolidated financial statements and financial statement schedule of
Lehman Brothers Holdings Inc. as of November 30, 2000 and 1999, and for each of
the years in the three-year period ended November 30, 2000, have been audited
by Ernst & Young LLP, independent certified public accountants, as set forth in
their report on the consolidated financial statements. The consolidated
financial statements and such report are incorporated by reference in Lehman
Brothers Holdings' annual report on Form 10-K for the year ended November 30,
2000, and incorporated by reference in this prospectus. The consolidated
financial statements of Lehman Brothers Holdings referred to above are
incorporated by reference in this prospectus in reliance upon such report given
on the authority of said firm as experts in accounting and auditing. To the
extent that Ernst & Young LLP audits and reports on consolidated financial
statements of Lehman Brothers Holdings issued at future dates, and consents to
the use of their report thereon, such consolidated financial statements also
will be incorporated by reference in the registration statement in reliance
upon their report given on said authority.
35
$20,000,000 SUNS (Registered Trademark)
LEHMAN BROTHERS HOLDINGS INC.
S&P 500 (Registered Trademark) INDEX STOCK UPSIDE NOTE SECURITIES (Registered
Trademark)
DUE FEBRUARY , 2005
-------------
PROSPECTUS SUPPLEMENT
AUGUST , 2001
(INCLUDING PROSPECTUS
DATED JUNE 21, 2001)
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LEHMAN BROTHERS