-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A02bmEqsw9/wAIs0iB4cAivDraLQugRTtKgWFIcDfATSH70bfUNPRxPp5JZEKUf4 50IRWbpCAcf5WJ4/0IL9Lw== 0001193125-07-110743.txt : 20070511 0001193125-07-110743.hdr.sgml : 20070511 20070510215217 ACCESSION NUMBER: 0001193125-07-110743 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20070511 DATE AS OF CHANGE: 20070510 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: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 333-134553 FILM NUMBER: 07839854 BUSINESS ADDRESS: STREET 1: LEHMAN BROTHERS STREET 2: 745 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125267000 MAIL ADDRESS: STREET 1: LEHMAN BROTHERS STREET 2: 745 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN HUTTON HOLDINGS INC DATE OF NAME CHANGE: 19901017 424B5 1 d424b5.htm PRELIMINARY PRICING SUPPLEMENT Preliminary Pricing Supplement

Filed Pursuant To Rule 424(b)(5)

Registration File No.: 333-134553

The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement and the accompanying prospectus supplements and 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 MAY 8, 2007

PRELIMINARY PRICING SUPPLEMENT

to Prospectus Supplement dated October 5, 2006

to Prospectus Supplement dated May 30, 2006

and Prospectus dated May 30, 2006

$10,000,000

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTES, SERIES I

0.00% Notes Due May 15, 2012

Performance Linked to the Common Stock of McDonald’s Corporation (MCD)

Because these notes are part of a series of Lehman Brothers Holdings’ debt securities called Medium-Term Notes, Series I, this preliminary pricing supplement and the accompanying prospectus supplement, dated October 5, 2006 (the “synthetic convertible prospectus supplement”) should also be read with the accompanying prospectus supplement, dated May 30, 2006 (the “MTN prospectus supplement”) and the accompanying prospectus dated May 30, 2006 (the “base prospectus”). Terms used here have the meanings given them in the synthetic convertible prospectus supplement, the MTN prospectus supplement or the base prospectus, unless the context requires otherwise.

 

  •  

Index stock issuer: McDonald’s Corporation. McDonald’s Corporation is not involved in this offering and has no obligation with respect to the notes.

 

  •  

Index stock: The common stock of the index stock issuer.

 

  •  

Principal amount: $1,000 per note, and in the aggregate, $10,000,000.

 

  •  

Stated maturity date: May 15, 2012, subject to postponement if the valuation date is postponed. If the stated maturity date is not a business day, any payment required to be made on the stated maturity date will instead be made on the next business day, as described on page S-17 of the MTN prospectus supplement.

 

  •  

Valuation date related to the stated maturity date: May 10, 2012, subject to postponement if a market disruption event occurs or if such day is not a scheduled trading day, as described under the caption “Description of the Notes—Settlement value” on page SS-18 of the synthetic convertible prospectus supplement.

 

  •  

Interest rate: 0.00% per annum.

 

  •  

Interest payment dates: Not applicable.

 

  •  

Interest payment record dates: Not applicable.

 

  •  

Threshold value: $51.9960, which is 105.00% of the average execution price per share of common stock that an affiliate of Lehman Brothers Holdings will pay to hedge Lehman Brothers Holdings’ obligations under the notes.

  •  

Earliest redemption date: May 8, 2010.

 

  •  

Redemption notice period: 30 calendar days.

 

  •  

Optional repurchase notice period: Eight business days.

  •  

Determination period: Three business days.

 

 

•

  

Multiplier: The initial multiplier for the shares of common stock of McDonald’s Corporation is 1.0. The multiplier is subject to adjustment under various circumstances, as described under the caption “Description of the Notes—Adjustments to multipliers and to securities included in the calculation of the settlement value” on page SS-19 of the synthetic convertible prospectus supplement, including if McDonald’s Corporation pays an annual cash dividend of more or less than the base dividend of $1.00 per share on its shares of common stock. The effective adjustment date for adjusting the multiplier will be the first business day immediately following the 10th day of each May and the valuation date, as applicable, with the first effective adjustment date for adjusting the multiplier being May 11, 2008.

 

  •  

Stock settlement: Yes, upon exercise by the holder of the repurchase option and at the option of Lehman Brothers Holdings at maturity, all as described under the caption “Description of the Notes—Stock settlement” on page SS-25 of the synthetic convertible prospectus supplement. Lehman Brothers Holdings will provide the trustee with written notice no later than the valuation date if it elects the stock settlement option.

 

  •  

Denominations: $1,000 and whole multiples of $1,000.

 

  •  

Listing: The notes will not be listed on any exchange.

 

  •  

CUSIP No.:

 

  •  

ISIN No.:


Investing in the notes involves risks. Risk Factors begin on page SS-6 of the synthetic convertible prospectus supplement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this preliminary pricing supplement, any accompanying prospectus supplement or any accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

     Per Note     Total

Public offering price

    100.00 %   $ 10,000,000

Underwriting discount

    0.13 %   $ 13,000

Proceeds to Lehman Brothers Holdings

    99.87 %   $ 9,987,000

 

Lehman Brothers Holdings has granted the underwriter an option to purchase, within 13 days of the original issuance, up to an additional $1,500,000 aggregate principal amount of notes on the same terms and conditions set forth above solely to cover over-allotments, if any.

The notes are expected to be ready for delivery in book-entry form only through The Depository Trust Company on or about May 15, 2007.

 

LEHMAN BROTHERS

May     , 2007

EXAMPLES OF AMOUNT PAYABLE AT MATURITY OR UPON REDEMPTION OR REPURCHASE

 

Here are two examples of hypothetical alternative redemption amount calculations. In each of these examples it is assumed that (a) McDonald’s Corporation does not change the amount of the annual cash dividends that it pays on its shares of common stock during the term of the notes and (b) the threshold value is $51.9960.

Example 1. Assuming the settlement value is $40.00:

Alternative redemption amount per $1,000 note =

 

$1,000    ×      $40.00    =    $769.28
      $51.9960      

As a result, on the stated maturity date or upon redemption, you would receive $1,000 per $1,000 note because $1,000 is greater than $769.28.

In the case of stock settlement on the stated maturity date or upon repurchase in this example, you would receive, if you held a $1,000 note, 25 shares of common stock of McDonald’s Corporation plus $0.00 in cash at maturity, or 19 shares of common stock of McDonald’s Corporation plus $9.28 in cash upon repurchase. To the extent that you hold more than $1,000 aggregate principal amount of notes, the calculations of cash payments in lieu of fractional shares would be made on an aggregate, rather than on a per $1,000 note, basis. For example, if you held $10,000,000 aggregate principal amount of notes, you would receive, in total, 250,000 shares of common stock of McDonald’s Corporation plus $0.00 in cash at maturity, or 192,320 shares of common stock of McDonald’s Corporation plus $0.00 in cash upon repurchase.

 

Example 2. Assuming the settlement value is $60.00:

Alternative redemption amount per $1,000 note =

 

$1,000    ×    $ 60.00    =    $1,153.93
      $ 51.9960      

As a result, on the stated maturity date or upon redemption, you would receive $1,153.93 per $1,000 note because $1,153.93 is greater than $1,000.

In the case of stock settlement on the stated maturity date or upon repurchase in this example, you would receive, if you held a $1,000 note, 19 shares of common stock of McDonald’s Corporation plus $13.93 in cash at maturity or upon repurchase. To the extent that you hold more than $1,000 aggregate principal amount of notes, the calculations of cash payments in lieu of fractional shares would be made on an aggregate, rather than on a per $1,000 note, basis. For example, if you held $10,000,000 aggregate principal amount of notes, you would receive, in total, 192,321 shares of common stock of McDonald’s Corporation plus $40.00 in cash at maturity or upon repurchase.

To the extent the actual settlement value or threshold value differs from the values assumed above or that McDonald’s Corporation changes the amount of the annual cash dividends it pays, the results indicated above would be different.


 

PS-2

INDEX STOCK ISSUER AND INDEX STOCK

 

McDonald’s Corporation

Lehman Brothers Holdings has obtained the following information regarding McDonald’s Corporation from McDonald’s Corporation’s reports filed with the SEC.

McDonald’s Corporation primarily franchises and operates McDonald’s restaurants in the food service industry. These restaurants operate in more than 100 countries.

The index stock is registered under the Securities Exchange Act of 1934. Companies with securities registered under that Act are required to file periodically certain financial and other information specified by the SEC. Information provided to or filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC or through the SEC’s website described under “Where You Can Find More Information” on page 58 of the accompanying base prospectus. In addition, information regarding the index stock issuer may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.

Historical information about the index stock

The shares of common stock of McDonald’s Corporation are listed on The New York Stock Exchange under the symbol “MCD”.

The following table presents the high and low closing prices for the shares of common stock of McDonald’s Corporation, as reported on The New York Stock Exchange during each fiscal quarter in 2004, 2005, 2006 and 2007 (through the business day immediately prior to the date of this preliminary pricing supplement), and the closing price at the end of each quarter in 2004, 2005, 2006 and 2007 (through the business day immediately prior to the date of this preliminary pricing supplement).

The historical prices of the index stock are not necessarily indicative of future performance. Lehman Brothers Holdings cannot assure you that the price of the index stock will not be below the threshold value on the valuation date related to the repurchase if you exercise your repurchase option, or will increase enough so that the alternative redemption amount will be greater than or equal to $1,000. The historical prices below have been adjusted to reflect any stock splits or reverse stock splits.

All information in the table that follows was obtained from Bloomberg L.P., without independent verification.


 

PS-3

       High      Low      Period End

2004

               

First Quarter

      $ 29.85      $ 24.64      $ 28.57

Second Quarter

      $ 29.36      $ 25.31      $ 26.00

Third Quarter

      $ 28.16      $ 25.75      $ 28.03

Fourth Quarter

      $ 32.66      $ 27.55      $ 32.06

2005

               

First Quarter

      $ 34.21      $ 30.89      $ 31.14

Second Quarter

      $ 31.49      $ 27.75      $ 27.75

Third Quarter

      $ 34.69      $ 27.70      $ 33.49

Fourth Quarter

      $ 35.50      $ 31.55      $ 33.72

2006

               

First Quarter

      $ 36.37      $ 33.52      $ 34.36

Second Quarter

      $ 35.96      $ 31.94      $ 33.60

Third Quarter

      $ 39.82      $ 33.04      $ 39.12

Fourth Quarter

      $ 44.36      $ 39.51      $ 44.33

2007

               

First Quarter)

      $ 46.05      $ 42.91      $ 45.05

Second Quarter (through the business
day immediately prior to the date of
this preliminary pricing supplement)

      $ 50.02      $ 44.82      $ 49.32

 

PS-4

HYPOTHETICAL RETURNS

 

The table below illustrates, for a range of hypothetical settlement values on the valuation date, in each case assuming that (a) the investment is held from the date on which the notes are first issued until the stated maturity date, (b) McDonald’s Corporation does not change the amount of the annual cash dividends that it pays on its shares of common stock during the term of the notes and (c) the threshold value is $51.9960:

 

•  

the hypothetical alternative redemption amount per $1,000 note;

 

•  

the percentage change from the principal amount to the hypothetical alternative redemption amount;

 

•  

the hypothetical total amount payable at stated maturity per $1,000 note (without interest);

 

•  

the hypothetical total rate of return (without interest);

 

•  

the hypothetical annualized pre-tax rate of return (without interest);

 

•  

the hypothetical total rate of return (including interest); and

 

•  

the hypothetical annualized pre-tax rate of return (including interest).


 

Hypothetical

settlement value on

the valuation date

   

Hypothetical
alternative

redemption

amount per

$1,000 note

   

Percentage

change from the

principal

amount to the

hypothetical

alternative

redemption

amount

  

Hypothetical

total amount

payable at

stated

maturity per

$1,000 note

   

Hypothetical

total rate of

return

  

Hypothetical
annualized

pre-tax rate

of return

$35.00 

       $673.12    -32.69%   $1,000.00      0.00%   0.00%

$40.00 

       $769.28    -23.07%   $1,000.00      0.00%   0.00%

$45.00 

       $865.45    -13.46%   $1,000.00      0.00%   0.00%

$50.00 

       $961.61      -3.84%   $1,000.00      0.00%   0.00%

$51.9960 (1)

    $1,000.00       0.00%   $1,000.00      0.00%   0.00%

$55.00 

    $1,057.77       5.78%   $1,057.77      5.78%   1.13%

$60.00 

    $1,153.93     15.39%   $1,153.93    15.39%   2.90%

$65.00 

    $1,250.09     25.01%   $1,250.09    25.01%   4.57%

$70.00 

    $1,346.25     34.63%   $1,346.25    34.63%   6.13%
(1) This figure reflects the assumed threshold value.

 

The above figures are for purposes of illustration only. The actual amount received by investors and the resulting total and pre-tax rates of return will depend entirely on the actual settlement value determined by the calculation agent. In particular, the actual settlement value could be lower or higher than those reflected in the table.

The table above provides hypothetical return information only with regard to notes held to maturity. It is not applicable in the case of notes repurchased or redeemed prior to the stated maturity date.

 

You should compare the features of the notes to other available investments before deciding to purchase the notes. Due to the uncertainty as to whether the alternative redemption amount, at stated maturity or in connection with a repurchase or redemption, will be greater than $1,000 per $1,000 note or whether the notes will be redeemed prior to the stated maturity date, 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.


 

PS-5

SUPPLEMENTAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

 

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 includes the actual interest payments on the notes and estimates the amount and timing of contingent payments on the notes. Lehman Brothers Holdings has determined that the comparable yield will be an annual rate of 5.2200% compounded semi-annually. Based on the comparable yield, the projected payment schedule per $1,000 note is $1,293.89 due at maturity.

 

Lehman Brothers Holdings agrees and, by purchasing a note, you agree, for United States federal income tax purposes, to be bound by Lehman Brothers Holdings’ determination of the comparable yield and projected payment schedule. As a consequence, for United States federal income tax purposes, you must use the comparable yield determined by Lehman Brothers Holdings and the projected payments set forth in the projected payment schedule prepared by Lehman Brothers Holdings in determining your interest accruals, and the adjustments thereto, in respect of the notes. See “United States Federal Income Tax Consequences” in the accompanying synthetic convertible prospectus supplement.


 

PS-6

SUPPLEMENTAL PLAN OF DISTRIBUTION

 

Lehman Brothers Holdings has agreed to sell to Lehman Brothers Inc., and Lehman Brothers Inc. has agreed to purchase, all of the notes at the price indicated on the cover of this pricing supplement.

Lehman Brothers Holdings has agreed to indemnify Lehman Brothers Inc. against liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments that Lehman Brothers Inc. may be required to make relating to these liabilities as described in the MTN prospectus supplement and the base prospectus.

Lehman Brothers Inc. will offer the notes initially at a public offering price equal to the issue price set forth on the cover of this pricing supplement. After the initial public offering, the public offering price may from time to time be varied by Lehman Brothers Inc.

Lehman Brothers Holdings has granted to Lehman Brothers Inc. an option to purchase, at any time within 13 days of the original issuance of the notes, up to $1,500,000 additional aggregate principal amount of notes solely to cover over-allotments. To the extent that the option is exercised, Lehman Brothers Inc. will be committed, subject to certain conditions, to purchase the additional notes. If this option is exercised in full, the total public offering price, the underwriting discount and proceeds to Lehman Brothers Holdings would be $11,500,000, $14,950 and $11,485,050, respectively.

 

Lehman Brothers Holdings expects to deliver the notes against payment on or about May 15, 2007, which is the fifth business day following the date of this pricing supplement.

Under Rule 15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, if any purchaser wishes to trade the notes on the date of this pricing supplement, it will be required, by virtue of the fact that the notes initially will settle on the fifth business day following the date of this pricing supplement, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement.

Lehman Brothers Holdings or an affiliate will enter into swap agreements or related hedge transactions with one of Lehman Brothers Holdings’ other affiliates or unaffiliated counterparties in connection with the sale of the notes and Lehman Brothers Inc. and/or an affiliate will earn additional income as a result of payments pursuant to the swap, or related hedge transactions.


 

PS-7

$10,000,000

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTES, SERIES I

0.00% Notes Due May 15, 2012

Performance Linked to the

Common Stock of McDonald’s Corporation (MCD)

 

PRELIMINARY PRICING SUPPLEMENT

DATED MAY 8, 2007

(INCLUDING PROSPECTUS SUPPLEMENT

DATED OCTOBER 5, 2006,

PROSPECTUS SUPPLEMENT

DATED MAY 30, 2006 AND

PROSPECTUS

DATED MAY 30, 2006)

 

LEHMAN BROTHERS

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