0000912057-01-533627.txt : 20011009
0000912057-01-533627.hdr.sgml : 20011009
ACCESSION NUMBER: 0000912057-01-533627
CONFORMED SUBMISSION TYPE: 424B2
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20010927
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: 1745985
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
a2054878z424b2.txt
424B2
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-61878
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 21, 2001)
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$21,000,000
LEHMAN BROTHERS HOLDINGS INC.
Prudential Research Universe Diversified Equity Notes(SM)
PRUDENTS(SM) Due July 2, 2006
Linked to a Basket of Healthcare Stocks
-------------------------------------------------------------------------
GENERAL:
- PRUDENTS(SM) are senior unsecured debt securities of Lehman Brothers Holdings.
- The underlying basket is composed of twenty equally weighted publicly traded
common stocks and other equity securities of major companies in the healthcare
industry selected by Prudential Securities Equity Research Department.
Prudential Securities has selected a basket of common stocks and other equity
securities in the healthcare industry that it believes to be an attractive
investment over the term of the notes.
- Minimum initial investment: $1,000.
- Stated maturity date: July 2, 2006, subject to postponement if a market
disruption event occurs.
- The notes have been approved for listing on the American Stock Exchange under
the trading symbol "PSP.B". Due to the World Trade Center attacks, the
American Stock Exchange has temporarily suspended trading in debt securities
and expects to resume trading on or about October 1, 2001.
PAYMENTS:
- No interest or other payments will be made prior to the stated maturity date.
- 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 is equal to the product of:
(1) $1,000; and
(2) the average level of the underlying basket, calculated as set forth
below, divided by 100, which is the initial level of the underlying
basket.
The average level of the underlying basket is equal to the arithmetic average of
the levels of the underlying basket on nineteen quarterly dates during the term
of the notes.
At stated maturity, you will receive an amount per $1,000 note equal to at least
$1,000.
PER NOTE TOTAL
Public offering price....................................... 100.0% $21,000,000
Underwriting discounts and commissions...................... 2.5% $525,000
Proceeds, before expenses, to Lehman Brothers Holdings...... 97.5% $20,475,000
SEE "RISK FACTORS" ON PAGES S-8 TO S-13 FOR FACTORS THAT SHOULD BE CONSIDERED
BEFORE INVESTING IN THE NOTES.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
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The notes are expected to be ready for delivery in book-entry form only through
The Depository Trust Company on or about October 2, 2001.
PRUDENTIAL SECURITIES LEHMAN BROTHERS
September 25, 2001
"Prudential Research Universe Diversified Equity Notes" and "PRUDENTS" are
service marks of Prudential Securities.
TABLE OF CONTENTS
PAGE
--------
Prospectus Supplement
---------------------------------------------------
Forward-Looking Statements............... S-2
Summary Information--Q&A................. S-3
Risk Factors............................. S-8
Use of Proceeds and Hedging.............. S-14
Ratio of Earnings to Fixed Charges....... S-14
Description of the Notes................. S-15
The Underlying Basket.................... S-21
United States Federal Income Tax
Consequences........................... S-27
Book-Entry Issuance...................... S-30
Underwriting............................. S-33
Experts.................................. S-34
Annex A.................................. A-1
PAGE
--------
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..................... 26
Form, Exchange and Transfer.............. 30
Book-Entry Procedures and Settlement..... 31
United States Federal Income Tax
Consequences........................... 32
Plan of Distribution..................... 33
ERISA Considerations..................... 35
Legal Matters............................ 35
Experts.................................. 35
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus supplement, the
accompanying prospectus and the documents incorporated herein by reference,
including those relating to Lehman Brothers Holdings' strategy and other
statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates" and similar expressions are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements are not historical facts but instead represent only Lehman Brothers
Holdings' expectations, estimates and projections regarding future events. These
statements are not guarantees of future performance and involve certain risks
and uncertainties that are difficult to predict, which may include market,
credit or counterparty, liquidity, legal and operational risks. Market risks
include changes in interest and foreign exchange rates and securities
valuations, global economic and political trends and industry competition.
Lehman Brothers Holdings' actual results and financial condition may differ,
perhaps materially, from the anticipated results and financial condition in any
such forward-looking statements. Lehman Brothers Holdings undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
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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 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.
--------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus
supplement, the accompanying prospectus and the documents incorporated herein by
reference. We have not authorized anyone to provide you with different
information. We are not making an offer of these notes in any jurisdiction where
the offer is not permitted. 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.
S-2
SUMMARY INFORMATION--Q&A
This summary highlights selected information from the prospectus supplement
and the 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, the tax consequences 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-8 to determine whether an investment in the notes is
appropriate for you. For your convenience, there are references throughout this
document to specific page numbers where more detailed information on some of the
terms and concepts discussed can be found.
WHAT ARE THE NOTES?
The notes are a series of senior unsecured debt securities of Lehman
Brothers Holdings whose value is linked to the performance of the underlying
basket. The notes will rank equally with all other unsecured debt of Lehman
Brothers Holdings except subordinated debt, and will mature on July 2, 2006,
unless postponed because a market disruption event occurs. See "Description of
the Notes."
WHAT IS THE UNDERLYING BASKET?
The underlying basket is comprised of twenty publicly traded common stocks
and other equity securities of companies in the healthcare industry selected by
Prudential Securities Equity Research Department. Prudential Securities has
selected a basket of common stocks and other equity securities that it believes
to be an attractive investment over the term of the notes. Each of the twenty
common stocks and other equity securities is weighted equally with an initial
weighting of 5.0%. The number of shares of each security initially included in
the underlying basket is equal to the initial weighting divided by the closing
price of the security on the date of this prospectus supplement. This number of
shares will not change except in the event of certain extraordinary transactions
involving the issuer of the shares. See "The Underlying Basket--Adjustments to
the multipliers and the underlying basket."
WHAT PAYMENTS WILL I RECEIVE ON THE NOTES BEFORE THEIR 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
receive 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 value of the
underlying basket over the term of the notes. On the stated maturity date, you
will receive a payment per $1,000 note equal to the greater of:
- $1,000; and
- the alternative redemption amount.
As a result, if you hold the notes until the stated maturity date, you will
receive no less than $1,000 per $1,000 note.
S-3
HOW WILL THE ALTERNATIVE REDEMPTION AMOUNT BE CALCULATED?
The alternative redemption amount per $1,000 note is equal to the product
of:
(1) $1,000; and
(2) the average level of the underlying basket, calculated as set forth
below, divided by 100, which is the initial level of the underlying
basket.
The average level of the underlying basket is equal to the arithmetic
average of the levels of the underlying basket on:
December 25, 2001 March 25, 2002 June 25, 2002 September 25, 2002
December 25, 2002 March 25, 2003 June 25, 2003 September 25, 2003
December 25, 2003 March 25, 2004 June 25, 2004 September 25, 2004
December 25, 2004 March 25, 2005 June 25, 2005 September 25, 2005
December 25, 2005 March 25, 2006 June 25, 2006
When one of these dates is not a business day, the level of the underlying
basket on the next date on which the level of the underlying basket can be
calculated will be used. The level of the underlying basket will include any
cash included in the underlying basket as a result of extraordinary corporate
transactions involving the issuers of the common stocks or other equity
securities. See "Description of the Notes--Determination of alternative
redemption amount" for details.
EXAMPLES OF FINAL PAYMENT AT MATURITY
Below are four examples of hypothetical calculations of the amount payable
on the stated maturity date. If you hold the notes until the stated maturity
date, you will receive at least $1,000 per $1,000 note.
EXAMPLE 1: Assuming for purposes of this example that the level of the
underlying basket increases during the first ten quarters and then decreases
back to its initial level by maturity and the average level of the underlying
basket is 125.7.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTER INDEX LEVEL OF UNDERLYING BASKET
0 100
1 108
2 112
3 115
4 120
5 123
6 130
7 135
8 139
9 143
10 150
11 143
12 139
13 135
14 130
15 123
16 120
17 115
18 108
19 100
Alternative redemption 125.7
amount per $1,000 note = $1,000 x ---- = $1,257
100
Final payment at maturity = $1,257
As a result, on the stated maturity date, you would receive $1,257 per
$1,000 note because that amount is greater than the minimum amount
payable of $1,000 per $1,000 note.
EXAMPLE 2: Assuming for purposes of this example that the level of the
underlying basket steadily increases from its initial level through maturity and
the average level of the underlying basket is 149.9.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTER INDEX LEVEL OF UNDERLYING BASKET
0 100
1 108
2 115
3 118
4 120
5 125
6 135
7 141
8 147
9 150
10 155
11 156
12 160
13 164
14 170
15 172
16 176
17 177
18 179
19 180
Alternative redemption 149.9
amount per $1,000 note = $1,000 x ---- = $1,499
100
Final payment at maturity = $1,499
As a result, on the stated maturity date, you would receive $1,499 per
$1,000 note because that amount is greater than the minimum amount
payable of $1,000 per $1,000 note.
S-4
EXAMPLE 3: Assuming for purposes of this example that the level of the
underlying basket decreases from its initial level through maturity and the
average level of the underlying basket is 77.6.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTER INDEX LEVEL OF UNDERLYING BASKET
0 100
1 108
2 115
3 103
4 98
5 95
6 88
7 74
8 80
9 78
10 65
11 70
12 70
13 68
14 67
15 65
16 60
17 59
18 57
19 55
Average
Alternative redemption 77.6
amount per $1,000 note = $1,000 x ---- = $776
100
Final payment at maturity = $1,000
As a result, on the stated maturity date, you would receive the minimum
amount payable of $1,000 per $1,000 note because that amount is greater than
$776.
EXAMPLE 4: Assuming for purposes of this example that the level of the
underlying basket decreases during most of the term of the notes and then
increases back above its initial level and the average level of the underlying
basket is 85.0.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTER INDEX LEVEL OF UNDERLYING BASKET
0 100
1 94
2 92
3 88
4 76
5 80
6 73
7 70
8 77
9 80
10 72
11 67
12 65
13 75
14 82
15 90
16 96
17 103
18 115
19 120
Alternative redemption 85.0
amount per $1,000 note = $1,000 x ---- = $850
100
Final payment at maturity = $1,000
As a result, on the stated maturity date, you would receive the minimum
amount payable of $1,000 per $1,000 note because that amount is greater than
$850.
To the extent the actual average level of the underlying basket differs from
the levels assumed above, the results indicated above would be different.
HOW HAS THE UNDERLYING BASKET PERFORMED HISTORICALLY?
The information on page S-22 shows the performance of the underlying basket
over the 4 3/4 year period commencing on September 30, 1996 and ending on
June 30, 2001. This historical information is provided to help you evaluate the
behavior of the underlying basket 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 underlying basket or the
notes will perform in the future.
WHAT CHANGES WILL OCCUR IN THE UNDERLYING BASKET?
Changes will not be made to the underlying basket unless an issuer whose
common stock or other equity security is included in the underlying basket
engages in an extraordinary transaction. For example, if an issuer is not the
surviving entity in a merger, the issuer's common stock or other equity security
will be removed from the underlying basket and the underlying basket will then
include equity securities of the successor entity or cash received in the
merger. Any cash received will accrue interest at a rate equal to LIBOR. Also as
an example, if an issuer distributes equity securities of a subsidiary to
shareholders, the subsidiary's equity securities will then be added to the
underlying basket. See "The Underlying Basket--Adjustments to the multipliers
and the underlying basket."
HOW WILL I BE ABLE TO FIND THE CURRENT LEVEL OF THE UNDERLYING BASKET?
The level of the underlying basket will be calculated and disseminated by
the American Stock Exchange under the symbol "PHP".
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-8.
S-5
WHAT IS THE CREDIT RATING OF LEHMAN BROTHERS HOLDINGS' SENIOR DEBT SECURITIES?
The senior unsecured debt securities of Lehman Brothers Holdings are
currently rated "A" by Standard & Poor's, a division of McGraw-Hill, Inc., and
"A2" by Moody's Investors Service. A rating is not a recommendation to purchase,
hold or sell securities, since a rating does not address market price or
suitability for a particular investor. A rating of debt securities addresses the
likelihood of the payment of principal and interest on the securities in
accordance with their terms. Lehman Brothers Holdings cannot assure you that
these ratings will not be changed or withdrawn by the rating agencies.
WHAT ABOUT TAXES?
The notes will be subject to U.S. Treasury regulations that apply to
contingent payment debt instruments. As a result, even though no payments will
be made on the notes before maturity, you will be subject to federal income tax
on the accrual of original issue discount in respect of the notes. In addition,
gain or, to some extent, loss on the sale, exchange or other disposition 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." and
"Where You Can Find More Information" on pages 2 and 6 of the accompanying
prospectus.
WHAT IS THE ROLE OF PRUDENTIAL SECURITIES?
Prudential Securities is the lead underwriter for the offering and sale of
the notes. Prudential Securities Equity Research Department has selected the
twenty common stocks and other equity securities of companies in the healthcare
industry which comprise the underlying basket. Prudential Securities currently
does not intend to create a secondary market in the notes.
WHAT IS THE ROLE OF LEHMAN BROTHERS INC.?
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings, is an
underwriter for the offering and sale of the notes. Lehman Brothers Inc. will
also be the initial calculation agent for purposes of calculating the amount
payable to you. 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 initial 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. Lehman Brothers Inc.
actively makes a market in equity-linked notes in the ordinary course of its
business.
S-6
WILL THE NOTES BE LISTED ON A STOCK EXCHANGE?
The notes have been approved for listing on the American Stock Exchange
under the trading symbol "PSP.B". Due to the World Trade Center attacks, the
American Stock Exchange has temporarily
suspended trading in debt securities and expects to resume trading on or about
October 1, 2001. You should be aware that the listing of the notes on the
American Stock Exchange will not necessarily ensure that a liquid trading market
will be available for the notes.
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 registered in the name of The Depository Trust Company or its
nominee. This means that you will not receive a certificate for your notes.
S-7
RISK FACTORS
You should carefully consider the risk factors set forth below as well as
the other information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated herein by reference before deciding
whether an investment in the notes is suitable for you in light of your
particular investment objectives and financial circumstances. As described in
more detail below, the trading price of the notes may vary considerably prior to
the stated maturity date due, among other things, to fluctuations in the price
of the common stocks and other equity securities that make up the underlying
basket 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 notes in light
of your particular circumstances.
THESE NOTES ARE DIFFERENT FROM CONVENTIONAL DEBT SECURITIES OF LEHMAN
BROTHERS HOLDINGS IN SEVERAL WAYS.
- THE YIELD MAY BE LOWER 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 be equal to or only slightly greater than $1,000 per $1,000 note, 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.
- IF THE AVERAGE LEVEL OF THE UNDERLYING BASKET IS LESS THAN 100, YOU WILL
ONLY RECEIVE $1,000 PER $1,000 NOTE ON THE STATED MATURITY DATE. This may
be true even if the level of the underlying basket significantly exceeds
100 at maturity or at some other time during the life of the notes because
the average level of the underlying basket must be greater than 100 before
the alternative redemption amount becomes greater than $1,000 per $1,000
note.
- NO PERIODIC INTEREST WILL BE PAID ON THE NOTES, BUT YOU WILL BE REQUIRED
TO INCLUDE ORIGINAL ISSUE DISCOUNT IN INCOME. 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 some adjustments. See "United States Federal Income Tax
Consequences."
YOUR RETURN ON THE NOTES COULD BE LESS THAN IF YOU OWNED THE COMMON STOCKS
OR OTHER EQUITY SECURITIES INCLUDED IN THE UNDERLYING BASKET.
- YOUR RETURN WILL NOT REFLECT DIVIDENDS ON THE COMMON STOCKS OR OTHER
EQUITY SECURITIES INCLUDED IN THE UNDERLYING BASKET. Your return on the
notes will not reflect the return you would realize if you actually owned
the common stocks or other equity securities included in the underlying
basket and received the dividends paid on those common stocks and other
equity securities. This is because the calculation agent will calculate
the amount payable to you by reference to the prices of the common stocks
and other equity securities included in the underlying basket without
taking into consideration the value of dividends paid on those common
stocks and other equity securities.
- THE AVERAGE LEVEL OF THE UNDERLYING BASKET BASED ON QUARTERLY CALCULATION
DATES MAY BE LESS THAN THE LEVEL OF THE UNDERLYING BASKET AT THE STATED
MATURITY DATE OF THE NOTES OR AT OTHER TIMES DURING THE TERM OF THE
NOTES. Because the average level of the underlying basket will be
calculated based on the level of the underlying basket on nineteen
quarterly dates, the level of the underlying basket at the stated maturity
date or at other times during the term of the notes could be higher than
the average level of the underlying basket as so calculated. This
difference could be particularly large if there is
S-8
a significant increase in the level of the underlying basket during the
latter portion of the term of the notes.
BECAUSE THE UNDERLYING BASKET IS COMPOSED OF STOCKS OF COMPANIES IN THE
HEALTHCARE INDUSTRY, YOUR RETURN ON THE NOTES WILL BE SUBJECT TO RISKS AFFECTING
THE HEALTHCARE INDUSTRY.
- HEALTHCARE COMPANY STOCK PRICES HAVE BEEN AND WILL LIKELY CONTINUE TO BE
EXTREMELY VOLATILE. The trading prices of the stocks of healthcare
companies have been and are likely to be extremely volatile. Healthcare
companies' stock prices could be subject to wide fluctuations in response
to a variety of factors, including:
- changes in governmental support of healthcare services;
- changes in the method by which healthcare services are delivered;
- changes in the prices for healthcare services;
- announcements of technological innovations or new commercial products;
- developments in patent or proprietary rights;
- government regulatory initiatives;
- public concern as to the safety or other implications of healthcare
products;
- fluctuations in quarterly financial results; and
- market conditions.
- HEALTHCARE COMPANIES FACE UNCERTAINTY WITH RESPECT TO PRICING AND THIRD
PARTY REIMBURSEMENT. Healthcare companies will continue to be affected by
the efforts of governments and third party payors, such as government
health organizations, private health insurers and health maintenance
organizations, to contain or reduce health care costs. For example, in
certain foreign markets pricing or profitability of healthcare products
and technologies is subject to control. In the United States, there has
been, and there will likely to continue to be, a number of federal and
state proposals to implement similar government control. Also, an
increasing emphasis on managed health care in the United States will
continue to put pressure on the pricing of the products and technologies
of healthcare companies. The announcement or adoption of such proposals
could have a material adverse affect on a healthcare companies' business
and financial condition. Further, the sales of the products of many
healthcare companies are often dependent, in part, on the availability of
reimbursement from third party payors. Third party payors are increasingly
challenging the prices charged for healthcare products and technologies
and denying or limiting coverage for new products.
- HEALTHCARE COMPANIES ARE GENERALLY SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION. The healthcare industry is highly regulated at the local,
state and federal level. Healthcare companies are subject to the risk of
changes in various local, state, federal and international laws, which
include the operating and security standards of the United States Drug
Enforcement Administration, the Food and Drug Administration, various
state boards of pharmacy and comparable agencies. The healthcare
regulatory environment may change in a manner that could restrict the
healthcare companies' existing operations, limit the expansion of their
businesses or otherwise affect them adversely.
Moreover, many of the pharmaceutical and biotechnology products offered by
some of the healthcare companies included in the underlying basket will
require extensive pre-clinical testing, clinical trials, other testing,
government review and final approval before any marketing of the product
will be permitted. This procedure could take a number of years and
involves the expenditure of substantial resources. The failure to obtain
necessary government approvals, the restriction of existing approvals,
loss of or changes to previously obtained approvals or the failure to
comply
S-9
with regulatory requirements could result in fines, unanticipated
expenditures, product delays, non-approval or recall, interruption of
production and even criminal prosecution.
- LITIGATION INVOLVING PATENT AND PROPRIETARY RIGHTS AND PRODUCT LIABILITY
IMPOSE SIGNIFICANT COSTS ON HEALTHCARE COMPANIES. The success of many
healthcare companies is highly dependent on a healthcare company's ability
to obtain patents on current and future products and technologies, to
defend its existing patents and trade secrets and operate in a manner that
does not infringe on the proprietary rights of other healthcare companies.
Patent disputes are frequent and can preclude the successful commercial
introduction of products and technologies. As a result, there is
significant litigation in the healthcare industry regarding patent and
other intellectual property rights. Moreover, the testing, manufacturing,
marketing and sale of many of the products and technologies developed by
healthcare companies inherently expose healthcare companies to potential
product liability risks. Such litigation is costly and could subject a
healthcare company to significant liabilities to third parties.
- RESULTS OF RESEARCH AND DEVELOPMENT OF NEW PRODUCTS AND TECHNOLOGIES ARE
UNPREDICTABLE. Successful product or technology development in the
healthcare industry is very uncertain and only a small number of research
and development programs will result in the marketing and sale of a new
product or technology. Many products and technologies that appear
promising may fail to reach the market for many reasons, including results
indicating lack of effectiveness or harmful side effects in clinical or
pre-clinical testing, failure to receive necessary regulatory approvals,
uneconomical manufacturing costs or competing proprietary rights. In
addition, there is no certainty that any product or technology in
development will achieve market acceptance from the medical community,
third party payors or individual users. Delays or unanticipated increases
in costs of development at any stage of development, or failure to obtain
regulatory approval or market acceptance of products could adversely
affect a healthcare company's results and financial condition.
- THE INTERNATIONAL OPERATIONS OF MANY HEALTHCARE COMPANIES EXPOSE THEM TO
RISKS ASSOCIATED WITH INSTABILITY AND CHANGES IN ECONOMIC AND POLITICAL
CONDITIONS, FOREIGN CURRENCY FLUCTUATIONS, CHANGES IN FOREIGN REGULATIONS
AND OTHER RISKS INHERENT TO INTERNATIONAL BUSINESS. Many healthcare
companies have international operations and derive substantial revenue
from international sales. The risks of international business that the
companies are exposed to include the following:
- general economic, social, and political conditions;
- the difficulty of enforcing intellectual property rights;
- agreements and collecting receivables through certain foreign legal
systems;
- differing tax rates, tariffs, exchange controls, or other similar
restrictions;
- volatility of currency markets and value of worldwide financial markets;
and
- changes in, and compliance with, domestic and foreign laws and
regulations which impose a range of restrictions on operations, trade
practices, foreign trade and international investment decisions.
- THE HEALTHCARE INDUSTRY MAY UNDERPERFORM THE OVERALL MARKET. Because of
the risks associated with investments in healthcare companies, there is a
possibility that the healthcare industry may underperform both the overall
market and other sectors of the market. Such an occurrence would have a
material impact on the performance of the underlying basket and the value
of the notes.
S-10
HISTORICAL VALUES OF THE TWENTY COMMON STOCKS AND OTHER EQUITY SECURITIES
SHOULD NOT BE TAKEN AS AN INDICATION OF THE FUTURE PERFORMANCE OF THE UNDERLYING
BASKET DURING THE TERM OF THE NOTES.
The trading prices of the common stocks and other equity securities included
in the underlying basket and any cash included in the underlying basket will
determine the level of the underlying basket. As a result, it is impossible to
predict what the level of the underlying basket will equal on the stated
maturity date. Trading prices of the common stocks and other equity securities
included in the underlying basket 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 and
other equity securities themselves.
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 level of the underlying basket 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 prior to stated
maturity may be at a discount, which could be substantial, from their principal
amount, if, at that time, the level of the underlying basket is less than, equal
to, or not sufficiently above the underlying basket's initial level of 100. A
change in a specific factor could have the following impacts on the market value
of the notes, assuming all other conditions remain constant.
- VALUE OF THE UNDERLYING BASKET. Lehman Brothers Holdings expects that the
market value of the notes will depend substantially on the amount, if any,
by which the average level of the underlying basket at any given time
exceeds the initial level of the underlying basket. If you decide to sell
your notes when the average level of the underlying basket exceeds the
initial level of the underlying basket, you may nonetheless receive
substantially less than the amount that would be payable at stated
maturity based on that average level of the underlying basket because of
expectations that the underlying basket will continue to fluctuate until
the alternative redemption amount is determined. Political, economic and
other developments that affect the stocks included in the underlying
basket may also affect the level of the underlying basket and, thus, the
value of the notes.
- INTEREST RATES. The trading value of the notes will be affected by changes
in interest rates. In general, if U.S. interest rates increase, the
trading value of the notes may be adversely affected, and if U.S. interest
rates decrease, the trading value of the notes may be favorably affected.
- VOLATILITY OF THE UNDERLYING BASKET. Volatility is the term used to
describe the size and frequency of market fluctuations. If the volatility
of the underlying basket changes, the trading value of the notes may be
adversely affected. The value of the underlying basket declined
significantly in the immediate aftermath of the recent terrorist attacks
in New York, NY and Washington, D.C., and we are unable to predict the
effect of these events or related events on the future value or volatility
of the underlying basket.
- MERGER AND ACQUISITION TRANSACTIONS. Some of the common stocks or other
equity securities included in the underlying basket may be affected by
mergers and acquisitions or other corporate activities, which can
contribute to volatility of the underlying basket. Additionally, as a
result of a merger or acquisition or other corporate activity, one or more
common stocks or other equity securities included in the underlying basket
may be replaced in the underlying basket 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 or other equity
security originally included in the underlying basket.
- 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.
S-11
- DIVIDEND YIELDS. If dividend yields on the underlying common stocks or
other equity securities included in the underlying basket increase, the
value of the notes may be adversely affected, since the value of the
underlying basket does not incorporate the value of those payments.
- LEHMAN BROTHERS HOLDINGS' CREDIT RATINGS, FINANCIAL CONDITION AND
RESULTS. Actual or anticipated changes in Lehman Brothers Holdings' credit
ratings, financial condition or results may adversely affect the market
value of the notes.
- ECONOMIC CONDITIONS AND EARNINGS PERFORMANCE OF UNDERLYING
COMPANIES. General economic conditions and earnings results of the
companies whose common stocks or other equity securities are included in
the underlying basket, 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 level of the underlying basket. 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.
LEHMAN BROTHERS HOLDINGS CANNOT CONTROL ACTIONS BY THE COMPANIES WHOSE
COMMON STOCKS OR OTHER EQUITY SECURITIES ARE INCLUDED IN THE UNDERLYING BASKET.
Actions by any company whose common stock or other equity security is part
of the underlying basket may have an adverse effect on the price of the
underlying security, the underlying basket and the notes. In addition, these
companies are not involved in the offering of notes and have no obligations with
respect to the notes, including any obligation to take Lehman Brothers Holdings'
or your interests into consideration for any reason.
THE ISSUERS OF THE SECURITIES COMPRISING THE UNDERLYING BASKET HAVE NO
OBLIGATIONS WITH RESPECT TO THE NOTES.
The issuers of the securities comprising the underlying basket will not
receive any of the proceeds of the offering of the notes made hereby and are not
responsible for, and have not participated in, the determination of the timing
of, prices for, or quantities of, the notes to be issued. These companies are
not involved with the administration, marketing or trading of the notes and have
no obligations with respect to the amount to be paid to you on the stated
maturity date. Lehman Brothers Holdings is solely responsible for the amount to
be paid to you on the stated maturity date.
YOU WILL NOT HAVE ANY RIGHTS IN THE SECURITIES COMPRISING THE UNDERLYING
BASKET.
Although the size of the alternative redemption amount is based upon the
performance of the twenty securities comprising the underlying basket, you will
have no rights in these securities, either before or at the stated maturity of
the notes.
PURCHASES AND SALES OF THE COMMON STOCKS OR OTHER EQUITY SECURITIES INCLUDED
IN THE UNDERLYING BASKET BY LEHMAN BROTHERS HOLDINGS, PRUDENTIAL SECURITIES AND
THEIR AFFILIATES COULD AFFECT THE PRICES OF THOSE COMMON STOCKS OR OTHER EQUITY
SECURITIES OR THE LEVEL OF THE UNDERLYING BASKET.
Lehman Brothers Holdings and its affiliates, including Lehman
Brothers Inc., and Prudential Securities and its affiliates may from time to
time buy or sell the common stocks or other equity securities included in the
underlying basket or derivative instruments related to those common stocks or
other equity securities 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 other equity securities or the level of the underlying basket.
S-12
POTENTIAL CONFLICTS OF INTEREST EXIST BECAUSE LEHMAN BROTHERS HOLDINGS
CONTROLS LEHMAN BROTHERS INC., WHICH WILL ACT AS THE INITIAL CALCULATION AGENT.
Lehman Brothers Inc. will, among other things, also act as the initial
calculation agent, which determines the amount you will receive on the notes,
whether adjustments should be made to the multipliers and the underlying basket
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," "--Calculation agent" and "The Underlying
Basket--Adjustments to the multipliers and the underlying basket."
YOU WILL BE REQUIRED TO INCLUDE ORIGINAL ISSUE DISCOUNT IN INCOME.
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 or other disposition of the notes. See "United States Federal
Income Tax Consequences."
INCLUSION OF ANY INDIVIDUAL SECURITY IN THE UNDERLYING BASKET IS NOT AN
INVESTMENT RECOMMENDATION FOR THE ISSUER OF THAT SECURITY.
Investors and market participants should not conclude that the inclusion of
any individual security in the underlying basket is any form of investment
recommendation for the issuer of that security as a stand-alone investment.
THERE MAY NOT BE A LIQUID SECONDARY MARKET FOR THE NOTES.
After the initial offering, Lehman Brothers Inc. intends to buy and sell
notes to create a secondary market in 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. Prudential Securities
currently does not intend to create a secondary market in the notes. In
addition, the listing of the notes on the American Stock Exchange will not
necessarily ensure that a liquid trading market will be available for the notes.
Due to the World Trade Center attacks, the American Stock Exchange has
temporarily suspended trading in debt securities and expects to resume trading
on or about October 1, 2001.
S-13
USE OF PROCEEDS AND HEDGING
An amount equal to approximately 57% of the proceeds to be received by
Lehman Brothers Holdings from the sale of the notes 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 and other
equity securities that make up the underlying basket. 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 or other equity securities 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 prior to the maturity of
the notes, depending on market conditions, including the market price of the
common stocks and other equity securities that are included in the underlying
basket, 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 other
equity securities or in listed or over-the-counter options contracts or other
derivative or synthetic instruments related to those common stocks or 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 the common stocks or other equity
securities that make up the underlying basket, or option contracts or other
derivative or synthetic instruments related to those common stocks or other
equity securities, 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 or other
equity securities that are included in the underlying basket. 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 price of the common
stocks and other equity securities that comprise the underlying basket and,
accordingly, increase or decrease the level of the underlying basket. 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 or other equity
securities that comprise the underlying basket, these activities could have such
an effect.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the ratio of consolidated earnings to fixed
charges for Lehman Brothers Holdings for the periods indicated. For purposes of
this table, "earnings" consist of earnings from continuing operations before
income taxes and fixed charges; and "fixed charges" consist principally of
interest expense, capitalized interest and the interest factor in rentals.
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------- SIX MONTHS ENDED
1996 1997 1998 1999 2000 MAY 31, 2001
---- -------- -------- -------- -------- ----------------
1.06 1.07 1.07 1.12 1.14 1.13
S-14
DESCRIPTION OF THE NOTES
GENERAL
You will find information about the notes in two separate documents that
progressively provide more detail:
- the accompanying prospectus; and
- this prospectus supplement.
Since 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 issue up to $21,000,000 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. The minimum initial investment amount is $1,000.
INTEREST
No interest is payable on the notes or the principal amount thereof. Even
though no payments will be made on the notes before maturity, you will be
subject to federal income tax on the accrual of original issue discount with
respect to the notes. See "United States Federal Income Tax Consequences."
PAYMENT ON THE STATED MATURITY DATE
The notes will mature on July 2, 2006, unless postponed because a market
disruption event occurs; see "--Determination of alternative redemption amount"
and "--Market disruption events" below. You will be entitled to receive per
note, on the stated maturity date, the greater of:
- $1,000; and
- the alternative redemption amount, as described below.
If the alternative redemption amount is less than or equal to $1,000 per
$1,000 note, you will receive the principal amount of $1,000 per $1,000 note on
the stated maturity date.
DETERMINATION OF ALTERNATIVE REDEMPTION AMOUNT
The alternative redemption amount per $1,000 note is equal to the product
of:
(1) $1,000; and
(2) the average level of the underlying basket, calculated as set forth
below, divided by 100, which is the initial level of the underlying
basket.
S-15
The average level of the underlying basket is equal to the arithmetic
average of the levels of the underlying basket on:
December 25, 2001 March 25, 2002 June 25, 2002 September 25, 2002
December 25, 2002 March 25, 2003 June 25, 2003 September 25, 2003
December 25, 2003 March 25, 2004 June 25, 2004 September 25, 2004
December 25, 2004 March 25, 2005 June 25, 2005 September 25, 2005
December 25, 2005 March 25, 2006 June 25, 2006
When one of these dates is not a business day, the level of the underlying
basket on the next date on which the level of the underlying basket can be
calculated will be used.
The average level of the underlying basket will be determined by the
calculation agent and will be based on the closing prices of the common stocks
and other equity securities included in the underlying basket, and any cash
included in the underlying basket, on the dates specified in the preceding
paragraph. If, for purposes of determining the closing level of the underlying
basket, a market disruption event for any underlying common stock or other
equity security occurs on the day on which the closing prices are to be
determined, then the price of that common stock or other equity security will
initially be determined using the closing price on the previous business day on
which there was not a market disruption event. The closing price that was
initially determined will then be adjusted, once a market disruption event
ceases to exist, to equal the average execution price an affiliate of Lehman
Brothers Holdings receives upon the sale of that common stock or other equity
security used to hedge Lehman Brothers Holdings' obligations under the notes. If
a market disruption event occurs on June 25, 2006 (or if June 25, 2006 is not a
business day, on the next business day on which the level of the underlying
basket can be calculated), the payment you receive on the notes will be
postponed until five business days after the date that the Lehman Brothers
Holdings affiliate completes such sale.
If any of the common stocks or other equity securities included in the
underlying basket are listed or traded on a bulletin board on a date specified
above, the value of those common stocks or other equity securities will be
determined using the average execution price that an affiliate of Lehman
Brothers Holdings receives upon the sale of those common stocks or other equity
securities used to hedge Lehman Brothers Holdings' obligations under the notes.
"Closing prices" means the closing prices on the relevant exchange, trading
system or market at 4:00 p.m., New York City time.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical average levels
of the underlying basket:
- the hypothetical average level of the underlying basket;
- the hypothetical alternative redemption amount per $1,000 note;
- the percentage change of hypothetical alternative redemption amount over
the principal amount;
- the hypothetical total amount payable at stated maturity per $1,000 note;
- the hypothetical pre-tax total rate of return; and
- the hypothetical annualized pre-tax rate of return, assuming a 4 3/4 year
maturity.
S-16
PERCENTAGE CHANGE OF
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
AVERAGE ALTERNATIVE ALTERNATIVE TOTAL AMOUNT HYPOTHETICAL ANNUALIZED
LEVEL OF THE REDEMPTION REDEMPTION AMOUNT PAYABLE AT PRE-TAX TOTAL PRE-TAX
UNDERLYING AMOUNT OVER THE PRINCIPAL STATED MATURITY RATE RATE
BASKET PER $1,000 NOTE AMOUNT PER $1,000 NOTE OF RETURN OF RETURN
--------------------- --------------- -------------------- --------------- -------------- ------------
40 $ 400 -60.0% $1,000 0.0% 0.0%
60 600 -40.0 1,000 0.0 0.0
80 800 -20.0 1,000 0.0 0.0
100 1,000 0.0 1,000 0.0 0.0
120 1,200 20.0 1,200 20.0 3.9
140 1,400 40.0 1,400 40.0 7.3
160 1,600 60.0 1,600 60.0 10.4
180 1,800 80.0 1,800 80.0 13.2
200 2,000 100.0 2,000 100.0 15.7
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 average level of the underlying basket and the
alternative redemption amount determined by the calculation agent. In
particular, the actual average level of the underlying basket could be lower or
higher than those reflected in the table.
The following graph shows the total return with respect to the notes for a
range of hypothetical average levels of the underlying basket.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
AVERAGE LEVEL OF UNDERLYING BASKET TOTAL RETURN
40 0.00%
60 0.00%
80 0.00%
100 0.00%
120 20.00%
140 40.00%
160 60.00%
180 80.00%
200 100.00%
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 an investment in the notes may be
higher or lower than the return available on other securities issued by Lehman
Brothers Holdings or by others. You should reach an investment decision only
after carefully considering the suitability of the notes in light of your
particular circumstances.
MARKET DISRUPTION EVENTS
A market disruption event with respect to a common stock or other equity
security included in the underlying basket will occur on any day if the
calculation agent determines that:
- A suspension, absence or material limitation of trading in that common
stock or other equity security 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 that security is traded or, in the case of a
common stock or other equity security 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 the rules of any primary organized U.S. exchange or
trading system similar to New York Stock Exchange Rule 80B or any
applicable rule or regulation enacted or promulgated by the New
S-17
York Stock Exchange, any other exchange, trading system or market, any
other self regulatory organization or the SEC of similar scope or as 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.
- 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 that
common stock or other equity security, 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.
- 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
that common stock or other equity security or in respect of options
contracts related to that common stock or other equity security, 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:
- 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;
- any suspension in trading in an options contract on that common stock or
other equity security by a major securities exchange, trading system or
market by reason of:
- a price change violating limits set by such securities market
- an imbalance of orders relating to those contracts or
- 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;
- 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
- "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
S-18
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
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. The terrorist attacks in New York, NY and Washington, D.C. on
September 11, 2001 caused all of the principal U.S. exchanges and trading
systems including, among others, the New York Stock Exchange, the Nasdaq
National Market and the American Stock Exchange, to suspend trading after the
attacks. Trading on the Chicago Mercantile Exchange resumed on September 12,
2001. Trading of equity securities on the New York Stock Exchange, the Nasdaq
National Market and the American Stock Exchange resumed on September 17, 2001.
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.
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 institution to serve
as 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 date of the notes. The calculation agent will determine the alternative
redemption amount and whether you will receive the alternative redemption amount
or the $1,000 minimum amount payable on each note.
In addition, the calculation agent will determine:
- the level of the underlying basket at the end of each quarterly period;
see "The Underlying Basket--Maintenance of the underlying basket";
- if adjustments are required to the multipliers or the underlying basket
under various circumstances; see "The Underlying Basket--Adjustments to
the multipliers and the underlying basket"; and
- whether a market disruption event has occurred; see "--Market disruption
events."
Furthermore, if the American Stock Exchange is unable to obtain certain
information necessary for its daily calculation and dissemination of the level
of the underlying basket, the calculation agent will provide the necessary
information. See "The Underlying Basket--Maintenance of the underlying basket."
For these purposes, including calculation of the alternative redemption amount,
the calculation agent will use the following procedures:
- For determining the value of a foreign common stock or other equity
security included in the underlying basket as a result of a merger or
consolidation or otherwise (as described in "The Underlying
Basket--Adjustments to the multipliers and the underlying basket"), the
calculation agent will, once a day, value the underlying security using
the most recent sales price available from the primary exchange, trading
system or market in the home market quoted as of 4:00 p.m., New York City
time, for the foreign common stock or other equity security.
- For determining the applicable foreign exchange conversion rate for any
foreign common stock or other equity security included in the underlying
basket, the calculation agent will use the appropriate official W.M.
Reuters spot closing rates, if available, to convert non-U.S. traded
securities prices from the respective countries' currencies to U.S.
dollars. If there are several quotes, the first quoted
S-19
rate in that minute will be used to calculate the underlying basket. In
the event there is no such exchange rate for a country's currency at 11:00
a.m., New York City time, securities will be valued at the last available
dollar cross-rate quote before 11:00 a.m., New York City time.
- For determining the value of a common stock or other equity security that
is listed or quoted on a bulletin board service, the calculation agent
will:
- when calculating the alternative redemption amount or the level of the
underlying basket for the end of each quarterly period, use the average
execution price that an affiliate of Lehman Brothers Holdings receives
upon a sale of that common stock or other equity security used to hedge
Lehman Brothers Holdings' obligations under the notes; and
- when calculating the value of the underlying basket each day, the
calculation agent will use the average of the midpoint of the bid and ask
prices provided by three market makers in that common stock or other
equity security.
The calculation agent will normally obtain the bid and ask prices promptly
upon the opening of trading on that day.
- For determining the value of other property, an equity security that is
not traded or listed on an exchange, trading system or market or a
non-equity security if an event occurs as described in "The Underlying
Basket--Adjustments to the multipliers and the underlying basket," the
calculation agent will determine, as soon as reasonably practicable after
the date the property or security is received, the fair market value of
that property or security based on the average execution price that an
affiliate of Lehman Brothers Holdings receives upon a sale of that
property or security used to hedge Lehman Brothers Holdings' obligations
under the notes.
- For determining the value of any common stock or other equity security
included in the underlying basket, the "close of business" or "at closing"
means 4:00 p.m., New York City time.
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 or the
alternative redemption amount calculated as though the date of acceleration was
the stated maturity date and five business days before that date was the date
for determining the level of the underlying basket for the last quarterly
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 five business days
before that date was the date for determining the level of the underlying basket
for the last quarterly period. See "Description of Debt Securities--Defaults"
beginning on page 13 of the accompanying prospectus.
S-20
THE UNDERLYING BASKET
The underlying basket is composed of twenty publicly traded common stocks
and other equity securities of companies in the healthcare industry selected by
Prudential Securities Equity Research Department. Prudential Securities Equity
Research Department has selected a basket of common stocks and other equity
securities that it believes to be an attractive investment over the term of the
notes, based upon its current view of economic conditions, including consumer
spending and business confidence, during this period. Each of the twenty common
stocks and other equity securities is weighted equally with an initial weighting
of 5.0%. The initial multiplier, or number of shares of each security initially
included in the underlying basket, is equal to the initial weighting divided by
the closing price of the security on the date of this prospectus supplement. See
"--Adjustments to the multipliers and the underlying basket."
THE TWENTY COMMON STOCKS AND OTHER EQUITY SECURITIES COMPRISING THE UNDERLYING
BASKET
The underlying basket will represent a weighted portfolio of the twenty
common stocks and other equity securities in the underlying basket. The level of
the underlying basket will increase or decrease depending on the performance of
the common stocks and other equity securities that make up the underlying basket
from time to time.
As the values of the common stocks and other equity securities change over
time, these weightings will also change, but the number of shares of each
security initially included in the underlying basket will not change except in
the event of certain extraordinary transactions involving the issuers of the
shares. See "--Adjustments to the multipliers and the underlying basket."
The twenty common stocks and other equity securities in the underlying
basket, their principal U.S. trading markets, their principal U.S. exchange
stock symbols, their initial weightings, their approximate market
capitalizations and closing prices, and their initial multipliers are as
follows:
INITIAL
PRINCIPAL MARKET MULTIPLIER
U.S. TRADING STOCK INITIAL CAPITALIZATION CLOSING (NUMBER OF
COMPANY MARKET SYMBOL WEIGHTING ($ BILLIONS) STOCK PRICE SHARES)
------- ------------ --------- --------- ---------------- -------------- ----------
Abbott Laboratories............ NYSE ABT 5.00% $75.2 $48.45 0.1032
Aetna Inc...................... NYSE AET 5.00 3.9 27.20 0.1838
American Home Products
Corporation.................. NYSE AHP 5.00 73.8 56.03 0.0892
Amgen Inc...................... Nasdaq AMGN 5.00 59.2 56.50 0.0885
Baxter International Inc....... NYSE BAX 5.00 30.3 51.41 0.0973
Bristol-Myers Squibb Company... NYSE BMY 5.00 101.0 52.12 0.0959
Cardinal Health, Inc........... NYSE CAH 5.00 31.4 69.70 0.0717
Eli Lilly and Company.......... NYSE LLY 5.00 86.8 77.20 0.0648
Forest Laboratories, Inc....... NYSE FRX 5.00 12.2 68.89 0.0726
Genentech, Inc................. NYSE DNA 5.00 21.3 40.45 0.1236
Genzyme Corporation -- General
Division..................... Nasdaq GENZ 5.00 9.2 44.41 0.1126
Gilead Sciences, Inc........... Nasdaq GILD 5.00 5.0 52.38 0.0955
IMS Health Incorporated........ NYSE RX 5.00 7.6 25.50 0.1961
Johnson & Johnson.............. NYSE JNJ 5.00 161.1 52.94 0.0944
MedImmune, Inc................. Nasdaq MEDI 5.00 7.1 33.04 0.1513
Medtronic, Inc................. NYSE MDT 5.00 49.8 41.17 0.1214
Merck & Co., Inc............... NYSE MRK 5.00 142.9 62.45 0.0801
Pfizer Inc..................... NYSE PFE 5.00 233.4 36.98 0.1352
Serono S.A. (ADRs)(1).......... NYSE SRA 5.00 12.5 19.40 0.2577
WellPoint Health Networks
Inc.......................... NYSE WLP 5.00 6.5 101.95 0.0490
----
TOTAL.......................... 100%
--------------------------
The market capitalization in the table above was obtained from Bloomberg L.P.
(1) The underlying basket will include Serono S.A.'s American Depository
Receipts (ADRs), which are traded on the New York Stock Exchange. Serono
S.A.'s common stock trades on the Swiss Stock Exchange under the symbol
"SEO".
S-21
INFORMATION REGARDING THE ISSUERS OF THE COMMON STOCKS AND OTHER EQUITY
SECURITIES COMPRISING THE UNDERLYING BASKET
Annex A attached to this prospectus supplement contains certain information
regarding the issuers of the securities comprising the underlying basket, as
well as historical stock price information for these securities for each quarter
of 1999, 2000 and 2001 (through September 25).
HISTORICAL PERFORMANCE OF THE UNDERLYING BASKET
The performance of the underlying basket over the 4 3/4 year period
commencing on September 30, 1996 and ending on June 30, 2001 is shown below.
During this period, the underlying basket realized a total return of 306.7%.
Assuming that the level of the underlying basket on September 30, 1996 was 100,
the average of the levels of the underlying basket on the nineteen quarterly
dates would have been 247.5, which would equate to a total return of 147.5% and
an annualized rate of return of 21.0%. By comparison, during the same period,
the S&P 500 Index realized a total return of 78.1% and an annualized rate of
return of 12.9%, excluding cash dividends. The S&P Healthcare Index realized a
total return of 114.7% and an annualized rate of return of 17.4%, excluding cash
dividends, during the same period. The following graph presents the performance
of the underlying basket during this period:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUARTER INDEX VALUE
Underlying Basket S&P 500 Index S&P Healthcare Index
Sep-96 100.00 100.00 100.00
Dec-96 101.28 107.77 104.22
Mar-97 103.61 110.16 108.87
Jun-97 125.64 128.78 136.47
Sep-97 137.01 137.82 134.79
Dec-97 143.72 141.19 147.62
Mar-98 168.28 160.30 172.15
Jun-98 177.32 164.97 184.85
Sep-98 177.11 147.98 184.01
Dec-98 225.07 178.85 210.55
Mar-99 236.08 187.16 219.24
Jun-99 233.07 199.72 208.47
Sep-99 246.35 186.63 187.20
Dec-99 309.83 213.77 191.07
Mar-00 328.65 218.04 191.29
Jun-00 397.30 211.64 234.97
Sep-00 421.53 209.00 232.42
Dec-00 421.53 192.09 256.88
Mar-01 343.34 168.82 217.96
Jun-01 406.68 178.15 214.68
Note: The foregoing data was (i) calculated as if Serono S.A.'s common stock was
included in the underlying basket from September 1996 and its price was its
initial listing price at all times until its initial ADR listing in July 2000;
(ii) calculated as if Genentech, Inc.'s common stock was included in the
underlying basket from September 1996 and its price was its initial listing
price at all times until its initial listing in July 1999; (iii) adjusted to
reflect that holders of Baxter International Inc.'s common stock received one
share of Edwards Lifesciences Corp. for each five shares of Baxter
International Inc.'s common stock in connection with the spin-off of Edwards
Lifesciences Corp. on March 31, 2000; (iv) adjusted to reflect that holders of
Genzyme Corporation's common stock received (a) 0.17901 of a share of Genzyme
Surgical Products for each share of Genzyme Corporation's common stock in
connection with the spin-off of Genzyme Surgical Products on June 28, 1999, and
(b) 0.6060 of a share of Genzyme Biosurgery common stock for each share of
Genzyme Surgical Products in connection with the acquisition of Genzyme Surgical
Products by Genzyme Biosurgery on December 18, 2000; (v) adjusted to reflect
that holders of IMS Health Incorporated's common stock received one share of
Gartner Group Inc. for each share of IMS Health Incorporated's common stock in
connection with the July 27, 1999 spin-off of IMS Health Incorporated's 47%
stake in Gartner Group Inc.; and (vi) adjusted to reflect any stock split or
reverse stock split, extraordinary stock dividend or extraordinary stock
distribution. Although the table above reflects the inclusion of Edwards
Lifesciences Corp., Genzyme Surgical Products and Gartner Group in the
underlying basket from the dates of their
S-22
respective spin-offs, these stocks are not included in the actual basket
underlying the notes offered by this prospectus supplement. All information in
the graph above was obtained from FactSet Research Systems Inc.
The information above is provided to help you evaluate the historical
behavior of the underlying basket 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 underlying basket or the
notes will perform in the future. You should be aware that the initial level of
the underlying basket as of the date of this prospectus supplement will be reset
at 100.
MAINTENANCE OF THE UNDERLYING BASKET
The underlying basket represents a portfolio of the common stocks and other
equity securities of the twenty companies included in the underlying basket for
the 4 3/4 year period. The level of the underlying basket will increase or
decrease by the performance of the common stocks and other equity securities
that make up the underlying basket. The level of the underlying basket will also
include any cash in the underlying basket.
The American Stock Exchange will calculate and disseminate the level of the
underlying basket every 15 seconds via the Consolidated Tape Association Network
B. It will use, to the extent possible, the most recent sale prices of the
underlying common stocks and other equity securities reported by the primary
exchanges, trading systems or markets on which the common stocks and other
equity securities are listed or traded. At the beginning of each day that the
underlying basket is calculated, the initial level of the underlying basket will
be the same as the closing level of the underlying basket from the previous day
that the level of the underlying basket is calculated. As opening trades in the
underlying common stocks and other equity securities are reported by the primary
exchanges, trading systems or markets, these trades will be reflected in the
published basket, to the extent possible.
To the extent the American Stock Exchange is unable to obtain other
information as to values essential to the American Stock Exchange's calculation
and dissemination of the underlying basket of the above information is unable to
obtained, the calculation agent will provide that information to the American
Stock Exchange. See "Description of the Notes--Calculation agent" for a
description of the methods the calculation agent will use to determine those
values. The calculation process will continue throughout each day that the
underlying basket is calculated.
After the close of trading on each day that the underlying basket is
calculated, the underlying basket will continue to be updated to reflect the
effects of any corrections, cancellations or late reported sales until the time
at which the New York Stock Exchange disseminates its closing summary reports
showing closing prices. The closing summaries for the primary exchanges, trading
system or markets will generally be considered the definitive source of closing
price data when available. For purposes of determining the underlying basket
levels, "close of trading" or "closing" means 4:00 p.m., New York City time.
The underlying basket will be monitored daily for various types of corporate
actions that may require an adjustment to the underlying basket. See
"--Adjustments to the multipliers and the underlying basket."
Lehman Brothers Holdings or its affiliates, including Lehman Brothers Inc.,
and Prudential Securities or its affiliates may from time to time engage in
business with one or more of the issuers of the underlying common stocks or
other equity securities or with persons seeking to acquire these issuers. The
services provided may include advisory services to the issuers or other persons,
including merger and acquisition advisory services. In the course of its
business, Lehman Brothers Holdings or its affiliates, including Lehman
Brothers Inc., and Prudential Securities or its affiliates may acquire
non-public information with respect to these issuers. In addition, one or more
affiliates of Lehman Brothers Holdings or Prudential Securities may publish
research reports with respect to these issuers. The actions may directly
adversely affect the market prices of the underlying common stocks or other
equity securities.
S-23
THE MULTIPLIERS FOR THE COMMON STOCKS AND OTHER EQUITY SECURITIES INCLUDED IN
THE UNDERLYING BASKET
The multiplier for each common stock and other equity security included in
the underlying basket will be the number of shares, or fraction of a share, of
each common stock or other equity security required so that the market price of
that common stock or other equity security as of the date of this prospectus
supplement is equal to the percentage of the underlying basket shown in the
table on page S-21. The price used to determine the multiplier for each
underlying common stock and other equity security will be the closing price for
each security on the date of this prospectus supplement. The multiplier for each
security will remain constant for the term of the notes unless adjusted for the
extraordinary corporate events described below. Each multiplier will be rounded
at the calculation agent's discretion.
ADJUSTMENTS TO THE MULTIPLIERS AND THE UNDERLYING BASKET
Adjustments to a multiplier and the underlying basket will be made in the
circumstances described below. For purposes of these adjustments, except as
noted below, any ADRs, or American Depositary Receipts, are treated like common
stock if a comparable adjustment to the foreign shares underlying the ADRs is
made pursuant to the terms of the depository arrangement for the ADRs or if the
holders of ADRs are entitled to receive property in respect of the underlying
foreign share.
- If a common stock is subject to a stock split or reverse stock split, then
once the split has become effective, the multiplier relating to the common
stock will be adjusted. The multiplier will be adjusted to equal the
product of the number of shares outstanding after the split with respect
to each share immediately prior to effectiveness of the split and the
prior multiplier.
- If a common stock is subject to an extraordinary stock dividend or
extraordinary stock distribution that is given equally to all holders of
shares, then once the common stock is trading ex-dividend, the multiplier
will be increased by the product of the number of shares issued with
respect to one share and the prior multiplier.
- If the issuer of a common stock, or, in the case of an ADR, the issuer of
the underlying foreign share, is being liquidated or dissolved or is
subject to a proceeding under any applicable bankruptcy, insolvency or
other similar law, the common stock will continue to be included in the
underlying basket so long as the primary exchange, trading system or
market is reporting a market price for the common stock. If a market
price, including a price on a bulletin board service, is no longer
available for a common stock, then the value of the common stock will
equal zero for so long as no market price is available, and no attempt
will be made to find a replacement stock or increase the level of the
underlying basket to compensate for the deletion of that common stock.
- If the issuer of a common stock, or, in the case of an ADR, the issuer of
the underlying foreign share, has been subject to a merger or
consolidation and is not the surviving entity and holders of the
underlying common stock are entitled to receive cash, securities, other
property or a combination thereof in exchange for the common stock, then
the following will be included in the underlying basket:
-- To the extent cash is received, the underlying basket will include the
amount of the cash consideration at the time holders are entitled to
receive the cash consideration, plus accrued interest. Interest will
accrue beginning the first London business day after the day that
holders are entitled to receive the cash consideration until the stated
maturity date. Interest will accrue at a rate equal to LIBOR with a term
corresponding to the interest accrual period stated in the preceding
sentence.
-- To the extent that equity securities that are traded or listed on an
exchange, trading system or market are received, once the exchange for
the new securities has become effective, the former common stock will be
removed from the underlying basket and the new securities will be added
to the underlying basket. The multiplier for the new securities will
equal the product of the last
S-24
value of the multiplier of the original underlying common stock and the
number of securities of the new security exchanged with respect to one
share of the original common stock.
-- To the extent that equity securities that are not traded or listed on an
exchange, trading system or market or non-equity securities or other
property (other than cash) are received, the calculation agent will
determine the fair market value of the securities or other property
received and the underlying basket will include an amount of cash equal
to the product of the multiplier and the fair market value. The
underlying basket will also include accrued interest on that amount.
Interest will accrue beginning the first London business day after the
day that an affiliate of Lehman Brothers Holdings sells the securities
or other property used to hedge Lehman Brothers Holdings' obligations
under the notes until the stated maturity date. Interest will accrue at
a rate equal to LIBOR with a term corresponding to the interest accrual
period stated in the preceding sentence.
- If all of a common stock of an issuer is converted into or exchanged for
the same or a different number of shares of any class or classes of common
stock other than that common stock, whether by capital reorganization,
recapitalization or reclassification, then, once the conversion has become
effective, the former common stock will be removed from the underlying
basket and the new common stock will be added to the underlying basket.
The multiplier for each new common stock added to the underlying basket
will equal the product of the last value of the multiplier of the original
common stock and the number of shares of the new common stock issued with
respect to one share of the original common stock.
- If the issuer of a common stock, or, in the case of an ADR, the issuer of
the underlying foreign share, issues to all of its shareholders common
stock or another equity security that is traded or listed on an exchange,
trading system or market of an issuer other than itself, then the new
common stock or other equity security will be added to the underlying
basket. The multiplier for the new common stock or other equity security
will equal the product of the last value of the multiplier with respect to
the original common stock and the number of shares of the new common stock
or other equity security issued with respect to one share of the original
underlying common stock.
- If an ADR is no longer listed or admitted to trading on a United States
securities exchange registered under the Securities Exchange Act or is no
longer a security quoted on the Nasdaq Stock Market, Inc., then the
foreign share underlying the ADR will be deemed to be a new common stock
included in the underlying basket. The initial multiplier for that new
underlying common stock will equal the last value of the multiplier for
the ADR multiplied by the number of underlying foreign shares represented
by a single ADR.
- If a common stock is subject to an extraordinary dividend or an
extraordinary distribution, including upon liquidation or dissolution, of
cash, equity securities that are not traded or listed on an exchange,
trading system or market, non-equity securities or other property of any
kind which is received equally by all holders of its common stock, then
the underlying basket will include the following:
-- To the extent cash is entitled to be received, the underlying basket
will include on each day after the time that the common stock trades
ex-dividend until the date the cash consideration is entitled to be
received, the present value of the cash to be received, discounted at a
rate equal to LIBOR, with a term beginning that day and ending on the
date that the cash is entitled to be received. When the cash
consideration is received, the underlying basket will include the amount
of the cash consideration, plus accrued interest. Interest will accrue
beginning the first London business day after the day that holders
receive the cash consideration until the stated maturity date. Interest
will accrue at a rate equal to LIBOR with a term corresponding to the
interest accrual period stated in the preceding sentence.
S-25
-- To the extent that equity securities that are not traded or listed on an
exchange, trading system or market or non-equity securities or other
property (other than cash) are received, the calculation agent will
determine the fair market value of the securities or other property
received and the underlying basket will include an amount of cash equal
to the product of the multiplier and the fair market value. The
underlying basket will also include accrued interest on that amount.
Interest will accrue beginning the first London business day after the
day that an affiliate of Lehman Brothers Holdings sells the securities
or other property used to hedge Lehman Brothers Holdings' obligations
under the notes until the stated maturity date. Interest will accrue at
a rate equal to LIBOR with a term corresponding to the interest accrual
period stated in the preceding sentence.
-- If similar corporate events occur with respect to the issuer of an
equity security other than common stock that is included in the
underlying basket, adjustments similar to the above will be made for
that equity security. In addition, if any other corporate events occur
with respect to the issuer or a common stock or other equity security
included in the underlying basket, adjustments will be made to reflect
the economic substance of those events.
The payment of an ordinary cash dividend from current income or retained
earnings will not result in an adjustment to the multiplier or entitle you to
any cash payments.
No adjustments of any multiplier of an underlying common stock will be
required unless the adjustment would require a change of at least .1% in the
multiplier then in effect. The multiplier resulting from any of the adjustments
specified above will be rounded at the calculation agent's discretion.
The notes are not sponsored, endorsed, sold or promoted by the American
Stock Exchange. No inference should be drawn from the information contained in
this prospectus supplement that the American Stock Exchange makes any
representation or warranty, implied or express, to Lehman Brothers Holdings, you
or any member of the public regarding the advisability of investing in
securities generally or in the notes in particular or the ability of the
underlying basket to trace general stock market performance. The American Stock
Exchange is not responsible for, and has not participated in the determination
of the timing of, prices for, or quantities of, the notes to be issued or in the
determination or calculation of the amount you receive upon maturity, redemption
or repurchase. The American Stock Exchange has no obligation or liability in
connection with the administration, marketing or trading of the notes.
Except with respect to the responsibility of the calculation agent to make
certain calculations as described in this prospectus supplement, none of Lehman
Brothers Holdings, the calculation agent or any underwriter accepts any
responsibility for the calculation, maintenance or publication of the underlying
basket. The American Stock Exchange disclaims all responsibility for any
inaccuracies in the data on which the underlying basket is based, or any
mistakes or errors or omissions in the calculation or dissemination of the
underlying basket or for the manner in which the underlying basket is applied in
determining the amount you receive upon maturity, redemption or repurchase.
S-26
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
in the original issuance and at its initial offering price and does not deal
with special situations. For example, this summary does not address:
- 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 a mark-to-market method of accounting for their securities
holdings, financial institutions, regulated investment companies, real
estate investment trusts, tax-exempt entities or life insurance companies;
- tax consequences to persons holding notes as part of a hedging,
integrated, constructive sale or conversion transaction or a straddle;
- tax consequences to holders of notes whose "functional currency" is not
the U.S. dollar;
- alternative minimum tax consequences, if any; or
- 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 the beneficial
owner of a note that is for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust (1) that is subject to the primary 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.
S-27
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 and actual cash payments on the notes will not
be reported separately as taxable income. As discussed more fully below, the
effect of these Treasury regulations will be to:
- require you, regardless of your usual method of tax accounting, to use the
accrual method with respect to the notes;
- result in the accrual of original issue discount by you even though you
receive no cash payments until a sale, exchange or at maturity of the
notes; and
- 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. In order to
determine your income, these rules require Lehman Brothers Holdings to
determine, as of the issue date, the comparable yield for the notes. The
comparable yield of the notes will generally be the rate at which Lehman
Brothers Holdings would 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 5.60%, compounded semi-annually. Based on the comparable yield,
the projected payment schedule per $1,000 note is $1,299.97 due on the stated
maturity date.
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 PAYMENT ON A NOTE.
The amount of original issue discount on a note for each accrual period is
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 the actual payment made on the notes at maturity 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 a
projected contingent payment, will be treated as additional original issue
discount. A negative adjustment will:
- first, reduce the amount of original issue discount required to be accrued
in the current year; and
- 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
S-28
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
In the event of a sale, exchange or redemption of a note prior to maturity,
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, foreign personal holding
company or expatriate and therefore subject to special treatment under the Code.
You should consult your own tax advisors to determine the U.S. federal, state,
local or other tax consequences that may be relevant to you.
UNITED STATES FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment on a note
provided that:
- 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;
- you are not a controlled foreign corporation that is related to Lehman
Brothers Holdings through stock ownership;
- you are not a bank whose receipt of interest on a note is described in
Section 881(c)(3)(A) of the Code; and
- (1) you provide your name and address on an IRS Form W-8BEN (or successor
form) and certify, under penalty of perjury, that you are not a United
States holder or (2) you hold your notes through certain foreign
intermediaries and you satisfy the certification requirements of the
applicable Treasury regulations. Special certification rules apply to
certain non-United States holders that are pass-through entities rather
than individuals.
If you cannot satisfy the requirements described above, payments of
interest, including original issue discount, made to you will be subject to the
30% U.S. federal withholding tax, unless you provide Lehman Brothers Holdings
with a properly executed (1) IRS Form W-8BEN (or successor form) claiming an
exemption from, or reduction in, withholding under the benefit of a tax treaty
or (2) IRS Form W-8ECI (or successor form) 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 generally will be subject to U.S. federal
income tax if you are engaged in a trade or business in the United States and
such 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 U.S. 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
S-29
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 or income on the notes will be included in earnings and profits.
UNITED STATES FEDERAL ESTATE TAX
Your estate will not be subject to U.S. 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, 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 within the United States
or conducted through certain U.S.-related financial intermediaries, if the 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 U.S. 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,
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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.
It is DTC's current practice, upon receipt of any payment of 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:
- 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
- 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.
EUROCLEAR AND CLEARSTREAM
Links have been established among DTC, Clearstream Banking, societe anonyme
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.
S-31
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.
S-32
UNDERWRITING
Lehman Brothers Holdings has entered into an underwriting agreement with
Prudential Securities Incorporated and Lehman Brothers Inc. acting as
underwriters. Lehman Brothers Holdings is obligated to sell, and the
underwriters are obligated to purchase, all of the notes offered on the cover
page of this prospectus supplement. Subject to certain conditions of the
underwriting agreement, each underwriter has severally agreed to purchase the
principal amount indicated opposite its name.
UNDERWRITERS PRINCIPAL AMOUNT
------------ ----------------
Prudential Securities Incorporated.......................... $10,500,000
Lehman Brothers Inc......................................... 10,500,000
-----------
Total................................................... $21,000,000
===========
The underwriters have advised Lehman Brothers Holdings that the notes will
be offered to the public at the offering price indicated on the cover page of
this prospectus supplement. After the notes are released for sale to the public,
the underwriters may change the offering price.
Lehman Brothers Holdings estimates that it will spend approximately $80,000
in expenses for this offering. Lehman Brothers Holdings has agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in respect of these liabilities. The underwriters have agreed to
reimburse Lehman Brothers Holdings for its costs and expenses in connection with
the offering of the notes.
Lehman Brothers Inc., on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
- Stabilizing and short covering; stabilizing bids to purchase the notes are
permitted if they do not exceed a specified maximum price. After the
distribution of notes has been completed, short covering purchases in the
open market may reduce any short position. These activities may cause the
price of the notes to be higher than would otherwise exist in the open
market; and
- Penalty bids permitting the underwriters to reclaim concessions from a
syndicate member for the notes purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may be
effected on the American Stock Exchange, in the over-the-counter market or
otherwise. Also and prior to the pricing of the notes, and until such time when
a stabilizing bid may have been made. Lehman Brothers Inc., which intends to
make a market in the notes, may make bids for or purchases of notes subject to
certain restrictions, known as passive market making activities. However, Lehman
Brothers Inc. will not be obligated to engage in any of these market activities,
or to continue them once they are begun. Prudential Securities currently does
not intend to create a secondary market in the notes.
The underwriters have informed Lehman Brothers Holdings that they do not
intend to sell notes to any investor who has granted them discretionary
authority.
Lehman Brothers Holdings expects to deliver the notes against payment on or
about the date specified in the second to last paragraph of the cover page of
this prospectus supplement, which is the fifth business day following the date
of this prospectus 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 prospectus
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 prospectus
supplement, to specify an alternate settlement cycle at the time of any such
trade to prevent a failed settlement.
S-33
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.
Prudential Securities facilitates the marketing of new issues online through
its PrudentialSecurities.com division. Clients of Prudential Advisor(SM), a full
service brokerage firm program, may view offering terms, a prospectus supplement
and the accompanying prospectus online and place orders through their financial
advisors.
Prudential Securities and its affiliates, in the ordinary course of their
businesses, regularly engage in transactions with Lehman Brothers Inc. and other
affiliates of Lehman Brothers Holdings.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the notes and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995;
- the Financial Services Act 1986; and
- the Financial Services Act 1986. (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
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-34
ANNEX A
INFORMATION REGARDING THE ISSUERS OF THE COMMON STOCKS AND OTHER EQUITY
SECURITIES COMPRISING THE UNDERLYING BASKET
Each of the common stocks and other equity securities comprising the
underlying basket 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 Securities
and Exchange Commission. 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 at www.sec.gov. In addition, information regarding
each of the common stocks and other equity securities comprising the underlying
basket may be obtained from other sources including, but not limited to, press
releases, newspaper articles and other publicly disseminated documents.
The following information regarding each of the issuers of the common stocks
and other equity securities comprising the underlying basket is derived from
reports filed by these issuers with the SEC.
Neither Lehman Brothers Holdings nor Prudential Securities makes any
representation or warranty as to the accuracy or completeness of reports filed
by the issuers with the SEC, information published by them on their websites or
in any other format, information about them obtained from any other source or
the information provided below.
ABBOTT LABORATORIES
Abbott Laboratories' principal business is the discovery, development,
manufacture, and sale of a broad and diversified line of health care products
and services. Abbott has five reporting revenue segments: Pharmaceutical
Products, Diagnostic Products, Hospital Products, Ross Products, and
International. Pharmaceutical Products includes a broad line of adult and
pediatric pharmaceuticals which are sold primarily on the prescription or
recommendation of physicians. Diagnostic Products includes diagnostic systems
and tests for blood banks, hospitals, reference laboratories, alternate-care
testing sites, and consumers. Hospital Products includes drugs and drug delivery
systems, perioperative and intensive care products, cardiovascular products,
renal products, oncology products, intravenous and irrigation solutions, related
manual and electronic administration equipment, and diagnostic imaging products
for hospitals and alternate-care sites. Ross Products includes a broad line of
adult and pediatric nutritionals. These products are sold primarily on the
recommendation of physicians or other health care professionals. This segment
also includes specialty pharmaceuticals and self-care consumer products.
International includes a broad line of hospital, pharmaceutical, and adult and
pediatric nutritional products marketed and primarily manufactured outside the
United States.
AETNA INC.
Aetna Inc. and its wholly owned subsidiaries constitute the nation's largest
health benefits company, based on membership as of December 31, 2000. The
company's operations included three business segments: Health Care, Group
Insurance and Large Case Pensions. Health Care consists of health and dental
plans that include health maintenance organizations, point-of-service plans,
preferred provider organizations and indemnity benefit products. Such plans are
generally offered on both a full risk and an employer-funded basis. Under full
risk plans, the company assumes all or a majority of the health care cost,
utilization, mortality, morbidity or other risk, depending on the product. Under
employer-funded plans, the plan sponsor, and not the company, assumes all or a
majority of these risks. The Group Insurance segment includes group life
insurance products offered on a full risk basis, as well as group disability and
long-term care insurance products offered on both a full risk and
employer-funded basis. Large Case Pensions manages a variety of retirement
products (including pension and annuity products) primarily for defined benefit
and defined contribution plans. These products provide a variety of funding and
benefit payment distribution options and other services.
A-1
AMERICAN HOME PRODUCTS CORPORATION
American Home Products Corporation is currently engaged in the discovery,
development, manufacture, distribution and sale of a diversified line of
products in two primary businesses: Pharmaceuticals and Consumer Health Care.
Pharmaceuticals include branded and generic human ethical pharmaceuticals,
biologicals, nutritional, and animal biologicals and pharmaceuticals. Principal
products include women's health care products, infant nutritionals,
cardiovascular products, neuroscience therapies, gastroenterology drugs,
anti-infectives, vaccines, biopharmaceuticals, oncology therapies,
musculoskeletal therapies and transplantation products. Principal animal health
products include vaccines, pharmaceuticals, endectocides and growth implants.
Consumer Health Care products include analgesics, cough/cold/allergy remedies,
nutritional supplements, herbal products, and hemorrhoidal, antacid, asthma and
other relief items sold over-the-counter.
AMGEN INC.
Amgen Inc. is a global biotechnology company that discovers, develops,
manufactures and markets human therapeutics based on advances in cellular and
molecular biology. The company manufactures and markets four human therapeutic
products, EPOGEN-Registered Trademark- (Epoetin alfa),
NEUPOGEN-Registered Trademark- (Filgrastim), INFERGEN-Registered Trademark-
(Interferon alfacon-1) and STEMGEN-Registered Trademark- (Ancestim).
EPOGEN-Registered Trademark- stimulates the production of red blood cells and is
marketed by the company in the United States for the treatment of anemia
associated with chronic renal failure in patients on dialysis.
NEUPOGEN-Registered Trademark- selectively stimulates the production of
neutrophils, one type of white blood cell. The company markets
NEUPOGEN-Registered Trademark- in the United States, countries of the European
Union ("EU"), Canada and Australia for use in decreasing the incidence of
infection in patients undergoing myelosuppressive chemotherapy. In addition,
NEUPOGEN-Registered Trademark- is marketed in most of these countries for use in
reducing the duration of neutropenia for patients undergoing myeloablative
therapy followed by bone marrow transplantation, for reducing symptoms in
patients with severe chronic neutropenia, for supporting peripheral blood
progenitor cell transplants and for reducing the recovery time of neutrophils
and the duration of fever following chemotherapy treatment in patients being
treated for acute myelogenous leukemia. NEUPOGEN-Registered Trademark- is also
marketed in the EU, Canada and Australia for use in treating neutropenia in
patients infected with the human immunodeficiency virus receiving antiviral
and/or other myelosuppressive medications. INFERGEN-Registered Trademark- is a
non-naturally occurring type-1 interferon which stimulates the immune system to
fight viral infections and is indicated for the treatment of chronic hepatitis C
viral infection. The company sells INFERGEN-Registered Trademark- in the United
States and Canada. STEMGEN-Registered Trademark- stimulates the production,
mobilization and maturation of progenitor cells and is indicated for use in
support of stem cell transplantation. The company markets
STEMGEN-Registered Trademark- in Canada and Australia.
BAXTER INTERNATIONAL INC.
Baxter International Inc. engages in the worldwide development, manufacture
and distribution of a diversified line of products, systems and services used
primarily in the health care field. The company manufactures products in 27
countries and sells them in over 100 countries. Baxter International Inc.'s
products are used by hospitals, clinical and medical research laboratories,
blood and blood dialysis centers, rehabilitation centers, nursing homes,
doctors' offices and by patients, at home, under physician supervision.
BRISTOL-MYERS SQUIBB COMPANY
Bristol-Myers Squibb Company is a major producer and distributor in one
significant business segment--medicines. The company's products are principally
sold to the wholesale and retail trade both nationally and internationally.
Certain products are also sold to other drug manufacturers, hospitals and the
medical profession. Pharmaceutical research and development is carried out by
the Bristol-Myers
A-2
Squibb Pharmaceutical Research Institute, which has major facilities in
Princeton, Hopewell and New Brunswick, New Jersey and Wallingford, Connecticut.
CARDINAL HEALTH, INC.
Cardinal Health, Inc. is a leading health-care service provider which offers
a broad array of complementary products and health-care services to health-care
providers and manufacturers to help them improve the efficiency and quality of
health-care. These services and products include pharmaceutical distribution,
pharmaceutical services, and medical-surgical products.
ELI LILLY AND COMPANY
Eli Lilly and Company discovers, develops, manufactures, and sells products
in one significant business segment--pharmaceutical products. The company
manufactures and distributes its products through owned or leased facilities in
the United States, Puerto Rico, and 30 other countries. Its products are sold in
approximately 160 countries. Eli Lilly and Company directs its research efforts
primarily toward the search for products to diagnose, prevent and treat human
diseases. The company also conducts research to find products to treat diseases
in animals and to increase the efficiency of animal food production.
FOREST LABORATORIES, INC.
Forest Laboratories, Inc. and its subsidiaries develops, manufactures and
sells both branded and generic forms of ethical drug products which require a
physician's prescription, as well as non-prescription pharmaceutical products
sold over-the-counter. The company's most important United States products
consist of branded ethical drug specialties marketed directly, or "detailed," to
physicians by the company's Forest Pharmaceuticals, Forest Therapeutics and
Forest Specialty Sales salesforces. Forest Laboratories, Inc. emphasizes
detailing to physicians of those branded ethical drugs it believes have the most
potential for growth, and the development and introduction of new products,
including products developed in collaboration with licensing partners.
GENENTECH, INC.
Genentech is a leading biotechnology company using human genetic information
to discover, develop, manufacture and market human pharmaceuticals that address
significant unmet medical needs. Fourteen of the approved products of
biotechnology stem from Genentech, Inc.'s science. The company manufactures and
markets nine protein-based pharmaceuticals and license several additional
products to other companies.
GENZYME CORPORATION -- GENERAL DIVISION
Genzyme Corporation is a biotechnology and human healthcare company that
develops innovative products and provides services for major unmet medical
needs. The company currently has three operating divisions: Genzyme General,
Genzyme Biosurgery and Genzyme Molecular Oncology.
Genzyme General develops and markets therapeutic products and diagnostic
products and services with an emphasis on genetic disorders and other chronic
debilitating diseases with well-defined patient populations.
GILEAD SCIENCES, INC.
Gilead Sciences, Inc. is an independent bio-pharmaceutical company dedicated
to discovering, developing, manufacturing and commercializing proprietary
therapeutics for antiviral, anti-infective and oncology applications. The
company currently derives revenue from four approved products and has five
A-3
products in development. Gilead Sciences, Inc. is adding to its existing
portfolio of compounds through internal discovery and an active product
acquisition and in-licensing strategy. The company's internal discovery
activities include identification of new molecular targets, target screening and
medicinal chemistry. Gilead Sciences, Inc. also has expertise in liposomal drug
delivery technology that it uses to develop drugs that are safer, easier for
patients to tolerate and more effective.
IMS HEALTH INCORPORATED
IMS Health Incorporated is the world's leading provider of information
solutions to the pharmaceutical and healthcare industries. The company operates
in approximately 100 countries and its key products include: Sales management
information to optimize sales force productivity; Market research for
prescription and over-the-counter pharmaceutical products; and Information
Technology application development, integration and management services.
JOHNSON & JOHNSON
Johnson & Johnson, employing approximately 98,500 people worldwide, is
engaged in the manufacture and sale of a broad range of products in the health
care field. It conducts business in virtually all countries of the world.
Johnson & Johnson's primary interest, both historically and currently, has been
in products related to human health and well-being.
MEDIMMUNE, INC.
MedImmune, Inc. is a biotechnology company with five products on the market
and a diverse product portfolio. The company is focused on using advances in
immunology and other biological sciences to develop important new products that
address significantly unmet medical needs in areas of infectious disease and
immune regulation. MedImmune, Inc. also focuses on oncology through its
wholly-owned subsidiary, MedImmune Oncology, Inc.
MEDTRONIC, INC.
Medtronic, Inc. is the world's leading medical technology company, providing
lifelong solutions for people with chronic disease. The company is committed to
offering market-leading therapies to restore patients worldwide to fuller,
healthier lives. The company's primary products are used for bradycardia pacing,
tachyarrhythmia management, atrial fibrillation, heart failure, coronary and
peripheral vascular disease, minimally invasive cardiac surgery, heart valve
replacement, extracorporeal cardiac support, spinal and neurosurgery, malignant
and non-malignant pain, movement disorders, neurodegenerative disorders, and
ear, nose and throat (ENT) surgery. Medtronic, Inc.'s businesses operate in four
units: Cardiac Rhythm Management; Vascular; Cardiac Surgery; and Neurological,
Spinal and ENT.
MERCK & CO., INC.
Merck & Co., Inc. is a global research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range of human and animal
health products, directly and through its joint ventures, and provides
pharmaceutical benefit services through Merck-Medco Managed Care, L.L.C.
("Merck-Medco"). The company's operations are principally managed on a products
and services basis and are comprised of two reportable segments: Merck
Pharmaceutical, which includes products marketed either directly or through
joint ventures, and Merck-Medco. Merck Pharmaceutical products consist of
therapeutic agents, sold by prescription, for the treatment of human disorders.
Merck-Medco revenues are derived from the filling and management of
prescriptions and health management programs.
A-4
PFIZER INC.
Pfizer Inc. is a research-based, global pharmaceutical company. Pfizer Inc.
discovers, develops, manufactures and markets innovative medicines for humans
and animals and many of the world's best-known consumer products.
The company operates in two business segments: Pharmaceuticals and Consumer
Products. Pharmaceuticals includes prescription pharmaceuticals for treating
cardiovascular diseases, infectious diseases, central nervous system disorders,
diabetes, erectile dysfunction, allergies, arthritis and other disorders;
products for food animals and companion animals, including parasiticides,
antibiotics, vaccines and other veterinary items; and the manufacture of empty
hard-gelatin capsules. Consumer Products includes self-medications, shaving
products and fish food and fish care products, as well as confectionery products
consisting of chewing gums, breath mints and cough tablets.
SERONO S.A.
Serono S.A., a Swiss corporation, is the third largest biotechnology company
in the world based on 2000 sales of USD 1,147 billion. The company uses human
genetic information to discover and manufacture therapeutic products for the
treatment of human diseases. Serono S.A. currently focuses on the niche markets
of reproductive health, multiple sclerosis and growth and metabolism, where it
has established strong positions. The company has a global presence with
operations in 45 countries, production facilities in eight countries and sales
in over 100 countries.
WELLPOINT HEALTH NETWORKS INC.
WellPoint Health Networks Inc. is one of the nation's largest publicly
traded managed health care companies. The company offers a broad spectrum of
quality network-based managed care plans. WellPoint Health Networks Inc.
provides these plans to the large and small employer, individual, Medicaid and
senior markets. The company's managed care plans include preferred provider
organizations, health maintenance organizations and point-of-service and other
hybrid plans and traditional indemnity plans. In addition, the company offers
managed care services, including underwriting, actuarial services, network
access, medical cost management and claims processing. WellPoint Health
Networks Inc. also provides a broad array of specialty and other products,
including pharmacy, dental, utilization management, life insurance, preventive
care, disability insurance, behavioral health, COBRA and flexible benefits
account administration.
HISTORICAL INFORMATION ABOUT THE MARKET PRICE OF THE COMMON STOCKS AND OTHER
EQUITY SECURITIES INCLUDED IN THE UNDERLYING BASKET
The following tables present the high and low closing prices for the common
stocks and other equity securities included in the underlying basket as reported
on the United States national stock exchange on which each common stock or other
equity security is listed during each quarter in 1999, 2000 and 2001 (through
September 25, 2001) and the closing price at the end of each quarter in 1999,
2000 and 2001 (through September 25, 2001). A table has also been presented
showing similar information for informational purposes for Serono S.A., as
reported on the Swiss Stock Exchange. All values in the table are presented in
U.S. dollars. These prices are not indications of future performance. Neither
Lehman Brothers Holdings nor Prudential Securities can assure you that the
prices of these common stocks or other equity securities will increase enough so
that the alternative redemption amount of the notes will be greater than $1,000
per $1,000 note. The historical prices below have been adjusted to reflect, in
each case, any stock split or reverse stock split. All information in these
tables was obtained from FactSet Research Systems Inc. and Bloomberg L.P.
A-5
ABBOTT LABORATORIES
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $50.81 $43.44 $46.81
Second Quarter............ 52.94 43.19 45.38
Third Quarter............. 45.63 36.69 36.69
Fourth Quarter............ 41.44 33.31 36.31
2000
First Quarter............. $36.06 $29.63 $35.19
Second Quarter............ 44.56 36.63 44.56
Third Quarter............. 48.50 39.56 47.56
Fourth Quarter............ 55.75 46.81 48.44
2001
First Quarter............. $50.00 $42.06 $47.19
Second Quarter............ 53.80 44.43 48.00
Third Quarter............. 53.59 47.05 48.45
AETNA INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $44.48 $36.56 $40.97
Second Quarter............ 48.99 37.45 44.15
Third Quarter............. 44.05 24.31 24.31
Fourth Quarter............ 29.92 23.94 27.55
2000
First Quarter............. $28.57 $19.10 $27.39
Second Quarter............ 36.31 25.79 31.68
Third Quarter............. 35.11 26.44 28.66
Fourth Quarter............ 41.13 27.46 41.06
2001
First Quarter............. $41.50 $33.81 $35.92
Second Quarter............ 36.55 23.23 25.89
Third Quarter............. 30.05 24.68 27.20
AMERICAN HOME PRODUCTS CORPORATION
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $68.00 $52.06 $65.25
Second Quarter............ 69.75 51.25 57.38
Third Quarter............. 58.44 39.56 41.50
Fourth Quarter............ 56.00 38.00 39.25
2000
First Quarter............. $55.50 $39.88 $53.75
Second Quarter............ 61.56 51.75 58.75
Third Quarter............. 60.00 51.00 56.56
Fourth Quarter............ 64.50 54.20 63.55
2001
First Quarter............. $62.40 $53.10 $58.75
Second Quarter............ 63.65 54.35 58.75
Third Quarter............. 61.91 53.98 56.03
AMGEN INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $39.53 $26.25 $37.44
Second Quarter............ 40.00 26.16 30.44
Third Quarter............. 43.78 29.50 40.75
Fourth Quarter............ 64.88 37.84 60.06
2000
First Quarter............. $74.69 $52.25 $61.38
Second Quarter............ 70.38 51.31 70.25
Third Quarter............. 78.00 64.94 69.83
Fourth Quarter............ 71.38 54.13 63.94
2001
First Quarter............. $74.19 $54.94 $60.19
Second Quarter............ 70.02 51.51 60.68
Third Quarter............. 65.66 54.01 56.50
BAXTER INTERNATIONAL INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $37.97 $31.28 $33.00
Second Quarter............ 34.31 30.19 30.31
Third Quarter............. 35.38 29.34 30.13
Fourth Quarter............ 34.38 29.66 31.41
2000
First Quarter............. $33.78 $25.91 $31.34
Second Quarter............ 35.94 28.22 35.16
Third Quarter............. 42.38 34.75 39.91
Fourth Quarter............ 44.44 37.88 44.16
2001
First Quarter............. $47.60 $40.75 $47.07
Second Quarter............ 54.00 43.95 50.50
Third Quarter............. 53.41 47.50 51.41
BRISTOL-MYERS SQUIBB COMPANY
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $66.19 $58.50 $64.13
Second Quarter............ 70.44 57.44 70.44
Third Quarter............. 75.94 64.63 67.50
Fourth Quarter............ 77.94 60.00 64.19
2000
First Quarter............. $68.50 $43.00 $58.00
Second Quarter............ 66.50 49.50 58.25
Third Quarter............. 58.88 47.75 57.13
Fourth Quarter............ 73.94 55.50 73.94
2001
First Quarter............. $71.50 $54.75 $59.40
Second Quarter............ 59.85 52.10 52.30
Third Quarter............. 59.73 49.72 52.12
A-6
CARDINAL HEALTH, INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $53.67 $44.00 $44.00
Second Quarter............ 47.92 37.92 42.75
Third Quarter............. 46.63 34.67 36.33
Fourth Quarter............ 37.58 25.00 31.92
2000
First Quarter............. $39.58 $24.79 $30.58
Second Quarter............ 49.33 30.58 49.33
Third Quarter............. 63.38 45.29 58.79
Fourth Quarter............ 69.25 59.04 66.42
2001
First Quarter............. $68.35 $58.67 $64.50
Second Quarter............ 77.00 61.78 69.00
Third Quarter............. 75.30 67.28 69.70
ELI LILLY AND COMPANY
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $97.44 $76.19 $84.88
Second Quarter............ 90.25 65.19 71.63
Third Quarter............. 77.19 61.50 64.19
Fourth Quarter............ 77.38 64.13 66.50
2000
First Quarter............. $71.06 $54.50 $62.63
Second Quarter............ 102.50 64.31 99.88
Third Quarter............. 108.56 67.19 81.13
Fourth Quarter............ 94.50 80.88 93.06
2001
First Quarter............. $91.50 $72.59 $76.66
Second Quarter............ 88.10 73.68 74.00
Third Quarter............. 83.67 73.91 77.20
FOREST LABORATORIES, INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $28.59 $21.50 $28.19
Second Quarter............ 28.63 21.06 23.13
Third Quarter............. 26.44 21.06 21.06
Fourth Quarter............ 30.72 21.06 30.72
2000
First Quarter............. $42.25 $28.75 $42.25
Second Quarter............ 51.38 37.81 50.50
Third Quarter............. 59.72 43.75 57.34
Fourth Quarter............ 69.50 53.94 66.44
2001
First Quarter............. $70.95 $48.63 $59.24
Second Quarter............ 76.09 53.86 71.00
Third Quarter............. 81.30 64.31 68.89
GENENTECH, INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............ -- -- --
Second Quarter........... -- -- --
Third Quarter............ $43.75 $31.75 $36.58
Fourth Quarter........... 69.63 34.30 67.25
2000
First Quarter............ $117.25 $61.25 $76.00
Second Quarter........... 86.00 46.13 86.00
Third Quarter............ 95.66 73.44 92.84
Fourth Quarter........... 90.75 65.25 81.50
2001
First Quarter............ $80.00 $43.75 $50.50
Second Quarter........... 57.00 41.25 55.10
Third Quarter............ 57.50 38.65 40.45
GENZYME CORPORATION -- GENERAL DIVISION
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $27.56 $22.00 $25.22
Second Quarter............ 26.00 18.66 24.25
Third Quarter............. 31.03 22.53 22.53
Fourth Quarter............ 23.78 16.47 22.50
2000
First Quarter............. $30.69 $20.44 $25.06
Second Quarter............ 30.19 20.38 29.72
Third Quarter............. 37.53 28.84 34.09
Fourth Quarter............ 51.50 31.44 44.97
2001
First Quarter............. $46.56 $37.97 $45.17
Second Quarter............ 61.00 43.24 61.00
Third Quarter............. 59.25 40.74 44.41
GILEAD SCIENCES, INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $28.38 $17.88 $22.75
Second Quarter............ 26.13 18.03 26.13
Third Quarter............. 46.19 26.06 32.09
Fourth Quarter............ 36.89 18.63 27.06
2000
First Quarter............. $41.19 $22.50 $31.69
Second Quarter............ 37.47 21.72 35.56
Third Quarter............. 58.09 33.66 54.84
Fourth Quarter............ 52.06 32.31 41.47
2001
First Quarter............. $38.59 $27.03 $32.50
Second Quarter............ 61.13 29.19 58.19
Third Quarter............. 61.76 47.66 52.38
A-7
IMS HEALTH INCORPORATED
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $38.50 $32.75 $33.13
Second Quarter............ 33.13 23.50 31.25
Third Quarter............. 32.88 21.88 22.81
Fourth Quarter............ 29.75 22.00 27.19
2000
First Quarter............. $26.50 $16.38 $16.94
Second Quarter............ 18.00 14.69 18.00
Third Quarter............. 20.75 16.00 20.75
Fourth Quarter............ 28.56 19.94 27.00
2001
First Quarter............. $27.33 $22.50 $24.90
Second Quarter............ 30.20 24.30 28.50
Third Quarter............. 28.50 23.60 25.50
JOHNSON & JOHNSON
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $46.97 $39.03 $46.75
Second Quarter............ 51.25 43.91 49.00
Third Quarter............. 52.88 45.00 45.94
Fourth Quarter............ 53.06 45.31 46.63
2000
First Quarter............. $48.25 $33.69 $35.13
Second Quarter............ 50.94 36.13 50.94
Third Quarter............. 50.53 45.13 46.97
Fourth Quarter............ 52.53 44.94 52.53
2001
First Quarter............. $51.00 $41.63 $43.74
Second Quarter............ 53.61 43.06 50.00
Third Quarter............. 57.00 50.41 52.94
MEDIMMUNE, INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $21.19 $15.29 $19.73
Second Quarter............ 24.04 15.25 22.58
Third Quarter............. 40.02 24.33 33.22
Fourth Quarter............ 56.81 31.67 55.29
2000
First Quarter............. $74.02 $43.15 $58.04
Second Quarter............ 77.31 42.96 74.00
Third Quarter............. 84.13 59.50 77.25
Fourth Quarter............ 71.13 47.56 47.69
2001
First Quarter............. $52.36 $28.31 $35.88
Second Quarter............ 47.48 29.81 47.20
Third Quarter............. 46.57 32.01 33.04
MEDTRONIC, INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $44.06 $33.09 $35.94
Second Quarter............ 38.94 31.31 38.94
Third Quarter............. 40.72 32.47 35.56
Fourth Quarter............ 39.94 32.25 36.44
2000
First Quarter............. $57.00 $34.50 $51.44
Second Quarter............ 57.69 47.00 49.81
Third Quarter............. 56.25 47.50 51.81
Fourth Quarter............ 61.00 48.00 60.38
2001
First Quarter............. $59.50 $43.22 $45.74
Second Quarter............ 48.50 40.71 46.01
Third Quarter............. 48.59 38.99 41.17
MERCK & CO., INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $86.38 $68.75 $80.13
Second Quarter............ 85.00 66.00 73.63
Third Quarter............. 75.31 60.94 64.81
Fourth Quarter............ 80.38 66.06 67.19
2000
First Quarter............. $78.81 $53.94 $62.13
Second Quarter............ 76.63 63.56 76.63
Third Quarter............. 77.19 63.63 74.44
Fourth Quarter............ 94.88 73.56 93.63
2001
First Quarter............. $93.00 $67.96 $75.90
Second Quarter............ 80.85 63.91 63.91
Third Quarter............. 71.22 61.00 62.45
PFIZER INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. $47.69 $37.83 $46.25
Second Quarter............ 50.04 31.71 36.33
Third Quarter............. 40.38 32.75 35.88
Fourth Quarter............ 41.75 32.44 32.44
2000
First Quarter............. $37.81 $30.50 $36.56
Second Quarter............ 48.00 37.94 48.00
Third Quarter............. 48.94 39.63 44.94
Fourth Quarter............ 47.44 42.19 46.00
2001
First Quarter............. $46.13 $35.67 $40.95
Second Quarter............ 44.87 38.95 40.05
Third Quarter............. 41.75 35.80 36.98
A-8
SERONO S.A.
AMERICAN DEPOSITORY RECEIPTS
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............. -- -- --
Second Quarter............ -- -- --
Third Quarter............. -- -- --
Fourth Quarter............ -- -- --
2000
First Quarter............. -- -- --
Second Quarter............ -- -- --
Third Quarter............. $31.31 $26.50 $30.25
Fourth Quarter............ 29.63 21.38 23.94
2001
First Quarter............. $23.56 $17.25 $20.20
Second Quarter............ 25.25 19.43 24.95
Third Quarter............. 25.24 18.22 19.40
SERONO S.A.
COMMON STOCK*
HIGH LOW CLOSING
PRICE PRICE PRICE
--------- --------- ---------
1999
First Quarter...... $ 445.35 $ 358.85 371.07
Second Quarter..... 381.88 320.68 320.68
Third Quarter...... 396.34 316.94 394.86
Fourth Quarter..... 531.50 388.10 530.90
2000
First Quarter...... $1,037.25 $ 536.24 $ 940.22
Second Quarter..... 1,000.72 762.96 832.96
Third Quarter...... 1,255.67 849.10 1,223.40
Fourth Quarter..... 1,187.83 866.28 966.00
2001
First Quarter...... $ 933.10 $ 686.76 $ 806.73
Second Quarter..... 1,002.17 779.86 992.04
Third Quarter...... 1,003.34 752.59 767.68
------------------------------
* The stock prices in the table above are for informational purposes only and
have been translated into U.S. dollars from the Swiss Franc, based on the
currency exchange rate in effect on the date each of those prices was
reported. The underlying basket will include Serono S.A.'s American
Depository Receipts.
WELLPOINT HEALTH NETWORKS INC.
HIGH LOW CLOSING
PRICE PRICE PRICE
-------- -------- --------
1999
First Quarter............ $ 85.56 $70.13 $75.81
Second Quarter........... 96.06 69.00 84.88
Third Quarter............ 86.19 57.00 57.00
Fourth Quarter........... 67.13 50.44 65.94
2000
First Quarter............ $ 76.88 $57.00 $69.88
Second Quarter........... 79.13 68.50 72.44
Third Quarter............ 96.00 72.56 96.00
Fourth Quarter........... 121.50 93.50 115.25
2001
First Quarter............ $107.13 $87.20 $95.31
Second Quarter........... 99.79 81.70 94.24
Third Quarter............ 109.66 93.20 101.95
A-9
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
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:
- this prospectus, which explains the general terms of the securities that
Lehman Brothers Holdings may offer;
- 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
- 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:
- debt securities,
- warrants,
- purchase contracts, and
- 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 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.
2
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:
- securities of one or more issuers, including Lehman Brothers Holdings,
- one or more currencies,
- one or more commodities,
- any other financial, economic or other measure or instrument, including
the occurrence or non-occurrence of any event or circumstance, and/or
- 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:
- warrants to purchase Lehman Brothers Holdings' debt securities, and
- 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:
- securities of one or more issuers, including Lehman Brothers Holdings,
- one or more currencies,
- one or more commodities,
- any other financial, economic or other measure or instrument, including
the occurrence or non-occurrence of any event or circumstance, and
- one or more indices or baskets of the items described above.
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
3
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:
- securities of one or more issuers, including Lehman Brothers Holdings,
- one or more currencies,
- one or more commodities,
- any other financial, economic or other measure or instrument, including
the occurrence or non-occurrence of any event or circumstance, and
- 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.
LISTING
If any securities are to be listed or quoted on a securities exchange or
quotation system, the applicable prospectus supplement will so state.
4
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:
- to or through underwriters or dealers;
- by itself directly;
- through agents; or
- 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:
- Annual Report on Form 10-K for the year ended November 30, 2000, filed
with the SEC on February 28, 2001;
- 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;
- Quarterly Report on Form 10-Q for the quarter ended February 28, 2001,
filed with the SEC on April 16, 2001; and
- 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:
- fund the business of its operating units;
- fund investments in, or extensions of credit or capital contributions to,
its subsidiaries; and
- 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.
8
TYPES OF DEBT SECURITIES
Lehman Brothers Holdings may issue fixed rate debt securities, floating rate
debt securities or indexed debt securities.
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:
- securities of one or more issuers, including Lehman Brothers Holdings,
- one or more currencies,
- one or more commodities,
- 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
- 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.
9
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.
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:
- the title;
- whether senior or subordinated debt;
- the total principal amount offered;
- the percentage of the principal amount at which the securities will be
sold and, if applicable, the method of determining the price;
- the maturity date or dates;
- whether the debt securities are fixed rate debt securities, floating rate
debt securities or indexed debt securities;
- 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;
- if the debt security is an original issue discount debt security, the
yield to maturity;
- 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;
- 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;
- 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;
- 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;
- 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;
- any provisions for the payment of additional amounts for taxes;
10
- the denominations in which the securities will be issuable if other than
denominations of $1,000 and integral multiples thereof;
- the terms and conditions on which the securities may be redeemed at the
option of Lehman Brothers Holdings;
- 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;
- any provisions for the discharge of Lehman Brothers Holdings' obligations
relating to the securities by deposit of funds or United States government
obligations;
- the names and duties of any co-trustees, depositaries, authenticating
agents, calculation agents, paying agents, transfer agents or registrars
for the debt securities;
- any material provisions of the applicable indenture described in this
prospectus that do not apply to the securities; and
- 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,
11
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.
"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.
12
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:
- 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
- immediately after the transaction, there would not be any default in the
performance of any covenant or condition of the indenture.
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 66 2/3% 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:
- extend the fixed maturity of any such securities,
- reduce the rate or change the time of payment of interest on such
securities,
- reduce the principal amount of such securities or the premium, if any, on
such securities,
- change any obligation of Lehman Brothers Holdings to pay additional
amounts,
- reduce the amount of the principal payable on acceleration of any
securities issued originally at a discount,
- adversely affect the right of repayment or repurchase at the option of the
holder,
- reduce or postpone any sinking fund or similar provision,
- change the currency or currency unit in which any such securities are
payable or the right of selection thereof,
- impair the right to sue for the enforcement of any such payment on or
after the maturity of such securities,
- 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,
- 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:
- failure to pay required interest on any debt security of such series for
30 days;
- failure to pay principal or premium, if any, on any debt security of such
series when due;
- failure to make any required scheduled installment payment for 30 days on
debt securities of such series;
13
- 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
- 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.
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:
- 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
- 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.
14
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:
- 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 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;
- any estate, inheritance, gift, sales, transfer, excise, personal property
or similar tax, assessment or other governmental charge;
- 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;
- 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;
- 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;
- 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;
- 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
- 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
15
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):
- 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
- 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.
16
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:
- securities of one or more issuers, including Lehman Brothers Holdings,
- one or more currencies,
17
- one or more commodities,
- 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
- 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:
- the warrant property,
- the cash value (as defined in the prospectus supplement) of the warrant
property, or
- 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:
- the specific designation and aggregate number of, and the price at which
Lehman Brothers Holdings will issue, the warrants,
- 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,
- 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,
- 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,
- 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,
- the identities of the warrant agent, any depositaries and any paying,
transfer, calculation or other agents for the warrants,
- any securities exchange or quotation system on which the warrants or any
securities deliverable upon exercise of the warrants may be listed,
- 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
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- 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.
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:
- the designation, aggregate principal amount, currency and terms of the
debt securities that may be purchased upon exercise of the debt warrants,
- 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
- 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:
- 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),
- 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,
- 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,
- 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,
- 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,
- the minimum number, if any, of universal warrants that must be exercised
at any one time, other than upon automatic exercise,
- 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,
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- any provisions for the automatic exercise of the warrants at expiration or
otherwise,
- 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
- 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.
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:
- reduce the amount receivable upon exercise, cancellation or expiration,
- shorten the period of time during which the warrants may be exercised,
- otherwise materially and adversely affect the exercise rights of the
beneficial owners of the warrants, or
- 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
20
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.
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:
- securities of one or more issuers, including Lehman Brothers Holdings'
securities described in this prospectus and securities of third parties,
- one or more currencies,
- one or more commodities,
- 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
- one or more indices or baskets of the items described above.
22
Each instrument, measure or event described above is referred to as a
"purchase contract property". Each purchase contract will obligate:
- 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
- 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
23
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:
- 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,
- all additions to and substitutions for the pledged items,
- all income, proceeds and collections received in respect of the pledged
items, and
- 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.
24
INFORMATION IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement may contain, where applicable, the following
information about your purchase contract:
- 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,
- whether the purchase contract is to be prepaid or not and the governing
document for the contract,
- 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,
- any acceleration, cancellation, termination or other provisions relating
to the settlement of the purchase contract,
- 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,
- 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,
- 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,
- 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,
- the identities of any depositaries and any paying, transfer, calculation
or other agents for the purchase contracts,
- 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
- 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.
25
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 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.
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INFORMATION IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement may contain, where applicable, the following
information about your unit:
- 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;
- any provisions of the governing unit agreement that differ from those
described below;
- 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,
- the identities of the unit agent, any depositaries and any paying,
transfer, calculation or other agents for the units,
- any securities exchange or quotation system on which the units and the
securities separable therefrom may be listed, and
- 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.
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.
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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:
- to cure any ambiguity,
- to correct or supplement any defective or inconsistent provision, or
- 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:
- 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,
- 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
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- 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:
- 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.
- 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.
OBLIGATIONS OF UNIT HOLDER
Each holder of units issued under a non-prepaid unit agreement will:
- 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
- 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
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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 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:
- 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.
- 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.
- 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.
- 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
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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.
- 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."
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:
- 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
- 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
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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.
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.
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PLAN OF DISTRIBUTION
Lehman Brothers Holdings may offer the offered securities in one or more of
the following ways from time to time:
- to or through underwriters or dealers;
- by itself directly;
- through agents; or
- 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:
- the name or names of any underwriters, dealers or agents;
- the purchase price of the offered securities and the proceeds to Lehman
Brothers Holdings from such sale;
- any underwriting discounts and commissions or agency fees and other items
constituting underwriters' or agents' compensation;
- the initial public offering price;
- any discounts or concessions to be allowed or reallowed or paid to
dealers; and
- 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:
- 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.
- 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.
- 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.
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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.
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:
- 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
34
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;
- 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
- 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
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.
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